Commercial Real Estate Due Diligence Checklist for Tenants: 50+ Items to Review Before You Sign

1. Due Diligence Overview and Timeline

Commercial tenant due diligence is a structured process that runs concurrently with lease negotiation. It has three phases:

2. Physical Property Due Diligence

Physical due diligence is the investigation of the actual building and space you're considering leasing. Many tenants over-rely on their own visual inspection during a tour. A proper physical due diligence process goes much deeper.

Space Condition Assessment

• HVAC Inspection: Confirm the age, capacity, and condition of all HVAC units serving the space. Get the maintenance records. Units more than 10–15 years old may need replacement within your lease term — confirm who pays.
• Electrical Capacity: Verify the amperage and panel capacity available. Restaurants, medical tenants, and data-intensive offices often require 200–400A service; verify available capacity before build-out planning.
• Plumbing Condition: Inspect restroom facilities, any wet bar/kitchen plumbing, floor drains, and grease traps (for food service). Older buildings may have galvanized pipes approaching end of life.
• Roof Condition: Request the roof inspection report and warranty status. Industrial and retail tenants especially should know if the roof has remaining warranty coverage and who is responsible for repairs/replacement.
• Structural Condition: For industrial/flex tenants, verify slab condition, column spacing, and any signs of settlement, cracking, or water intrusion.
• Existing Improvements: Document all existing improvements, including what belongs to prior tenants (and can be removed) vs. what is landlord property. Get a signed delivery condition punch list.

Building Systems and Infrastructure

• Telecom/Internet Connectivity: Confirm fiber availability and which providers serve the building. For tech companies or call centers, multi-carrier redundancy may be required.
• Loading Dock and Access: For industrial/warehouse tenants, verify dock-high vs. grade-level loading, dock count, truck court depth, and ceiling clearance (clear height).
• ADA Compliance: Verify the building's ADA compliance status for entrances, restrooms, parking, and elevator access. Confirm who is responsible for ADA upgrade costs.
• Sprinkler System: Confirm sprinkler coverage and capacity. Industrial tenants with high-piled storage may need ESFR (Early Suppression Fast Response) systems — verify the existing system's rating.
• Generator/Emergency Power: For medical, data, or mission-critical tenants, verify whether emergency generator capacity is available and at what cost.

Access and Parking

• Parking Count and Ratio: Count actual available parking spaces, verify the ratio per 1,000 SF (office standard: 4/1,000; retail: 5–6/1,000), and confirm whether spaces are reserved, shared, or open lot.
• Hours of Access: Confirm you can access the building 24/7 if your business requires it. Some buildings restrict access to business hours without additional security arrangements and cost.
• Loading/Service Access: Verify service elevator access for deliveries, move-in, and large equipment installations.

3. Financial Due Diligence

Financial due diligence quantifies your total occupancy cost across the full lease term — and it goes far beyond the monthly base rent quote.

All-In Occupancy Cost Modeling

• Request 3-Year CAM History: Ask for actual CAM reconciliation statements for the past 3 years to see real expense growth and variability — not just the current year estimate.
• CAM Cap Verification: Confirm whether CAM increases are capped (typically 3–5% annually) and whether controllable and uncontrollable expenses have separate caps.
• Real Estate Tax Assessment: Research the current assessed value and tax rate. Understand whether a reassessment is pending (especially after a recent sale of the property) which could dramatically increase taxes passed through to you.
• Rent Escalation Schedule: Model out rent for every year of the lease term. A 3% annual bump on $75,000 base grows to $100,628 in year 10. Confirm whether escalations are on base rent only or all occupancy costs.
• TI Allowance Economic Analysis: Calculate the net present value (NPV) of the TI allowance against the cost of money to determine its true economic value. A $100,000 TI drawn over 12 months at 6% discount rate is worth ~$94,000 in today's dollars.
• Free Rent Period Value: Calculate the value of free rent concessions. 3 months free rent on $8,000/month = $24,000 in value — equivalent to $8/RSF TI on a 3,000 SF space.

