Commercial real estate due diligence is the comprehensive investigation process buyers conduct before completing property acquisitions. Thorough due diligence reveals problems that affect property value, identifies risks that could derail the transaction, and provides leverage to renegotiate terms or walk away from bad deals.
The cost of inadequate due diligence far exceeds the cost of conducting it properly. Undiscovered environmental contamination, title defects, zoning violations, or deferred maintenance can cost hundreds of thousands or millions of dollars to remediate after closing.
This guide provides a comprehensive framework for commercial property due diligence in Florida, covering financial analysis, title examination, environmental review, physical inspection, and legal compliance verification.
Due Diligence Overview and Timeline
Commercial property due diligence typically spans 30 to 90 days depending on property complexity, transaction size, and issues discovered during investigation.
The Due Diligence Period
Purchase contracts establish a due diligence period during which the buyer can terminate the agreement for any reason (or no reason) and receive deposit refund. This period protects buyers by allowing thorough investigation before committing irrevocably to purchase.
Standard due diligence periods in Florida commercial transactions range from 30 to 60 days. Complex properties (large multifamily buildings, industrial facilities, properties with environmental concerns) may require 90 days or longer.
The buyer must deliver termination notice before the due diligence period expires. Missing the deadline means you proceed to closing regardless of what due diligence reveals.
Due Diligence Budget and Team
Comprehensive due diligence requires engaging multiple professionals with specialized expertise.
Typical due diligence team members include:
- Commercial real estate attorney (contract review, title examination, legal compliance)
- Property inspector or engineer (building systems, structural condition, code compliance)
- Environmental consultant (Phase I and potentially Phase II environmental assessments)
- Land surveyor (boundary verification, encroachment identification)
- Appraiser (value verification, market analysis)
- Accountant or financial analyst (rent roll verification, financial statement analysis)
- Specialty consultants as needed (roofing specialists, mechanical engineers, traffic consultants)
Budget 1% to 3% of purchase price for due diligence costs on typical transactions. Complex properties or those with known issues require larger budgets.
Due Diligence Timeline and Coordination
Effective due diligence requires coordinated effort across multiple workstreams happening simultaneously.
Initial Document Review and Team Assembly
Request and begin reviewing seller provided documents. Engage attorney, inspector, environmental consultant, and surveyor. Schedule property inspections and walkthroughs.
Physical Inspections and Investigations
Conduct property inspections, environmental assessments, and surveys. Review title commitment. Begin financial analysis of rent rolls and operating statements.
Detailed Analysis and Issue Identification
Receive and review inspection reports, environmental reports, and survey. Identify issues requiring further investigation or remediation. Analyze lease files and tenant payment history.
Issue Resolution and Renegotiation
Address discovered issues through price reduction, repair credits, or seller remediation. Finalize title objections and requirements. Complete remaining due diligence items.
Final Decision and Due Diligence Completion
Make go or no go decision. If proceeding, satisfy all conditions and deliver notice of due diligence approval. If terminating, deliver notice within deadline.
This timeline compresses for smaller transactions and extends for complex properties. Start immediately upon contract execution to maximize available time.
The due diligence period passes quickly. Buyers often underestimate the time required to coordinate inspections, obtain reports, analyze findings, and negotiate issues. Starting immediately and managing the process actively prevents running out of time with incomplete investigation. Missing the termination deadline because you procrastinated is expensive.
Financial Due Diligence and Analysis
Financial due diligence verifies property income, expenses, and financial performance claims made by the seller. Income producing properties trade based on net operating income and cap rates, making financial accuracy essential to valuation.
Rent Roll Verification
The rent roll lists all tenants, leased space, current rent, lease terms, and rent escalations. This document drives property valuation for income properties.
Rent roll verification involves:
- Comparing rent roll to actual lease agreements for accuracy
- Confirming rent amounts match lease terms
- Verifying lease commencement and expiration dates
- Identifying lease options, renewal rights, and purchase options
- Confirming tenant improvement allowances and rent abatements
- Reviewing rent escalation clauses and upcoming increases
Discrepancies between the rent roll and lease files are red flags. Sellers sometimes overstate rent, understate concessions, or show full rent for tenants in free rent periods.
