Commercial due diligence is considerably more involved than a typical residential purchase, and it generally covers five main areas. First is financial review — examining historical income and expense statements, rent rolls, and tax returns to verify the NOI the seller is presenting actually holds up to scrutiny.
Second is lease audit — reviewing every lease for expiration dates, renewal options, rent escalation clauses, and any tenant concessions or unusual terms that could affect future income. A property that looks strong on paper can have significant lease rollover risk if several major tenants’ leases expire within the same year or two.
Third is physical inspection — not just a general condition assessment, but often specialized inspections for roofing, HVAC systems, structural elements, and life-safety systems given the scale and cost of commercial building components. Fourth is zoning and permitting verification, confirming the current use is legally permitted and that any planned changes in use are feasible under current zoning.
Fifth is environmental review, particularly a Phase I Environmental Site Assessment, which checks for potential contamination issues — this is standard practice for commercial deals and often required by lenders. Title review and survey are also essential to confirm there are no easements, encroachments, or title issues that could affect use or future development. Given the complexity, most commercial buyers build a 30-60 day due diligence period into their contract, and working with an agent experienced in commercial transactions rather than residential-only experience matters significantly here.