4. Legal and Lease Due Diligence

Legal due diligence covers both the lease document itself and the legal status of the property. Both require a qualified commercial real estate attorney.

Lease Document Review

• Permitted Use Clause: Confirm it is broad enough for your current and anticipated future use. "General office use" is fine; "office use for software development only" creates problems if you pivot or expand.
• Personal Guarantee Scope: Review any personal guarantee obligation — is it full-term, capped at a dollar amount, or does it burn down over time? Negotiate a "good guy clause" or a guarantee cap.
• Assignment and Subletting Rights: Review the landlord consent standard ("not unreasonably withheld" vs. "sole discretion") and any profit-sharing requirements.
• Renewal Options: Confirm renewal option terms — fixed rate, fair market value, or CPI. For fair market value options, ensure a dispute resolution mechanism is specified.
• Early Termination Right: Verify whether a termination option exists and at what cost. For 10-year leases, negotiate a break clause at year 5.
• SNDA Agreement: Confirm an SNDA (Subordination, Non-Disturbance, Attornment) agreement is either attached to the lease or will be obtained from the property's lender before or at signing.
• Holdover Clause: Identify the holdover rent rate (typically 150–200% of final month's rent) and negotiate if excessive.

Title and Property Legal Status

• Ownership Verification: Confirm the landlord actually owns the property (or has authority to lease it). Search public land records to verify the title chain.
• Existing Encumbrances: Check for mortgages, liens, easements, or restrictions that could affect your use of the property or your lease rights.
• Ground Lease Status: If the building is on a ground lease, understand the ground lease expiration and what happens to your tenancy if the ground lease terminates.
• Pending Litigation: Search court records for any pending lawsuits involving the property or the landlord entity that could affect the property's ownership or your lease.

5. Zoning and Regulatory Due Diligence

Zoning due diligence confirms that the property is legally permitted for your intended use. This is especially critical for restaurants, medical offices, retail businesses, childcare, and any industrial use with specific requirements.

• Zoning Classification: Obtain the official zoning designation for the property from the local planning department. Confirm your use is permitted "by right" (no additional approvals needed) or requires a special use permit.
• Special Use Permits: If a special use permit (SUP) or conditional use permit (CUP) is required, understand the approval timeline (often 60–120 days), approval conditions, and whether the landlord guarantees approval. Negotiate a contingency clause allowing you to terminate the lease if required permits are denied.
• Certificate of Occupancy: Verify the current certificate of occupancy (CO) allows your intended use. A change of use often triggers a new CO application and additional code compliance requirements.
• Signage Ordinances: Research the local sign ordinance for size, type (illuminated, monument, wall-mounted), and setback requirements. Many municipalities have strict sign codes that supersede what the landlord offers.
• Parking Requirements: Verify the zoning code's parking requirements for your use (e.g., restaurants require 1 space per 3 seats; medical requires 5–6/1,000 SF). If the building's parking doesn't satisfy code for your use, you may not be able to operate.
• Operating Hour Restrictions: Some zones restrict operating hours (especially near residential areas). Bars, entertainment venues, and industrial operations should research this carefully.
• Building Permit History: Pull the building's permit history from the local building department. Unpermitted prior work creates compliance risk for subsequent tenants who may be required to retroactively permit and remediate.

6. Environmental Due Diligence

Environmental due diligence is critical for industrial, lab, auto repair, dry cleaning, and any tenant dealing with chemicals or hazardous materials. Even retail and office tenants in older or industrial-adjacent buildings should conduct basic environmental screening.