Operating Statement Analysis
Operating statements show property income and expenses over time. Analyze at least three years of statements to identify trends and verify consistency.
Key verification steps:
Income verification: Confirm rental income matches rent roll. Review additional income sources (parking, storage, amenity fees, late fees). Compare stated income to actual bank deposits if possible.
Expense verification: Review invoices and bills supporting major expenses. Identify non recurring or deferred maintenance expenses. Compare expenses to market standards for similar properties.
Normalized operating expenses: Adjust operating statements to reflect normal ongoing expenses. Remove one time costs. Add back deferred maintenance expenses. Adjust for market rate property management if owner managed.
Capital expenditure review: Examine capital improvement history. Identify deferred capital needs (roof replacement, HVAC systems, parking lot resurfacing). Budget for upcoming capital expenditures in acquisition analysis.
Tenant Payment History and Delinquency
Request tenant payment ledgers showing payment history for 12 to 24 months. Identify chronically late paying tenants or those with outstanding balances.
Tenant delinquencies affect property cash flow and may indicate tenant financial distress. High delinquency rates suggest management problems or tenant quality issues.
Tax Assessment and Expense Verification
Verify property tax amounts with county property appraiser records. Determine if the property has tax benefits (homestead exemption, agricultural classification) that will terminate upon sale.
Property taxes often increase significantly after sale as the property appraiser reassesses based on purchase price. Budget for higher taxes post closing.
Verify other major expenses (insurance, utilities, property management, maintenance contracts) with supporting documentation. Sellers sometimes understate expenses to inflate net operating income.
Estoppel Certificates from Tenants
Estoppel certificates are statements from tenants confirming lease terms, rent amounts, security deposits, and lease status. These certificates prevent post closing disputes about lease terms.
Estoppel certificates should confirm:
- Lease commencement and expiration dates
- Current rent amount and payment status
- Security deposit held by landlord
- Tenant improvement allowances owed
- Landlord defaults or outstanding obligations
- Options, rights of first refusal, or expansion rights
Discrepancies between estoppel certificates and lease files require investigation and resolution before closing.
Common Financial Red Flags
Watch for these warning signs during financial due diligence:
- Rent roll shows higher rents than lease agreements support
- Multiple tenants on month to month leases (income uncertainty)
- High tenant turnover or significant vacancy
- Operating expenses significantly below market averages
- Deferred maintenance evident from low repair and maintenance spending
- Large recent capital expenditures suggesting systemic problems
- Seller unable or unwilling to provide supporting documentation
Title Examination and Survey Review
Title examination verifies the seller owns the property and identifies liens, encumbrances, easements, and other matters affecting ownership or use.
Title Commitment Review
The title company issues a title commitment (also called title binder) early in the transaction. This document commits to insuring title subject to exceptions and requirements listed in schedules.
Schedule A identifies the property, proposed insured (buyer), and vesting information.
Schedule B Section I lists requirements that must be satisfied before the title company will issue the policy. Common requirements include payment of purchase price, recording of deed, payment of outstanding mortgages, and delivery of seller's affidavit.
Schedule B Section II lists exceptions to coverage (matters the title insurance won't cover). Standard exceptions include:
- Rights of parties in possession
- Easements and encumbrances not shown in public records
- Matters that would be revealed by accurate survey
- Unrecorded liens
Special exceptions list specific matters affecting the property such as recorded easements, restrictions, covenants, mortgages, and liens.
Reviewing Schedule B Exceptions
Every exception requires analysis to determine whether it affects your intended use.
Easements: Review each easement to understand location, purpose, and rights granted. Utility easements are typically acceptable. Large access easements through developable land may be problematic. Consider whether easements conflict with your plans.
