How to Buy a Commercial Building, Step by Step

If you have never bought commercial property, it helps to see the entire order before looking at any building. Practice varies by state and by deal, and your attorney will adapt this sequence. The outline below follows law firm and bar association descriptions of how many purchases run.

1. Write down what the business needs: size, location, use, loading, parking, growth room and your target move date.
2. Confirm the decision to buy, with a multi-year comparison against leasing.
3. Talk to lenders early to understand likely loan amount, cash required and which programs fit.
4. Assemble the team: an attorney, a CPA, a lender and, if you choose, a broker representing the buyer.
5. Search, tour and compare properties against your written needs.
6. Negotiate a letter of intent covering price, deposit, inspection period and closing date.
7. Negotiate and sign the purchase and sale agreement, and deliver the earnest money.
8. Complete due diligence during the inspection period: physical, environmental, title, survey, zoning and seller documents.
9. Finish the loan: appraisal, commitment and loan documents.
10. Close, record the deed, take possession and start the move.
11. Handle the exit from your current space, on a timeline set well before closing.

The first three steps feel like paperwork, and buyers are tempted to skip them. They are the steps that keep you from spending months on a building you cannot finance or cannot use.

Write your requirements as must-haves and nice-to-haves. If a future use matters, such as a clinical buildout or heavier power for equipment, say so now, because zoning and building condition may rule out otherwise attractive properties.

Early lender conversations should cover how much the lender will advance, how much cash you must bring and what it needs from you. The SBA’s 504 program, for example, is available only through Certified Development Companies, and it has eligibility standards for operating businesses. Leave yourself money after closing: CDC Small Business Finance warns against using all available cash for the purchase and leaving too little working capital. TAG is a broker and not a lender, so your loan terms will come from the lenders themselves.

Many purchases begin with a term sheet or letter of intent. It lets both sides find out whether they agree on primary terms before spending on lawyers and reports. Maynard Nexsen, in its overview, says the term sheet should be non-binding except for a requirement that the seller negotiate exclusively with the buyer for a set period. An article published by the California Lawyers Association adds that many letters of intent include limited binding provisions, such as confidentiality and exclusivity.

The purchase and sale agreement is the document that controls the rest of the deal. It sets how money and documents change hands, how long you have to inspect, what each side represents, what happens on default and how closing works. Commercial contracts are generally drafted for the specific transaction rather than filled in on a form, and Maynard Nexsen notes that many buyers prefer their attorney to write the first draft.

Do not assume the contract protects you if your loan falls through. Maynard Nexsen notes that, unlike residential contracts, commercial contracts do not often include financing contingencies, on the assumption that the buyer resolves financing during the inspection period. Ask your attorney how your deposit is treated if the loan fails.

Earnest money deserves careful reading. Depending on the contract, some or all of the deposit may be refundable if certain acts are not performed or dates are missed, and it may be forfeited if the buyer does not perform.

Phillips Lytle, a law firm, describes this period as a buyer’s "free look": time to confirm that the legal and physical condition of the property matches expectations. The usual work includes:

• ✓Has a qualified inspector reported on the building, especially the roof and HVAC and other items with a known useful life?
• ✓Has a Phase I environmental site assessment been done, and is it dated close enough to closing?
• ✓Have we reviewed the title commitment and every exception, including easements and liens?
• ✓Do we have a survey, certified to us, showing boundaries, easements and encroachments?
• ✓Does zoning allow our use, and any planned renovation or change of use?
• ✓Have we read the seller’s documents: leases, operating history, service contracts and warranties?
• ✓If tenants remain, have we reviewed each lease and obtained estoppel certificates?

Environmental timing is a detail people miss. The EPA’s All Appropriate Inquiries page says the inquiries must be conducted or updated within one year before acquisition, and certain parts within 180 days. Completing them is also tied to federal liability protections for some purchasers, so involve your attorney and consultant early. Third parties rarely share your urgency, so order reports as soon as the contract allows.

While diligence runs, the lender works through its own process. An appraisal is required for any loan by a bank or similar traditional lender, and Maynard Nexsen notes that applicable law requires the bank to control the appraisal. Loan documents are then negotiated much as the contract was. Your lender is also likely to require a Phase I, a survey and a title insurance policy.

At closing, the seller typically delivers a deed and related affidavits and documents to the closing attorney, title company or escrow agent acting as settlement agent. The buyer signs loan documents and delivers the purchase price and a signed closing statement. Taxes, service charges and other income and expense items are allocated between the parties. Once the agent has everything, it records the deed and disburses the funds.

• Your attorney drafts or reviews the contract, resolves title issues and runs the closing. An article from the California Lawyers Association argues for involving counsel from the start, because later documents build on early negotiations.
• Your CPA advises on the ownership structure and the tax effect of the purchase.
• Your lender underwrites your company and the property, and sets the conditions.
• Consultants such as engineers, environmental firms and surveyors supply the reports.
• A buyer’s broker, if you use one, handles the search, market comparisons and negotiation of business terms.

Delays commonly come from three places: reports ordered late, title problems that need a third party’s signature, and a loan that takes longer than the inspection period allows. Build slack into the contract dates, and keep your current lease exit flexible until closing is secure.

Tenant Advisory Group works for the buyer through this sequence, from the written requirements to the letter of intent and the negotiated business terms, alongside your attorney and lender.