Commercial Property Seller's Due Diligence Checklist

Over the last decade of dealing with commercial real estate properties, we've often seen sellers focus heavily on finding the right buyer and securing a good price without adequately preparing for the due diligence process that follows.

For example, we've seen issues involving missing lease agreements, discrepancies in financial records, unresolved liens, and unexpected maintenance costs lead to price renegotiations, closing delays, and, in some cases, buyers walking away from the deal.

While buyers typically conduct their own due diligence before closing, sellers can get ahead of potential problems by reviewing the property's financial, legal, and physical records before listing it.

In this article, we'll share a commercial property seller's due diligence checklist, including the documents you should prepare, potential issues to look for, and steps you can take to avoid surprises during the sale.

Commercial Property Seller's Due Diligence Checklist

The documents and records you'll need to prepare can vary depending on the type of commercial property you're selling, whether it has existing tenants, and how the property is owned.

However, we recommend reviewing several areas before listing your property for sale.

1. Verify Property Ownership, Title, and Legal Records

Before listing your commercial property, confirm you have the legal authority to sell it and identify any title issues that could complicate the transaction.

Start by reviewing the property's deed, legal description, existing surveys, and any recorded documents that could affect ownership or how the property can be used.

Some of the key things to check include:

• Property ownership: Confirm that the deed accurately identifies the current owner and that the person or entity selling the property has the authority to do so.
• Outstanding liens: Check for mortgages, tax liens, judgments, or other claims against the property that may need to be resolved before closing.
• Easements and rights-of-way: Review any agreements that give neighboring property owners, utility companies, or other parties rights to access or use portions of the property.
• Property boundaries: Review existing surveys for discrepancies, encroachments, or boundary disputes that could raise concerns during the buyer's due diligence.
• Ownership agreements: If an LLC, partnership, corporation, or trust owns the property, confirm whether additional approvals or authorizations are needed to complete the sale.

For example, an old mortgage that has been paid off but was never formally released can still create problems when the buyer's attorney reviews the title.

If you identify any issues, we recommend discussing them with your real estate attorney before listing rather than waiting until the property is under contract.

2. Review Financial Records and Operating Expenses

Commercial real estate buyers will want to understand how much income your property generates, what it costs to operate, and whether its financial performance supports the asking price.

Before listing, we recommend gathering at least two to three years of financial records, where available, along with the current year's financial statements.

Some of the key documents and expenses to review include:

• Income statements: Gather historical profit and loss statements showing rental income, additional tenant charges, and other revenue generated by the property.
• Operating expenses: Review recurring expenses such as utilities, property management fees, landscaping, cleaning, repairs, and general maintenance.
• Property taxes: Gather recent property tax bills and check for outstanding balances or special assessments that could affect the property's operating costs.
• Insurance costs: Review current insurance premiums and any significant changes in coverage or costs over the past few years.
• Capital expenditures: Document major improvements or replacements, such as roofing, HVAC systems, parking lot resurfacing, or structural repairs, including when the work was completed and how much it cost.
• Net operating income (NOI): Review the property's income after operating expenses and make sure your calculations accurately reflect its financial performance.

Also make sure the numbers in your financial statements match supporting documents, including leases, invoices, utility bills, and tax records.

For example, if a property's operating expenses appear unusually low because you excluded certain maintenance costs, buyers may discover the discrepancy during due diligence and adjust their valuation accordingly.

If you're selling a vacant or owner-occupied commercial property, rental income records may not apply. However, buyers may still want to review utility costs, property taxes, insurance, and maintenance expenses to estimate the cost of owning and operating the property.

3. Review Existing Leases and Tenant Agreements

If you're selling a commercial property with existing tenants, buyers will want to review the lease agreements to understand the property's current rental income, future income potential, and any obligations they'll inherit after the purchase.

Before listing, we recommend reviewing all active leases and ensuring the terms match your rent roll and financial records.