Covenants and restrictions: Review all recorded restrictions, covenants, and conditions affecting use. Restrictions may limit property uses, building heights, architectural standards, or other factors. Ensure restrictions permit your intended use.
Mortgages and liens: All existing mortgages and liens should be paid at closing. If exceptions list mortgages or liens, require their removal as a closing condition.
Leases: Existing tenant leases appear as exceptions. These survive closing and continue to bind the property.
Title Objections and Curative Requirements
If title examination reveals unacceptable exceptions, deliver written title objections to the seller within timeframes specified in the purchase contract (typically 5 to 10 days after receiving commitment).
Title objections should identify specific exceptions requiring removal or cure. The seller must cure objections or the buyer can terminate.
Common title cures include:
- Recording satisfaction of paid mortgages
- Obtaining releases of expired easements
- Resolving boundary disputes or encroachments
- Clearing mechanic liens
- Correcting legal descriptions or vesting issues
Survey Review and Verification
An ALTA survey prepared by licensed surveyor shows property boundaries, improvements, easements, encroachments, and other physical features.
Survey review identifies critical issues:
Boundary verification: Confirm legal description matches actual boundaries. Verify property includes all land you believe you're purchasing.
Encroachments: Identify structures encroaching onto neighboring property or neighboring structures encroaching onto the subject property. Encroachments create title problems and potential liability.
Setback compliance: Verify buildings comply with required setbacks from property lines. Setback violations are code violations that may prevent modifications or trigger enforcement.
Easement location: Confirm easements on title commitment appear in correct locations on survey. Easements through buildings or critical areas may be problematic.
Access verification: Ensure the property has adequate legal access to public streets. Lack of access is a fundamental title problem.
Parking compliance: Count parking spaces and verify compliance with required ratios. Insufficient parking may limit property use or require expensive additions.
Title Insurance Coverage
Title insurance protects against losses from title defects, liens, or encumbrances existing at closing but not discovered during title examination.
Owner's title insurance coverage should equal purchase price. The policy protects indefinitely as long as you or your successors own the property.
Enhanced coverage endorsements provide additional protection. Common endorsements for commercial properties include:
- Access and entry endorsement
- Zoning endorsement (confirming current zoning classification)
- Contiguity endorsement (confirming multiple parcels are contiguous)
- Survey endorsement (insuring against survey exceptions)
- Encroachment endorsement
Negotiate which endorsements the seller will provide and pay for as part of contract terms.
Environmental Assessment and Compliance
Environmental due diligence identifies contamination, hazardous materials, and environmental compliance issues that create liability or remediation costs.
Phase I Environmental Site Assessment
Phase I ESA is the standard environmental due diligence report prepared by environmental consultants. The report includes records review, site inspection, interviews, and analysis to identify recognized environmental conditions (RECs).
Phase I components include:
Site history research: Review historical uses through aerial photographs, fire insurance maps, city directories, and title records. Former uses like gas stations, dry cleaners, industrial facilities, or agricultural operations increase contamination risk.
Regulatory database search: Check federal, state, and local environmental databases for violations, underground storage tanks, hazardous waste generation, or contaminated sites.
Site walkthrough: Physical inspection to observe site conditions, identify potential contamination sources, review environmental practices, and identify hazardous materials.
Interviews: Interview site personnel, neighboring property owners, and local officials about site history, spills, environmental issues, or concerns.
Adjacent property review: Investigate surrounding properties for contamination that could migrate onto subject property.
Recognized Environmental Conditions
RECs are indicators of potential contamination requiring further investigation. Common RECs include:
- Underground or aboveground storage tanks (current or historical)
- Known contamination from current or former operations
- Hazardous materials stored or used on site
- Evidence of spills, staining, or dumping
- Former industrial uses with contamination potential
- Fill material from unknown sources
- Asbestos containing materials or lead paint
- Contaminated neighboring properties
Any REC requires careful evaluation. Significant RECs may warrant Phase II investigation before proceeding.
Phase II Environmental Site Assessment
Phase II ESA involves intrusive testing to determine whether contamination actually exists and, if so, the extent and severity.
