Buying commercial real estate carries risk that has nothing to do with the purchase price. By the time a buyer finds a title defect, a zoning limitation, or an undisclosed side agreement with a tenant, the remedies are narrow, slow, and expensive. Diligence handled properly during the contingency period is the cheapest insurance in the transaction.
Title and Survey Review
Order the preliminary title report early and read the exceptions, not just the summary page. Easements, liens, CC&Rs, and recorded restrictions can limit how the property is used or what can be built on it. Then compare the legal description against a current ALTA survey. The survey confirms boundaries, encroachments, and easement locations as they exist on the ground, which is not always what the record suggests.
Zoning and Land Use Verification
San Diego's zoning code, community plan overlays, and any applicable specific plan control what a buyer can legally do with the property. Confirm the intended use is permitted outright rather than through a variance or conditional use permit. Verify parking ratios, signage limits, and permitted hours of operation as well, since those constraints derail more deals than base zoning does. If entitlements are required, price the time and the cost before releasing contingencies.
Environmental and Physical Condition
- A Phase I environmental site assessment identifies potential contamination from prior industrial, automotive, or dry cleaning use, and it preserves the innocent landowner defense under CERCLA
- A property condition report flags deferred maintenance on roofs, HVAC, electrical, and structural systems
- Older buildings should be measured against current ADA and building code requirements, since a change of use or a tenant improvement can trigger upgrade obligations
Lease and Tenant Estoppel Review
If tenants occupy the property, read every lease and amendment, then obtain an estoppel certificate from each tenant confirming rent, term, options, deposits, and any side agreements the seller did not disclose. Discrepancies between the estoppel and the lease file are one of the most common sources of post-closing disputes. Where the leases allow, request subordination, non-disturbance, and attornment agreements from major tenants at the same time.
Financials and Service Contracts
Review rent rolls, operating expense histories, and CAM reconciliations for the last three years. Confirm which service contracts survive closing and which can be terminated, because an assumed management or landscaping agreement with a long tail is a cost the pro forma probably ignored.
Contingency Periods Protect Buyers
Purchase and sale agreements should tie the due diligence period to actual receipt of the title report, survey, environmental reports, leases, and financials rather than to the effective date alone. Pair that with a clear right to terminate and recover the deposit if problems surface. Buyers who waive contingencies to win in a competitive market take on risk that careful drafting would have managed for a fraction of the cost.
Bayside Counsel represents San Diego buyers in commercial acquisitions from letter of intent through closing. If you are under contract or close to it, have the purchase agreement reviewed before the contingency clock starts running.