Guides
Part of Commercial buying: risks, safeguards and decisions, in plain terms
Commercial buying requirements: the property list only you can write
Commercial buying requirements the lender and seller never set for you: your own property list covering title, survey, permission, condition, costs and tenants.
Buying premises runs three sets of requirements at once. The lender has a list about you and about the building. The seller has a list about your ability to complete. The third list is about the property itself, and nobody hands it to you.
The first two lists are short and enforced by others. The third decides whether the purchase was a good idea, and its length is your decision.
What to take away
- The property list is the one that protects you, and its length is your decision rather than a rule somebody enforces.
- The lender's list usually sets the date, because the valuation, the environmental assessment and the title review all sit on its critical path.
- A report addressed to the seller may give you no rights at all if it turns out to be wrong. Commission your own where it matters.
- Settle who buys the property before you make an offer. Changing the buying entity afterwards is expensive and sometimes impossible.
Three lists you are handed, one you write
Each list has an author, and only one of them is you. The table separates what others will ask for from what nobody will ask for on your behalf.
| List | What it asks about | Who writes it |
|---|---|---|
| Lender, on you | Accounts, forecasts, the ownership structure, personal information on whoever controls it, and how much you are putting in | The lender |
| Lender, on the building | A valuation, a title review, sometimes a building survey, usually an environmental assessment, and insurance from the moment risk passes to you | The lender |
| Seller, on you | Evidence you can complete, a deposit held by a neutral party, a timetable with the investigation period defined, and identity and authority for whoever signs | The seller |
| Your property list | Title, survey, permission, condition, running costs and tenants | You |
Where the business is young, the lender's question moves to whoever stands behind it, and a personal guarantee usually follows. How money and documents sit between contract and completion is the function of an escrow, and the instructions governing it are worth reading rather than signing.
The environmental assessment matters for a reason beyond the building's condition. The EPA describes all appropriate inquiries as the process of evaluating a property's environmental conditions and assessing potential liability for any contamination. It has to be complete before you close, not after.
Your property list, item by item
This list is yours to write, and it decides whether the purchase was a good idea. Six items belong on it, and each answers a different question about what you are buying.
Title. What you are actually acquiring, and what rights other people hold over it. The process is a title search. The recorded rights most likely to affect your plans are easements running across the site.
Survey. Boundaries, encroachments, access, and where those recorded rights physically run. A marketing plan is not a survey. Ordered late, a survey arrives late and changes plans you have already made.
Permission. Whether your activity is allowed at the address, whether the existing use is lawful, and what was approved historically. That is a separate investigation, and the method sits in zoning and permits.
Condition. Structure, roof, systems, and remaining life on the expensive items. The expensive items are the ones you cannot see, which is why a building survey is the report you most want before you are committed. Ask for maintenance records and warranties. Their absence is itself information.
Running costs. Utilities, taxes, insurance, maintenance. Energy is the item most often guessed and most easily measured. ENERGY STAR's Portfolio Manager is a tool for benchmarking the energy use of any type of building.
Tenants, if any. Every lease in full, the rent roll, arrears, and any dispute. If income is part of why you are buying, the leases are the asset. What to look for in them is in commercial leasing.
Who is buying it
Settle this before the offer. The property can be bought by the operating business, a separate entity, the owners personally, or a pension arrangement. Each choice affects tax, liability, financing, and what happens when the business is sold.
Ask your accountant and your lawyer together. It is far cheaper before contracts than after.
Which item sets your date
The lender's reports sit on the critical path, and the items you order yourself can slow it further. A survey or a building survey requested late arrives late, and permission confirmations come back on each office's own schedule.
Order the slow ones first. The commonest cause of a rushed decision is a report arriving days before a deadline nobody moved. Your protection lives in the purchase contract, and the full transaction sequence is in commercial buying.
Common questions
How long should the investigation period be?
Long enough for the slowest report you have ordered, plus time to act on what it says. Negotiate that period at the offer stage, because extending it later costs you something.
Can I rely on the seller's reports?
Read them, then commission your own where it matters. A report addressed to somebody else may give you no rights at all if it turns out to be wrong.
Do I need a survey if the building looks fine?
Yes. The expensive items are the ones you cannot see: the roof, the structure, the systems and the ground.
What if the lender's valuation comes in low?
It changes what you can borrow and therefore what you must put in. Know the mechanism before you are emotionally committed to a building, which is an argument for ordering it early.