Phase II typically includes soil sampling, groundwater sampling, and laboratory analysis of collected samples. Testing confirms or rules out contamination suggested by Phase I findings.
Phase II is expensive (typically $10,000 to $50,000 or more depending on scope) but essential if Phase I identifies significant RECs. Proceeding without Phase II when warranted creates enormous risk.
Environmental Liability and Risk Allocation
Environmental contamination creates potentially unlimited liability under federal and Florida environmental laws. Property owners can be liable for contamination they didn't cause and didn't know existed.
The innocent purchaser defense under CERCLA (federal Superfund law) requires conducting appropriate inquiry (Phase I ESA meeting current standards) before closing. Without Phase I, you lack this defense.
If contamination is discovered, options include:
- Terminating the transaction
- Requiring seller remediation before closing
- Negotiating price reduction reflecting remediation costs
- Obtaining seller indemnification for environmental liabilities
- Purchasing environmental insurance
Never close with known contamination without understanding remediation costs and negotiating appropriate protection.
Asbestos and Lead Paint
Buildings constructed before 1980 likely contain asbestos in various materials. Buildings built before 1978 likely have lead paint.
Both asbestos and lead paint are regulated. Disturbing these materials during renovation or demolition triggers expensive abatement requirements.
The inspector should identify asbestos and lead paint presence. If renovation is planned, budget for proper abatement.
Florida Specific Environmental Concerns
Florida's climate and geography create unique environmental issues.
Underground storage tanks: Former gas stations are common in Florida. Tank removal and soil contamination remediation is expensive.
Septic systems: Properties outside municipal sewer service have septic systems requiring inspection and maintenance. Failed septic systems are expensive to replace.
Wetlands: Wetlands on or near the property trigger state and federal regulation. Development in or near wetlands requires permits and may be prohibited.
Flood zones: Much of Florida is in flood zones. Properties in flood zones require flood insurance and face development restrictions.
Environmental problems are the worst kind of surprise in commercial real estate. Contamination remediation costs can exceed property value and liability extends indefinitely. Phase I assessment is not optional. If Phase I identifies concerns, do Phase II before closing. The cost of proper environmental due diligence is minuscule compared to contamination liability.
Zoning Verification and Land Use
Zoning due diligence confirms the property is properly zoned for current and intended uses and complies with applicable land use regulations.
Zoning Classification Verification
Confirm the property's current zoning designation through the municipal or county planning department. Obtain a zoning verification letter stating the property's zoning classification.
Verify your intended use is permitted under the current zoning. Zoning codes classify uses as permitted by right, conditional uses (requiring special approval), or prohibited.
If your intended use is not permitted by right, determine feasibility of obtaining required approvals before closing. Conditional use permits, variances, and rezonings are uncertain and time consuming.
Nonconforming Use Analysis
If the current use predates zoning regulations and doesn't conform to current code, it may be grandfathered as a legal nonconforming use.
Legal nonconforming uses can continue but face significant restrictions. Typically you cannot expand nonconforming uses, and if the use is abandoned or substantially destroyed, the nonconforming status terminates.
Verify nonconforming status through municipal records. Document evidence supporting the use's existence before the zoning restrictions were enacted.
Properties dependent on nonconforming use status are risky. Loss of nonconforming status may prohibit the use that makes the property valuable.
Development Restrictions and Requirements
Review zoning code provisions affecting the property including:
Setback requirements: Minimum distances buildings must be from property lines. Verify existing buildings comply or are legally nonconforming.
Height restrictions: Maximum building heights. Important for properties where additional floors would add value.
Floor area ratio (FAR): Ratio of building area to lot size. FAR limits determine maximum development density.
Parking requirements: Minimum parking spaces per square foot or per unit. Verify the property has adequate parking or legal nonconforming status.
Lot coverage limits: Maximum percentage of lot that can be covered by buildings and impervious surfaces.
Use restrictions: Prohibited uses, hours of operation limits, or operational restrictions.
