A business owner buying a first building, or an investor buying a small retail or industrial property, usually arrives at the due-diligence period with the wrong instinct carried over from buying a house. In a California home purchase the law does a great deal of the work for you: the seller fills out a Transfer Disclosure Statement, the agents owe you a visual inspection, and the standard contract will not let your contingencies lapse without a written notice to perform. None of that follows you into a commercial deal. What replaces it is a window of a few weeks in which you are expected to find everything yourself, and a contract that treats your silence as approval.
What you do not get in a commercial purchase
The Transfer Disclosure Statement under Civil Code section 1102 applies to residential property of one to four units. So does the agent’s duty of visual inspection under section 2079. A commercial seller owes you neither. The seller still may not actively conceal a known material fact that you could not reasonably discover on your own, and an “as-is” clause does not excuse fraud — California courts have said so since Lingsch v. Savage in 1963. But that is a remedy after the fact, and it depends on proving what the seller knew. The natural-hazard statutes are not limited to residential property, so you should still receive a natural hazard disclosure report. Beyond that, the law assumes you are a business that can look after itself.
The practical consequence is simple: in a commercial deal, what you can prove later depends almost entirely on what you asked for in writing before closing, and what you did with the answers inside the contingency period.
The contingency clock runs differently
On the AIR commercial purchase forms commonly used in Northern California, the buyer’s contingencies are typically deemed approved unless the buyer disapproves in writing by the deadline. There is no notice to perform. If your Phase I report arrives the day after the contingency date and it recommends a Phase II, you have already approved the environmental condition of the property, and your deposit is now the seller’s leverage. So the first thing to do with a signed purchase agreement is to put the contingency date on a calendar, order every third-party report the same week, and ask for a written extension the moment any of them looks like it will run late. Extensions are routine when requested before the deadline and expensive to negotiate after it.
Title and survey: the exceptions are the property
The preliminary title report is not a summary; it is a list of documents that will govern your ownership. An access easement across the parking lot, a reciprocal easement agreement with the neighboring center, recorded CC&Rs restricting use, an old option or right of first refusal — each of these is one line in Schedule B and each can change what the building is worth to you. Ask the title company for copies of every exception and read them against what you plan to do with the property. Then order an ALTA survey. A standard CLTA policy excludes anything a survey would have disclosed; an extended ALTA policy, issued with a current survey, covers it. For a commercial building the difference in premium is small next to the cost of discovering after closing that the loading dock is on the neighbor’s parcel.
Estoppels: the rent roll is a claim, not a fact
If the building has tenants, the income you are buying exists only in the leases, and the seller’s rent roll is the seller’s summary of them. An estoppel certificate is the tenant’s own sworn confirmation of the rent, the term, the options, the deposit, any prepaid rent, and whether the landlord is in default. Most commercial leases require the tenant to deliver one within ten to twenty days of a request. Send them in the first week, because a tenant who says the landlord promised a rent reduction, or that the roof has leaked for two years, has just told you something the seller did not. Read each lease in full while you wait: below-market renewal options, exclusive-use clauses that limit who else you can lease to, early-termination rights, and a tenant’s right of first refusal to buy the building are the provisions that surprise new owners. Confirm how tenant security deposits will be credited to you at closing; they are the tenants’ money, and the obligation to return them comes with the building.
The Phase I is not a formality
A Phase I environmental site assessment, performed to the current ASTM standard, is what lets a buyer claim the federal “bona fide prospective purchaser” defense to cleanup liability for contamination that was already there. Skip it, or let it go stale, and the cost of someone else’s dry cleaner or underground tank can become yours. The assessment takes two to four weeks and has a shelf life; parts of it must be updated if more than 180 days pass before closing. If the report recommends a Phase II, that is soil and groundwater sampling, more time, and a conversation about price, an escrow holdback, or a seller indemnity. All of it has to happen inside the contingency period to mean anything.
Zoning, permits and the building you are actually buying
The seller’s use of the building is not evidence that your use is permitted. A zoning verification letter from the city, the certificate of occupancy, and the permit history for every addition and tenant improvement are the three documents that answer the question. Conditional use permits can carry conditions that expire or that do not transfer. Mezzanines, kitchens, and demising walls added without permits are a cost you inherit, and they are also the reason the property condition report and the permit history should be read together. For an older building, ask directly whether it is unreinforced masonry and whether a seismic retrofit has been completed or ordered.
Accessibility: the buyer has to ask
Civil Code section 1938 requires a commercial landlord to tell a tenant whether the premises have been inspected by a Certified Access Specialist. It says nothing to a buyer. Once the building is yours, an accessibility claim over the entrance, the restroom or a parking stall is your claim to defend. A CASp inspection during due diligence produces a report and, in many cases, a period of protection from certain statutory damages while you correct what it finds. Ordering it before closing also puts the cost of the corrections on the negotiating table while there is still a seller to negotiate with.
The numbers that change on the day you close
The seller’s property tax bill tells you nothing about yours. A sale is a change in ownership under Proposition 13, and the assessed value resets to approximately the purchase price. Model the new bill from the local rate, then add the parcel taxes, bonds and special assessments that appear on the current bill, because those do not go away. The documentary transfer tax is separate: the county levies its own, and several cities, including San Jose, add a city transfer tax on higher-value transfers. Who pays is a matter of custom and negotiation, and the purchase agreement should say. Property insurance belongs in the same spreadsheet. Coverage in California has tightened, and a quote obtained during the contingency period is worth more than an estimate taken on faith, particularly if a lender will require specific coverage before funding.
Financing and vesting: decide before the deadline
An owner-user buying a building for the business will often look at an SBA 504 loan, which generally requires the business to occupy a majority of the space and moves on its own timeline for approval and appraisal. Make sure that timeline fits inside the financing contingency, or extend it. Decide which entity takes title before escrow opens, not at the signing table. Transferring the property into a different entity after closing can itself be treated as a change in ownership for property-tax purposes unless an exclusion applies, and that is a conversation to have with your CPA before you do it.
When the seller lied anyway
Due diligence reduces the odds of a bad surprise; it does not eliminate them. If a seller concealed a known defect, misstated the income, or delivered a rent roll it knew to be false, a commercial buyer still has claims for fraud and concealment, and an as-is clause is not a defense to them. The measure of damages against a seller in California is generally the out-of-pocket rule under Civil Code section 3343, and the claim has to be brought within three years of discovering the fraud. The record you built during the contingency period — the questions you asked in writing, the documents you were given, and the representations in the contract — is what makes that claim provable. Jimmy’s article on what a California nondisclosure case is worth explains the damages framework in more detail.
How Jimmy can help
Jimmy Nguyen is a real estate attorney and a licensed California broker, and he has helped business owners buy their first commercial buildings in both roles. Some buyers want a lawyer to read the title exceptions, the leases and the estoppels and tell them plainly what they are about to own. Others want him as their broker on the purchase, negotiating the contract and running the due-diligence period, with the same attorney reading every document and available if the seller does not perform. When he acts as your broker, any legal services are covered by a separate written agreement so that both roles are clear from the start.
His commercial real estate page covers purchases, lease review, buying a business, and what happens when a commercial deal goes wrong. For a tenant facing a renewal rather than a purchase, read Before You Sign a Commercial Lease Renewal in California. Fees are quoted in writing for the specific work agreed on before anything begins.
Email jimmy@lawjn.com with the purchase agreement and the contingency date, or use the form below.