10 Due Diligence Considerations for Buyers in Commercial Real Estate Purchases

 Posted on August 16, 2025 in Commercial Real Estate

When purchasing commercial property, a buyer must look beyond the bricks and mortar. One of the most important parts of due diligence involves reviewing the existing tenant leases. Leases dictate the property’s income, the landlord’s responsibilities, and potential risks that carry over to the new owner. Overlooking these provisions can mean inheriting expensive financial obligations or problematic restrictions that limit future use of the property.

If you are considering a purchase of commercial property, working with an Oak Brook commercial real estate lawyer who has both advanced real estate training and over 20 years of legal experience can provide significant protection. Below are 10 critical considerations for reviewing tenant leases. This list is not exhaustive but highlights some of the most common issues buyers face as they try to protect themselves and remain compliant with Illinois contract law.

Right of First Offer Provisions

Some leases grant tenants a right of first offer (ROFO), which means the tenant gets the first opportunity to buy the property before it is sold to a third party. If this provision exists, the seller must provide the proper notice to the tenant within the required timeframe. Importantly, the tenant declining to exercise this right should be made a closing contingency in the purchase agreement to make sure you do not face unexpected delays.

Expense Caps on CAM Charges, Taxes, and Operating Expenses

Commercial leases often require tenants to pay a share of common area maintenance (CAM), property taxes, and operating expenses. However, some leases cap these charges, limiting the landlord’s ability to recover rising costs. As a buyer, you need to review whether any such caps exist and understand their long-term financial implications.

CAM Exclusions

In addition to caps, many leases exclude certain expenses from being passed along to tenants. Capital expenditures, structural repairs, or major replacements are commonly excluded. Buyers should carefully review these provisions to understand what costs they may be required to bear directly.

Early Termination Rights

If a tenant has the ability to end a lease early, this creates uncertainty in the income stream. Buyers need to evaluate how likely it is that tenants will exercise these rights and what effect that would have on the property’s stability and value.

Unfunded Tenant Allowances or Concessions

Some landlords agree to provide tenant improvement allowances or concessions, such as free rent, that extend beyond closing. If these commitments have not been fully funded by the seller, the buyer may inherit these obligations. Identifying these liabilities before closing is critical.

Landlord’s Repair and Maintenance Obligations

Not all leases place repair responsibilities on the tenant. Some require the landlord to handle structural, roof, or mechanical repairs. Buyers need to understand these obligations because they can be significant expenses over time.

Tenant Exclusive Use Options

Tenants may negotiate exclusive use rights, preventing the landlord from leasing to competitors. For example, a grocery tenant might have exclusivity over food sales. Buyers should confirm these restrictions and determine if any violations have occurred that could create disputes with tenants.

Tenant Estoppel Letters

Tenant estoppel letters confirm key facts about the lease, such as rent owed, term length, and landlord obligations. Buyers should ensure these are obtained in a form acceptable to them within the due diligence period. Making estoppel delivery a closing condition protects against undisclosed lease issues.

Subordination to Future Mortgages

Well-drafted leases include subordination clauses that ensure the lease is subordinate to any future mortgages. This is important for lenders and future refinancing. Buyers should confirm these provisions are present and enforceable.

Redevelopment Rights in Retail Centers

For larger retail properties, redevelopment flexibility is crucial. Leases should allow the landlord to make changes to parking areas, common areas, and other parts of the property. Without this language, redevelopment or reconfiguration of the property may be restricted, limiting future value.

Contact an Oak Brook, IL Commercial Real Estate Lawyer

Purchasing a commercial property requires careful attention to the fine print in every tenant lease. Missing even a small detail can mean taking on hidden liabilities or losing opportunities for growth. An experienced DuPage County, IL commercial real estate attorney at Lindell & Tessitore, P.C. can guide you through due diligence and help protect your investment. Call 630-778-3818 today to schedule a consultation and learn how we can assist with your commercial real estate transaction.