Overlay Districts and Special Regulations
Many Florida municipalities have overlay districts imposing additional requirements beyond base zoning. Common overlays include:
- Historic preservation districts (architectural review required)
- Coastal management zones (additional development restrictions)
- Airport approach zones (height restrictions)
- Design review districts (aesthetic requirements)
- Redevelopment areas (special incentives or requirements)
Identify all overlay districts affecting the property and understand the additional requirements they impose.
Zoning Violations and Code Enforcement
Request code enforcement and zoning violation history from the municipality. Outstanding violations create liability and may need to be cured before closing or occupancy.
The purchase contract should require the seller to resolve all code violations before closing or provide credits for cure costs.
Comprehensive Plan Consistency
Florida requires zoning to be consistent with the local comprehensive plan (the municipality's long range planning document). Verify the property's comprehensive plan designation supports your intended use.
If the comprehensive plan designation and zoning are inconsistent, future rezoning could affect allowed uses.
Physical Property Inspection
Physical inspection by qualified professionals identifies property condition issues, deferred maintenance, building systems problems, and code violations.
Comprehensive Property Inspection
Hire experienced commercial property inspectors or engineers to thoroughly evaluate the property. Residential home inspectors are not qualified for commercial properties.
Comprehensive inspection should cover:
Structural systems: Foundation, structural frame, load bearing walls, floor and roof structures. Identify cracks, settling, water damage, structural modifications, or concerns about structural integrity.
Building envelope: Roof, exterior walls, windows, doors. Assess condition, remaining useful life, and weather tightness. Identify water intrusion or envelope failures.
Mechanical systems: HVAC systems, elevators, escalators. Evaluate age, condition, maintenance history, and remaining useful life. Major system replacements are expensive capital expenditures.
Plumbing systems: Supply lines, drains, water heaters, sewage systems, irrigation. Identify leaks, corrosion, capacity issues, or needed replacements.
Electrical systems: Service capacity, panels, distribution, wiring. Verify adequate capacity for current and intended use. Identify safety issues, code violations, or needed upgrades.
Life safety systems: Fire suppression, fire alarms, emergency lighting, exit signs. Verify proper operation and code compliance.
ADA compliance: Accessibility features for disabled persons. Properties with public access must comply with Americans with Disabilities Act requirements. Non compliance requires expensive retrofits.
Roof Inspection
Roofs are expensive to replace and critical to building integrity. Dedicated roof inspection by a roofing specialist is warranted for large buildings or older roofs.
Roof inspection should determine remaining useful life, identify active leaks or areas of concern, assess drainage adequacy, and estimate replacement cost and timing.
Budget for roof replacement if the existing roof is near end of life. Roof replacement for large commercial buildings can cost hundreds of thousands of dollars.
Specialty System Evaluations
Complex properties may require specialty consultants beyond general inspectors.
Elevator inspection: Certified elevator inspectors evaluate elevator condition, code compliance, and maintenance needs. Elevator modernization is expensive.
HVAC engineering review: For properties with large or complex HVAC systems, mechanical engineers can assess condition and efficiency more thoroughly than general inspectors.
Fire protection system inspection: Sprinkler systems, fire pumps, and alarm systems should be inspected by specialists to verify proper operation and code compliance.
Pool and spa inspection: Properties with pools or spas need specialty inspection to assess equipment, verify code compliance, and identify maintenance needs.
Deferred Maintenance Identification
Deferred maintenance items are necessary repairs or replacements the current owner has postponed. These items become your responsibility and expense after closing.
Common deferred maintenance includes:
- Aging HVAC systems operating but near replacement
- Deteriorating parking lots needing resurfacing
- Worn building exteriors needing repainting or repairs
- Outdated lighting systems
- Plumbing fixtures needing replacement
- Interior finishes requiring updating
Budget for deferred maintenance items in acquisition analysis. If deferred maintenance is substantial, negotiate purchase price reduction or seller repair credits.
