The intent of this document is to act as a road map and checklist to use during due diligence. This list does not cover everything on all property, but is a useful tool and a great place to start when considering purchasing real property.

The physical inspection of the property should be conducted by properly trained personnel. A number of different technical specialists may be required. At least the following should be considered:
1.1 Location
1.2 General Condition of the property
1.3 Deferred maintenance
1.4 Structural condition of buildings
1.5 Condition of buildings systems (e.g. plumbing, electrical, HVAC, elevators)
1.6 Land conditions (e.g., soils, flood plains, drainage, wetlands, slopes, mining activity)
1.7 Access
1.8 Flood plains
1.9 Hazardous substances – see Section Environmental Issues and Liabilities
1.10 Compliance with building codes
1.11 Compliance with fire codes
1.12 Insurance rating issues
1.13 Hazards (e.g., fire, floods, earthquakes, plant and animal diseases, pests)

The extent of due diligence depends on the value of the personalty.
2.1 Itemization
2.2 Physical condition
2.3 Sufficiency to operate the property
2.4 Intangibles – names, brands, patents, trademarks, copyrights

The analysis of leases should determine that the purchaser is acquiring what was bargained for, confirm that there are no undisclosed, extraordinary obligations or unexpected liabilities, and prepare the purchaser to assume ownership of the leases and manage the property consistent with the terms of the leases.
3.1 Obtain a rent roll and true and complete copies of each lease, any amendments, any side letters and as much landlord/tenant correspondence as possible.
3.2 Review financial terms
3.2.1 Term
3.2.2 Renewal and expansion options
3.2.3 Basic rent
3.2.4 Additional rent
3.2.5 Escalations
3.2.6 Tax pass-through
3.2.7 Expense pass-through
3.2.8 Insurance requirements
3.3 Review legal terms
3.3.1 Proper Execution
3.3.2 Cancellation and recapture rights
3.3.3 Subordination and nondisturbance
3.3.4 Estoppel obligation
3.3.5 Landlord’s unperformed obligations
3.3.6 Maintenance and repair obligations
3.3.7 Options to renew, expand, purchase
3.3.8 Rights o sublet, assign
3.3.9 Requirements to assume
3.3.10 Indemnity obligations (especially those that survive the lease) expiration
3.3.11 Environmental protections, obligations
3.3.12 Unusual provisions
3.4 Consider pending obligations
3.4.3 Brokerage obligations
3.4.4 Obligations to landlord/tenant if lease is assigned or premises sublet
3.4.5 Disposition of security deposits, pre-paid items
3.4.6 Pending disputes
3.4.7 Tenant finish obligations
3.5 Obtain estoppel letters appropriate to the leases

Analysis of the existing debt is only to determine the procedure and possible limitations on payoff if it is not to remain after the closing; otherwise the purchaser needs to become familiar with the existing debt just as if it were obtaining a new loan from the lender.
4.1 Obtain copies of all documents
4.1.1 Loan agreement
4.1.2 Note
4.1.3 Deed of trust/mortgage
4.1.4 Assignment of leases, rents and income
4.1.5 Security agreements
4.1.6 Financing statements
4.1.7 Guaranties
4.1.8 Loan commitment letter
4.1.9 Environmental indemnity
4.1.10 Other (e.g., side agreements)
4.2 Review financial terms
4.2.1 Unpaid principal amount
4.2.2 Interest rate, interest accrued; per diem interest
4.2.3 Amortization rate/balloon payment
4.2.4 Term
4.2.5 Monthly payments
4.2.6 Tax escrow
4.2.7 Insurance escrow
4.3 Review legal terms
4.3.1 Can it be assumed? Can it be taken “subject to”?
4.3.2 Prepayment restrictions, penalties and procedures
4.3.3 Limitations on secondary financing
4.3.4 Recourse? Limited recourse?
4.3.5 Insurance obligations and applications of proceeds
4.3.6 Indemnities (especially ones that survive full repayment)
4.3.7 Reporting obligations
4.3.8 Performance obligations; covenants
4.3.9 Defaults
4.3.10 Remedies
4.4 If assuming or taking “subject to”, obtain an estoppel letter

The purchaser usually “picks and chooses” among the service and maintenance contracts. For those to be terminated, the termination rights and procedures need to be learned. For those to be accepted (either assumed or taken “subject to”), they need to be reviewed as if the purchaser were entering into them anew and to determine the procedures for assignment and, perhaps, assumption. For those that are neither terminabel nor assignable, negotiations have to be entered into or the legal consequences for beach explored.
5.1 Obtain list of contracts
5.2 Obtain copies of all documents
5.3 Review financial terms
5.4 Review legal terms
5.5 Determine obligations if the seller assigns
5.6 If critical or long-term, get estoppel letter

Guarantees and warranties are usually assigned, if at all, as a matter of course on a “for-what-they’re-worth basis.”
6.1 Obtain a list
6.2 Obtain copies of all documents
6.3 Confirm assignability
6.4 Deal with pending claims

