Buying commercial real estate in California is an exciting investment, but it carries significant legal and financial risks. Unlike residential sales, commercial deals often follow a “buyer beware” rule. To protect yourself, you must complete a rigorous review process called due diligence.
The mandatory disclosure and inspection phase
In California, the law requires the seller to provide you with specific information. They must give you a Natural Hazard Disclosure (NHD) statement. This document warns you if the building is in a flood, wildfire or earthquake-prone zone.
While the seller provides these records, you must also hire experts to check the building’s physical health. This includes the roof, plumbing and HVAC systems. In many California cities, such as Los Angeles and San Francisco, seismic retrofitting is not just a suggestion—it is a legal requirement for certain older buildings. Failing to comply with these local building codes can result in heavy fines.
Environmental and zoning checks
Most lenders will require a Phase I Environmental Site Assessment. This report assesses whether past uses, such as a gas station or a dry cleaner, have contaminated the soil or water. You must also verify the local zoning laws. Every city has its own rules about how you can use a property. You must confirm that the law allows your specific business, whether it is a shop or a warehouse, at that location.
Reviewing finances and legal titles
If there are tenants, you must review every lease. Check the rent amounts and who pays for repairs. You should also look at the Preliminary Title Report. This shows if there are unpaid debts or easements that could limit how you use the land.
Most importantly, you must complete these checks within the contingency period set by your contract. If you do not raise concerns before this deadline, you may lose your right to cancel the deal. Working with a real estate attorney can help you track these deadlines and ensure you fully protect yourself before you sign the final papers.