Building Code Compliance
Verify the property complies with current building codes or has legal nonconforming status for code violations. Code violations may prevent occupancy or trigger expensive upgrades.
Florida adopted aggressive wind resistance requirements after Hurricane Andrew. Buildings constructed before modern code may need expensive retrofits to obtain insurance or financing.
Florida Specific Physical Concerns
Hurricane resistance: Evaluate wind resistance of building envelope, roof attachment, and window protection. Properties not meeting current wind code may have insurance or financing issues.
Termite and moisture damage: Florida's climate promotes termites and moisture problems. Look for evidence of termite damage, prior treatments, and active infestation. Check for moisture intrusion and mold.
Concrete spalling and corrosion: Coastal properties face saltwater corrosion of reinforcing steel causing concrete spalling. This is expensive to repair and affects structural integrity.
Sinkhole risk: Parts of Florida have sinkhole risk. Properties in sinkhole prone areas should be evaluated for stability.
Lease Review and Tenant Analysis
For income producing properties, lease due diligence is essential to understanding property cash flow, tenant obligations, and landlord responsibilities.
Comprehensive Lease File Review
Obtain complete lease files for all tenants including lease agreements, amendments, side letters, guarantees, and correspondence.
Review each lease for:
Basic lease terms: Premises size and location, lease commencement and expiration dates, base rent amount, rent escalations, options to renew or expand.
Rent structure: Whether the lease is gross (landlord pays operating expenses), net (tenant pays defined expenses), or modified gross/net. How operating expenses are calculated and passed through to tenants.
Tenant improvement obligations: What improvements the landlord provided or funded. Whether tenant improvement allowances remain outstanding. Who pays for future alterations.
Maintenance and repair obligations: Which party is responsible for structural repairs, roof, HVAC, plumbing, interior maintenance. Whether tenants are responsible for their pro rata share of capital expenditures.
Assignment and subletting provisions: Whether and under what conditions tenants can assign leases or sublet space. Restrictions on transfers affect tenant flexibility and potential successors.
Landlord's rights and remedies: Landlord's rights upon tenant default. Whether the lease permits acceleration of all remaining rent or only monthly rent as it comes due.
Guarantees: Whether the lease is guaranteed by principals or parent companies. Guarantees provide additional recovery sources if tenant defaults.
Lease Expiration and Rollover Analysis
Analyze lease expiration schedule to understand rollover risk. Properties with many leases expiring simultaneously face significant re leasing risk and potential vacancy.
Evaluate tenant renewal options. Options to renew at below market rent reduce future income potential.
Assess market rental rates for the property type and location. If current rents are below market, you can increase income at renewal. If current rents are above market, renewals may require rent reductions.
Tenant Financial Strength Assessment
Evaluate tenant creditworthiness to assess default risk. Request tenant financial statements if permitted under leases.
For national credit tenants (publicly traded companies, major brands), assess publicly available financial information and credit ratings.
For local tenants, evaluate business viability, payment history, and financial condition. High risk tenants increase vacancy risk and may require reserves.
Tenant Estoppel Certificate Review
As discussed in financial due diligence, estoppel certificates from tenants confirm lease terms and status. Review estoppels carefully to identify discrepancies from lease files.
Common estoppel issues include:
- Tenant claims modifications to lease not reflected in lease files
- Disputes about amounts of security deposits held
- Claims of landlord defaults or obligations not yet performed
- Different understanding of rent amount or lease term
Resolve all estoppel discrepancies before closing to prevent post closing disputes.
Special Lease Provisions
Identify special provisions affecting operations or value:
Co tenancy clauses: Provisions allowing tenants to reduce rent or terminate if certain other tenants leave (common in retail). Co tenancy issues create significant risk.
Exclusive use provisions: Prohibitions on leasing to competing businesses. These limit your ability to lease vacant space.
Rights of first offer or refusal: Tenant rights to lease additional space or purchase the property before you can lease or sell to third parties.
Kickout rights: Provisions allowing landlord or tenant to terminate early under specified conditions.
