Common Reasons Commercial Real Estate Deals Fail Before Closing

 Posted on November 15, 2025 in Commercial Real Estate

Buying or selling commercial property is a major financial decision for a business owner or investor to make. Unfortunately, not every promising deal makes it to the closing table. Research suggests that roughly 50 percent of commercial real estate transactions fall apart during the due diligence phase, often catching both parties off guard.

Understanding why deals fail can help you avoid these pitfalls in your 2026 commercial dealings. Whether you are a landlord selling a retail center, or an investor acquiring a distressed building, our Naperville commercial real estate attorneys can work to save you time and money.

Why Do So Many Commercial Real Estate Deals Fall Through During Due Diligence?

The due diligence period exists to protect buyers, but it is also when the most deals collapse. During this phase, which typically lasts between 30 and 90 days, buyers dig into every detail of the property.

Environmental and zoning concerns represent a large cause of deal failures, accounting for a large percent of collapsed transactions. A Phase I environmental assessment might reveal:

• Contamination from a previous industrial tenant

• Problematic zoning restrictions and municipal red tape 

• Soil issues requiring expensive remediation

Commercial properties often have complicated ownership histories involving multiple entities and transfers; as a result, title defects also contribute to many failed deals. These problems include:

• Unresolved liens

• Boundary disputes

• Easement conflicts

• Gaps in the ownership chain

Financing failures and financial discrepancies round out the top three reasons. When a buyer reviews the rent rolls and tenant payment histories, they sometimes discover that the property does not generate the income the seller represented or that the buyer had anticipated. And favorable financing terms may not be available, even when everything else lines up.

Does Illinois Law Require Sellers to Disclose Property Problems in Commercial Transactions?

Here is something that surprises many first-time commercial property buyers: Illinois does not require the same seller disclosures for commercial real estate that it requires for residential properties.

The Illinois Residential Real Property Disclosure Act, found at 765 ILCS 77, requires residential sellers to complete a detailed disclosure form covering the property's condition. However, this statute explicitly does not apply to commercial real estate transactions.

This means commercial property buyers in Illinois operate under a "buyer beware" standard. Sellers are not legally obligated to volunteer information about property defects or environmental issues unless the buyer asks specifically. Sellers can be held accountable for misrepresentations, and they cannot conceal known defects or lie. However, the responsibility for robust due diligence lies with the buyer.

This legal framework makes thorough due diligence absolutely essential. Buyers must order their own inspections, environmental assessments, and title reports. They must review these all carefully and ask detailed questions. Having an attorney create a purchase agreement with specific seller representations and warranties provides much-needed protection.

Existing Tenant Risk and Commercial Deal Failures

Properties with existing tenants present unique challenges. A buyer is essentially inheriting someone else's tenant relationships, lease agreements, and collection history.

Tenant estoppel certificates, which verify the terms of existing leases and confirm that tenants are current on obligations, sometimes reveal surprises. A tenant might claim different lease terms than what the seller represented, or outstanding disputes might affect the property's value.

Tenant financial instability also concerns buyers and lenders. When tenants fall behind on payments, it affects both the property's income stream and its attractiveness to lenders. Buyers need to carefully review each tenant’s payment history and rental contract.

How to Protect Your Commercial Real Estate Transaction

Whether buying or selling, taking proactive steps makes deals more likely to close successfully – and allows buyers to avoid closing on risky properties.

Ask for thorough documentation as soon as possible, including tax records, utility bills, tenant leases, and maintenance logs. Hire professionals for building inspections, environmental assessments, and land surveys. Finally, work with an experienced attorney to include protective contingencies in your buyer’s contract.

Call a Naperville, IL Commercial Business Attorney Today

Commercial real estate transactions involve substantial money and risk. Whether you are buying, selling, representing clients as an attorney, or managing distressed properties, having the right legal guidance matters.

A DuPage County commercial business lawyer at Lindell & Tessitore, P.C. can help you navigate due diligence, draft protective agreements, and resolve the issues that commonly cause deals to fail. Call 630-778-3818 to discuss your commercial real estate matter. We have over 20 years of experience and Attorney Dennis P. Lindell has an advanced real estate degree.