Some of the key things to review include:

• Lease agreements and amendments: Gather signed copies of all current leases, including any amendments, extensions, or modifications made since the original agreements.
• Rent roll: Prepare an updated rent roll showing each tenant, occupied space, monthly rent, lease expiration date, and any scheduled rent increases.
• Lease expiration and renewal options: Check when existing leases expire and whether tenants can renew, terminate early, or purchase the property.
• Outstanding rent and tenant defaults: Review payment histories, overdue rent, unresolved disputes, and any ongoing lease violations.
• Security deposits and prepaid rent: Confirm how much each tenant has paid and document any deposits or prepaid rent to be accounted for at closing.
• Common area maintenance (CAM) charges: Review tenant responsibilities for property taxes, insurance, maintenance, and other operating expenses, along with any outstanding CAM reconciliations.
• Landlord obligations: Identify any repairs, improvements, or other commitments you're responsible for under the existing leases.

For example, if a tenant has the option to renew their lease at a rental rate significantly below the current market rate, that could affect the property's future income potential and how much a buyer is willing to pay.

Buyers may also request tenant estoppel certificates, which confirm important lease details such as rent, security deposits, and whether any disputes exist between the landlord and tenant. Review your lease requirements early, since obtaining these certificates from tenants can take time.

If your commercial property is vacant or owner-occupied, this part of the checklist may be less relevant, although you should still clarify any existing occupancy agreements or rights that could affect the buyer's possession of the property.

4. Assess the Building's Physical Condition

The physical condition of your commercial property can significantly affect its market value and how much a buyer is willing to pay.

During due diligence, buyers will often arrange property inspections to identify existing defects, deferred maintenance, and major repairs or replacements they may need to budget for after purchasing the property.

Before listing, we recommend reviewing the property's major building systems and gathering records of previous inspections, repairs, and improvements.

Some of the key areas to assess include:

• Roof condition: Check for leaks, drainage problems, damaged roofing materials, and signs of deterioration. Document the roof's age, previous repairs, and any remaining warranties.
• HVAC systems: Review the age, condition, and maintenance history of heating and cooling equipment, including any systems that may need replacement soon.
• Plumbing and electrical systems: Identify recurring plumbing problems, water damage, outdated electrical components, and any known issues with the building's electrical capacity.
• Structural condition: Look for foundation cracks, settlement, damaged walls, and other structural concerns that could require further investigation.
• Fire and safety systems: Review inspection and maintenance records for fire alarms, sprinklers, emergency lighting, and other building safety equipment.
• Parking lots and exterior areas: Check for damaged pavement, drainage issues, deteriorating sidewalks, and accessibility concerns that may require improvements.
• Previous repairs and improvements: Gather invoices, inspection reports, permits where applicable, and warranties for major work completed on the property.

For example, if a commercial building has an aging roof that may need replacement within the next few years, a buyer could factor that expense into their offer or request a price reduction after completing their inspection.

You don't necessarily need to repair every issue before selling. However, understanding the property's condition and the potential cost of major repairs can help you decide which improvements to make before listing and prepare for negotiations during the buyer's due diligence.

5. Check Zoning, Permits, and Land Use Restrictions

A commercial property's zoning classification and land use restrictions can affect how the property is marketed, what buyers can use it for, and whether they can make changes to the building after purchasing it.

Before listing, we recommend reviewing the property's current zoning designation, permitted uses, and any existing building permits or approvals. This is particularly important if the property has undergone renovations, expansions, or changes in use over the years.

Some of the key things to review include:

• Zoning classification: Confirm the property's current zoning designation and whether its existing use is permitted under local zoning regulations.
• Building permits: Gather permits and approval records for previous renovations, additions, structural modifications, or changes in occupancy.
• Certificates of occupancy: Review any existing certificates of occupancy and confirm whether they accurately reflect the property's approved use, where applicable.
• Outstanding code violations: Check for unresolved building, fire, zoning, or property maintenance violations that may need to be addressed before closing.
• Parking and access requirements: Review parking restrictions, shared access agreements, loading areas, and other requirements that could affect how the property is used.
• Land use restrictions: Identify any conditional use approvals, variances, deed restrictions, or other limitations that could affect future development or changes to the property.

For example, if a commercial building was converted from warehouse space into offices without obtaining the necessary permits, a buyer may discover the issue during due diligence and request additional inspections, documentation, or corrective work before closing.

In Upstate South Carolina, zoning and permitting requirements can also differ depending on whether a property is located within city limits or in an unincorporated area of Greenville, Spartanburg, Anderson, or another county.

We recommend checking with the appropriate local planning or building department to verify the property's current approvals and identify any outstanding issues before putting it on the market.