The nature of the review depends on whether the policies are being assigned to the purchaser or being canceled at closing. If not assigned, the review is limited to determining that the purchaser’s interest is protected during the contract period. If the policies are being assigned, they need to be reviewed as if the purchaser were acquiring the polices anew.
7.1 Companies
7.2 Broker
7.3 Coverages (especially for special risks or special amenities)
7.4 Special exclusions
7.5 Special endorsements
7.6 Amounts
7.7 Assignability of policies
7.8 Status of premiums

Determining the permits and licenses that are required for the property can be a difficult task and may require expert advice. Many permits are not transferable and need to be reissued upon the transfer of the property. The due diligence investigation should identify the procedure (including the time period) necessary to obtain new permits or licenses.
8.1 Obtain and Review
8.1.1 Appurtenant easements (natural, express, implied, prescriptive)
8.1.2 Permits for buildings and building systems (e.g., boilers, elevators)
8.1.3 Building permits
8.1.4 Access permits
8.1.5 Environmental permits
8.1.6 Special activity permits
8.1.7 Business licenses
8.1.8 Permits to use land (e.g., vaults, grazing, BLM, Forest Service)
8.1.9 Other permits and licenses – need to be reviewed with seller’s property manger
8.2 Matters to consider
8.2.1 Transferability
8.2.2 Duration
8.2.3 Revocability
8.2.4 Conditions
8.2.5 Obligations
8.2.6 Defaults

9. Employees
The purchaser usually “picks and chooses” among employees when acquiring real property that has employees. Employees are either terminated or terminated and rehired at the closing (except in stock transactions where the employees come with the company). In all cases, the human factor must be given high regard and careful consideration. Moreover, numerous special legal obligations apply and need to be considered, especially if employees are being terminated (e.g. COBRA, WARN Act, collective bargaining agreements, accrued employee benefits and severance obligations).
Generally consider the following:
9.1 Availability to new owner, especially of “key” employees
9.2 Terminable at will or under written agreements
9.3 Employee manuals
9.4 Union obligations
9.5 Wages and benefits
9.6 Severance obligations
9.7 Rehiring considerations

The purchaser needs to know that the property has permanent, uninterruptible access to all the utilities necessary for the current and anticipated use of the property. The lack of a vital utility can render the property worthless to the purchaser.
Consider the following:
10.1 Water
10.2 Sewer
10.3 Storm drainage
10.4 Electricity
10.5 Natural gas
10.6 Telephone
10.7 Telecommunications (e.g., cable television, fiber optics, roof-top antennae; satellite dishes)

Liability under federal, state and local environmental laws can be significant, far in excess of the value of the property or the resources of the purchaser. Mere ownership without culpability can lead to liability. Accordingly, environmental audits are becoming almost outline in real property acquisitions.
11.1 Investigate purchaser’s potential exposure to liability for cleanup of the property and/or natural resource damages under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), the Resource Conservation and Recovery Act (“RCRA”), the Federal Water Pollution Control Act (the “Clean Water Act” or “CWA”), Oil Pollution Act (“OPA”) or other federal laws, state laws or common law theories.
11.2 What environmental permits are required?
11.3 Is the property in compliance with permit requirements, and the requirements of federal, state, and local environmental laws and regulations?
11.4 Are there any pending or threatened environmental enforcement actions against the property? Has the property ever been the subject of an enforcement action? What is the property’s compliance history?
11.5 Have state, federal or local environmental inspections been performed at the property? Has the property ever been the subject of an environmental audit? (If so, the seller should make the results of the inspection or audit available to the purchaser)
11.6 Is there a potential for “toxic tort” litigation resulting from operations at the property?
11.7 Has a release, spill, discharge, etc., occurred on the property? What materials were released, and where di the release occur? IS the material migrating? What population or natural resource, if any, is potentially at risk? Was the release cleaned up? How was I cleaned up?
11.8 What types of activities have occurred on neighboring properties? Has any contamination from neighboring properties migrated onto the property to be purchased? Can potential environmental harm from neighboring properties be distinguished from the potential environmental harm from the property to be purchased?
11.9 Investigate history of ownership and operations, including prior uses and activities – Necessary for “innocent purchaser” defense to liability under CERCLA; assists in identifying potential problems.
11.10 Identify potential environmental problems on the property:
11.10.1 Asbestos – containing materials or lead-based paint in buildings;
11.10.2 Underground or partially underground storage tanks and their contents;
11.10.3 Transformers containing PCBs;
11.10.4 Hazardous materials disposed of by the seller whether on the property or elsewhere;
11.10.5 Contaminated soils (look for discolored or barren soils);
11.10.6 Contaminated surface water and groundwater;
11.10.7 Barrels/waste storage areas – evaluate conditions of barrels; adequacy of labeling, evidence of spills; total volume of wastes stored on the property;
11.10.8 Past or present pits, lagoons, surface impoundments, landfills, waste piles, leach fields;
11.10.9 Any air emission points (e.g., smoke stacks), discharge pipes, injection wells, monitoring wells:
11.10.10 Radioactive materials from past or present operations;
11.10.11 Pollution control equipment and its state of repair;
11.10.12 Operations on neighboring properties;
11.10.13 Radon gas and other indoor air pollutants;
11.10.14 Nearest populations, proximity to drinking water, agricultural wells, and surface waters.
11.10.15 Miscellaneous areas of potential concern to be investigated depending on location, status, background, etc. of the property:
11.10.16 Are activities regulated under the Federal Insecticide, Fungicide, and Rodenticide Act?
11.10.17 Will public land requirements be triggered?
11.10.18 Is the property subject to regulation under the Toxic Substances Control Act (regulates PCBs, among other things)?
11.10.19 Will an environmental impact statement be required for activities the purchaser intends to conduct?
11.10.20 Will federal, state or local noise control requirements apply?
11.10.21 Will operations affect plant or animal species protected under federal or state law (e.g., threatened or endangered species)?
11.10.22 Would development of the property affect cultural, archeological or historic remains, relics or resources?
11.10.23 Will activities be regulated under the Occupational Safety and Health Act (e.g., OSHA asbestos exposure control program)?
11.10.24 Consider an environmental audit to address items listed above – American Society for Testing and Materials (ASTM) Standard E-1527 is gaining acceptance as a standard for such an audit.