Percentage rent clauses: Additional rent based on tenant sales (common in retail). Verify percentage rent calculations and understand trends.
Existing Contracts and Service Agreements
Commercial properties typically have numerous contracts for maintenance, services, and operations. Review all contracts to understand obligations you'll assume and opportunities to renegotiate.
Property Management Agreements
If the property has professional management, review the management agreement. Understand management fees, contract terms, termination provisions, and services provided.
Determine whether the management agreement transfers to you or terminates at closing. If you want to change managers, ensure you can terminate without penalty.
Service Contracts
Request copies of all service contracts including:
- Elevator maintenance contracts
- HVAC service agreements
- Janitorial and cleaning services
- Landscaping and irrigation maintenance
- Security services
- Pest control services
- Fire alarm and sprinkler monitoring
- Waste removal and recycling
Review contract terms, pricing, and termination provisions. Identify contracts you want to continue and those you want to replace.
Some contracts may not be assignable without consent. Ensure required consents are obtained or new contracts arranged before closing.
Utility Agreements and Costs
Obtain utility history and current contracts with electric, water, gas, and other utility providers. Analyze usage and costs.
For properties where tenants don't pay utilities directly, utility costs are significant operating expenses affecting property cash flow.
Tenant Related Contracts
Some leases require the landlord to provide specific services through third party contracts (cable/internet service, security, parking management). Review these contracts to understand obligations and costs.
Vendor Analysis and Renegotiation
Analyze all service contract pricing against market rates. Properties with longtime ownership often have outdated contracts with above market pricing.
Plan to rebid major contracts after closing if pricing appears high. Competitive bidding typically reduces costs.
Legal and Regulatory Compliance
Verify the property complies with all applicable legal and regulatory requirements beyond those already discussed.
Certificate of Occupancy
Obtain copies of certificates of occupancy for all buildings. The certificate of occupancy confirms the building was legally constructed and approved for its current use.
Verify the certificate of occupancy permits the current and intended uses. Using a building for purposes not covered by the certificate of occupancy is a code violation.
Business Licenses and Permits
Identify required business licenses and permits for property operation. These might include:
- Business tax receipts (local business licenses)
- Liquor licenses (if applicable)
- Health department permits (for food service operations)
- Special event permits
- Signage permits
Determine which licenses and permits transfer with the property and which require new applications.
Fair Housing and Discrimination Compliance
Multifamily properties must comply with federal and Florida fair housing laws prohibiting discrimination in leasing and operations.
Review leasing policies, application procedures, and property rules for compliance with fair housing requirements. Non compliance creates significant liability.
Property Tax Assessment Appeals
Review property tax assessment history. Determine if the current owner has pending assessment appeals or tax disputes.
Understand how these disputes will be resolved and who is responsible for refunds or additional taxes relating to pre closing periods.
Litigation and Claims
Request disclosure of all pending or threatened litigation, claims, and disputes involving the property. This includes:
- Tenant disputes and evictions
- Contract disputes with vendors
- Personal injury claims
- Property damage claims
- Code enforcement actions
- Environmental claims
Evaluate the potential liability and either require resolution before closing or negotiate indemnification from the seller.
Condominium and Homeowner Association Documents
If the property is part of a condominium or subject to homeowner association, obtain and review:
- Declaration of covenants and restrictions
- Association bylaws and articles
- Association budgets and financial statements
- Meeting minutes
- Assessment payment history
- Rules and regulations
- Reserve study
Verify there are no special assessments pending or planned. Understand assessment payment status and whether any amounts are delinquent.
Creating Your Due Diligence Checklist
Every property requires a customized due diligence checklist based on property type, size, complexity, and intended use. Start with a comprehensive template covering all major categories, then add property specific items as needed.
Track checklist completion status throughout the due diligence period to ensure all items are addressed before the deadline. Assign responsibility for each item to specific team members.
Review checklist completion at least weekly during the due diligence period to identify lagging items and ensure timely completion.