6. Review Environmental Records and Potential Liabilities

Environmental issues can affect the sale of a commercial property, particularly if the site has previously been used for industrial operations, automotive services, dry cleaning, fuel storage, or other activities involving hazardous materials.

During due diligence, buyers may conduct a Phase I Environmental Site Assessment (ESA) to investigate the property's historical uses and identify potential environmental contamination or liabilities.

Before listing, we recommend reviewing any existing environmental reports and gathering documentation about the property's previous uses and known environmental conditions.

Some of the key things to review include:

• Previous property uses: Review the property's history to identify activities that may have involved hazardous chemicals, petroleum products, or other potentially harmful substances.
• Existing environmental assessments: Gather any previous Phase I or Phase II environmental reports, including findings, recommendations, and follow-up investigations.
• Underground storage tanks: Check whether the property currently has or previously had underground fuel or chemical storage tanks, including any records of their removal or closure.
• Known contamination: Document any previous spills, soil contamination, groundwater contamination, or other environmental concerns associated with the property.
• Environmental remediation: Gather records of previous cleanup work, regulatory approvals, monitoring requirements, and any ongoing environmental obligations.
• Hazardous building materials: Review any existing asbestos, lead-based paint, or other hazardous material inspection reports, particularly for older commercial buildings.

For example, if you're selling a commercial property that previously operated as a gas station or automotive repair facility, buyers may be concerned about potential soil or groundwater contamination from past operations. These concerns could lead to additional testing, cleanup requirements, or negotiations over who will be responsible for any necessary remediation.

A Phase I Environmental Site Assessment typically involves reviewing historical records, regulatory information, and property conditions without collecting soil or groundwater samples. If the assessment identifies potential contamination, the buyer may request a Phase II assessment involving additional testing.

As a seller, you don't necessarily need to commission a new environmental assessment before listing. However, having existing reports and documentation readily available can help buyers evaluate potential risks and avoid unnecessary delays during due diligence.

If you're aware of existing contamination or unresolved environmental issues, we recommend consulting an environmental professional and a real estate attorney before listing the property.

7. Review Insurance, Utilities, and Service Contracts

Commercial properties often have ongoing contracts and service agreements that buyers will want to review before closing. Some of these agreements may transfer to the new owner, while others may need to be terminated or renegotiated as part of the sale.

Before listing, we recommend reviewing your property's insurance records, utility expenses, and existing service contracts to identify any obligations that could affect the transaction.

Some of the key things to review include:

• Property insurance: Gather your current insurance policies, coverage details, premium information, and records of significant claims made against the property.
• Utility records: Review recent electricity, water, gas, sewer, and other utility bills to help buyers understand the property's ongoing operating costs.
• Maintenance contracts: Check existing agreements for HVAC maintenance, landscaping, cleaning, pest control, security, and other property maintenance services.
• Property management agreements: If a third-party company manages your property, review the agreement for termination requirements, notice periods, and any fees associated with ending the contract.
• Equipment leases: Identify any leased equipment, such as security systems, HVAC units, or other building systems, and confirm whether the agreements can be transferred or terminated.
• Warranties and service records: Gather available warranties and maintenance records for major building systems, equipment, and improvements, including any restrictions on transferring warranties to a new owner.

Also review the termination and renewal terms of existing contracts.

For example, if your commercial property has a long-term maintenance or equipment lease agreement with significant early termination fees, those costs could reduce your sale proceeds or become a point of negotiation with the buyer.

We recommend identifying which agreements you intend to terminate before closing and which ones the buyer may want to assume. This can help you avoid unexpected expenses and address contractual obligations before they delay the transaction.

8. Identify Outstanding Loans and Financial Obligations

Before selling your commercial property, review any outstanding loans, unpaid taxes, and other financial obligations that could affect your ability to close or how much you'll receive from the sale.

Even if you've built significant equity in the property, certain financing agreements and outstanding liabilities can create additional costs you may not have accounted for when setting your asking price.