• Phase I Environmental Site Assessment (ESA): For industrial, lab, gas station, dry cleaner, or auto service uses, a Phase I ESA (conducted by a qualified environmental professional) is strongly recommended. Cost: $1,500–$3,500. Identifies recognized environmental conditions (RECs) from historical uses.
• Phase II ESA: If Phase I identifies RECs, a Phase II (soil and groundwater sampling) may be required. Cost: $5,000–$25,000+. Determines actual contamination levels.
• Prior Tenant Research: Research what businesses previously occupied the space — auto repair, dry cleaning, photography labs, and manufacturing are all potential contamination sources. The local fire department may have records of past chemical storage.
• ASTM Records Search: A standard ASTM E1527-21 Phase I includes a database review for known environmental incidents, spills, and cleanup sites within a specified radius of the property.
• Asbestos-Containing Materials (ACM): Buildings constructed before 1980 may contain asbestos in floor tiles, ceiling tiles, pipe insulation, and joint compound. Request any existing asbestos surveys. Any renovation work in these buildings requires ACM assessment before demolition.
• Lead-Based Paint: Buildings constructed before 1978 may contain lead-based paint. If you're doing renovation work, lead protocols may be required.

7. Landlord Financial Health Due Diligence

A landlord who defaults on their mortgage or goes bankrupt can create serious disruption for tenants — from a lender taking over the building with unknown policies to foreclosure proceedings affecting lease rights. Researching landlord financial health before signing is often overlooked by tenants.

• Ownership and Entity Search: Identify the actual legal entity that owns the property. Search your state's business entity database to confirm the entity is in good standing (not dissolved or revoked).
• Mortgage and Lien Search: Pull UCC filings and the property deed of trust to identify the existing mortgage, its lender, and the outstanding balance where available. A property with a mortgage greater than its value creates foreclosure risk.
• Talk to Other Tenants: The most reliable source of landlord intelligence is existing tenants. Ask about: maintenance responsiveness, whether rent was ever demanded in unusual ways, any pending disputes, or whether the landlord has made representations that weren't honored.
• Broker Market Intelligence: A good tenant's broker will have direct knowledge of landlord reputation in the market. Ask specifically: "Is this landlord known for honoring their commitments? Do they play games with CAM reconciliations?"
• Online Search and Court Records: Search for lawsuits involving the landlord entity or principal(s). Multiple past tenant lawsuits are a major red flag.
• SNDA Status: If there's a mortgage on the property, confirm the lender will execute an SNDA. An SNDA protects your lease if the landlord defaults — without it, a bank foreclosure could terminate your tenancy.

8. Master Due Diligence Checklist (Summary)

Use this condensed checklist to track your due diligence progress. Check each item before executing the lease.

Physical Inspection

• HVAC inspection and age/condition confirmed
• Electrical capacity verified for your use
• Plumbing condition inspected
• Roof condition report obtained
• Delivery condition punch list signed by both parties
• Telecom/internet carrier availability confirmed
• ADA compliance status confirmed
• Parking count verified and meets zoning requirements

Financial Analysis

• 3-year CAM history obtained
• All-in occupancy cost modeled for every lease year
• TI allowance NPV calculated
• Rent escalation schedule modeled through lease expiration
• Security deposit terms negotiated
• Free rent periods verified and memorialized in rent commencement letter

Legal Review

• Lease reviewed by commercial real estate attorney
• Permitted use clause verified as broad enough
• Personal guarantee scope negotiated
• SNDA obtained from existing mortgage lender
• Title search completed
• Pending litigation search completed

Zoning and Regulatory

• Zoning classification confirmed permits your use
• Special use permits identified and timeline assessed
• Certificate of occupancy reviewed for your use
• Sign ordinance researched
• Building permit history reviewed

Environmental

• Prior use research completed (prior tenants identified)
• Phase I ESA completed (if industrial/hazmat/high-risk use)
• Asbestos survey reviewed (pre-1980 buildings)
• Lead paint status confirmed (pre-1978 buildings)

Landlord Health

• Landlord entity status confirmed (good standing)
• Existing tenants contacted for landlord reference
• Lien search completed
• SNDA executed by mortgage lender

Frequently Asked Questions

Related Resources

• Pre-Signing Commercial Lease Checklist — 30 items to review before signing
• Lease ROI Calculator — model your all-in occupancy cost
• Lease Types Explained — NNN, gross, modified gross
• SNDA Agreements Explained
• Triple Net Lease Explained