Some of the key things to review include:

• Existing mortgages: Confirm the outstanding balance on any loans secured by the property and request an estimated payoff amount from your lender.
• Prepayment penalties: Review your loan agreements for early repayment penalties, yield maintenance provisions, or defeasance requirements that could make selling before the loan matures more expensive.
• Lender requirements: Check whether your lender requires advance notice, specific documentation, or other steps before releasing its lien on the property.
• Outstanding property taxes: Confirm whether you owe any property taxes, penalties, or interest that you must pay or account for at closing.
• Special assessments: Identify any outstanding assessments for infrastructure improvements, utilities, or other public projects that could affect the property's financial obligations.
• Unpaid contractor bills: Review outstanding payments to contractors or vendors that could result in mechanic's liens or other claims against the property.
• Closing expenses: Estimate brokerage commissions, legal fees, title-related expenses, and other costs you may be responsible for under the purchase agreement.

For example, if you have a commercial mortgage with a substantial prepayment penalty, selling the property before the loan matures could significantly reduce your net proceeds, even if you receive your full asking price.

You should also consider the potential tax implications of selling the property, particularly if you've owned it for several years and its value has appreciated. Depending on your circumstances, a 1031 exchange may allow you to defer certain capital gains taxes by reinvesting in another qualifying investment property.

We recommend reviewing your financing agreements and discussing the potential tax consequences with your lender, real estate attorney, and tax advisor before listing. This can help you estimate your net proceeds more accurately and avoid unexpected closing costs.

What Should Sellers Disclose During Commercial Property Due Diligence?

Unlike residential property sales, commercial real estate transactions in South Carolina generally don't require sellers to complete a standard property condition disclosure statement. However, sellers still need to be careful about the information they provide to potential buyers and any disclosure obligations outlined in the purchase agreement.

Before listing your property, we recommend reviewing any known issues that could affect its value, condition, or future use.

Some of the key areas to consider include:

• Known property defects: Significant roof leaks, structural damage, recurring flooding, or other existing problems that could affect the building's condition.
• Environmental concerns: Known contamination, hazardous materials, previous environmental investigations, or outstanding remediation requirements.
• Tenant-related issues: Ongoing disputes, unpaid rent, undocumented lease modifications, or other agreements that could affect the buyer's rental income.
• Legal and regulatory issues: Outstanding code violations, zoning disputes, pending litigation, or restrictions that could affect the property's use.
• Financial information: Any known discrepancies in the property's reported income, operating expenses, or other financial records provided to buyers.

If you know a commercial building has experienced recurring roof leaks, providing inaccurate information about its condition could create legal disputes if the buyer discovers the problem after closing.

Some commercial properties are also sold as-is, meaning the buyer agrees to purchase the property in its existing condition, subject to the purchase agreement. However, an as-is provision doesn't necessarily protect sellers from liability for fraudulent misrepresentations.

We recommend discussing known property issues and disclosure requirements with your commercial real estate attorney before listing, especially if you're unsure whether certain information must be shared with potential buyers.

What Happens During the Buyer's Due Diligence Period?

Once you've accepted an offer and signed a purchase agreement, the buyer will typically have a specified period to investigate the property and verify the information you've provided.

During this time, buyers may request additional documents, arrange property inspections, review financial records, and investigate any concerns that could affect their decision to proceed with the purchase.

As a seller, here's what you can expect during the due diligence process:

If buyers discover significant issues during due diligence, they may request repairs, ask for a reduction in the purchase price, or negotiate other changes to the agreement. Depending on the contract terms and applicable deadlines, they may also have the right to terminate the purchase.

The length of the due diligence period and the buyer's rights will depend on the purchase agreement. Some transactions allow several weeks for inspections and document reviews, while more complex properties may require additional time.

We recommend keeping your property records organized and responding promptly to reasonable requests during this period. You should also coordinate any property inspections or tenant communications carefully, especially if the building remains occupied during the sale.

Prepare Your Commercial Property for Sale With Upstate Commercial Hub

A little preparation before listing your commercial property can help you identify potential issues, address buyer concerns, and avoid unnecessary delays during the sale.

By reviewing your property's financial records, lease agreements, physical condition, and legal obligations ahead of time, you'll be better positioned to answer buyer questions, negotiate confidently, and move toward closing.

The Upstate Commercial Hub team at eXp Commercial helps commercial property owners navigate the buying and selling process across Greenville, Spartanburg, Anderson, Seneca, and surrounding areas of Upstate South Carolina.

If you're considering selling your commercial property, contact our team to discuss your property, understand its market value, and learn how we can help you prepare for a successful sale.