The purchaser needs to know that the current and intended uses of the property are lawful under building codes and zoning laws and that there are no legal labilities associated with the property. Here too, ownership may lead to liability in excess of the value of the property or the financial resources of the purchaser.
12.1 Confirm conformity with building and fie=re codes (get letters, if possible)
12.1.1 Requires trained inspector
12.1.2 Check building and fire department of notices of violation
12.1.3 Any open building permits?
12.2 Confirm Americans with Disabilities Act (ADA) compliance
12.3 Get copy of certificate of occupancy
12.4 Confirm compliance with local master/comprehensive plan
12.5 Confirm zoning compliance (get zoning letter, if possible; consider examining the planning department files)
12.6 Confirm compliance with local master plan
12.7 Subdivision requirements met? Any property of less than 35 acres should have specific a subdivision approval or exemption
12.8 Planned Unit Development (P.U.D.) requirements met?
12.9 Look for annexation agreements, plat notes, subdivision improvements agreements and the like.
12.10 Is the Property located within any special districts?
12.11 Compliance with regulations pertaining to water and sewer service
12.12 Check for pending applications/proceedings

13.1 Stormwater Discharge
13.2 Wildlife/Endangered Species
13.3 Wetlands
13.4 Special Review – 1041 review (C.R.S. § 24-65.1-101)

14.1 Obtain title commitment or abstract
14.2 Review legal description
14.2.1 Mathematically closes?
14.2.2 Conforms to survey?
14.2.3 Conforms to tax assessor’s map?
14.3 Check title vesting
14.3.1 Property Party?
14.3.2 Requirements to convey can be met?
14.4 Determine ability to delete standard exceptions
14.4.1 Survey
14.4.2 No unrecorded interests – e.g., adverse possession, prescriptive easements
14.4.3 Indemnity for mechanics liens
14.4.4 Tax certificate
14.4.5 Gap coverage can be arranged
14.5 Review patent rights and reservations; severed interests
14.5.1 Rights under patents (e.g., unpatented mining claims, ditches and canal)
14.5.2 Severed rights to minerals, oil and gas, coal
14.6 Review easements – benefiting and burdening the property
14.7 Review covenants, conditions and restrictions
14.8 Review common interest community documents (condominiums, homeowners, associations, time shares and other interval estates)
14.9 Deal with liens (e.g., deeds of trust, mortgages, UCC filings, mechanics liens, judgement liens, environmental liens; association dues and assessments)
14.10 Deal with installment land contracts
14.11 Deal with notices of lis pendens
14.12 Obtain title insurance
14.2.1 Type of policy (ALTA commercial and residential form)
14.2.2 Endorsements – consider which endorsements are appropriate
14.2.3 Amount
a. Initially
b. To cover deed warranties if reselling
c. To avoid coinsurance following construction

15.1 Determine type of survey needed
15.1.1 USS o County maps (informal)
15.1.2 Improvement Location Certificate – C.R.S. § 38-51-108 (limited use)
15.1.3 Land Survey Plats – C.R.S. § 38-51-101, et seq.
15.1.4 Subdivision Plat – C.R.S. § 38-51-102 (20)
15.1.5 ALTA/ASCM Survey (urban, suburban, rural or mountain and marshland; should specify Schedule A features)
15.2 Review survey in relation to title commitment
15.2.1 Conformity to legal description
15.2.2 All exceptions shown
15.2.3 Sufficiency to delete standard exceptions 1-3
15.2.4 Exceptions on survey added to commitment
15.2.5 Exceptions in commitment shown on survey or explained in survey notes
15.2.6 All discrepancies explained
15.3 Review all survey notes
15.4 Matters to investigate
15.4.1 Encroachments, boundary line conflicts
15.4.2 Unclear boundary lines
15.4.3 Evidence of adverse possession
15.4.4 Evidence of unrecorded interests
15.4.5 Legal description does not mathematically close
15.4.6 Discrepancies with other recorded or known surveys or plats
15.4.7 Differences between measured and platted distances
15.4.8 Strips, gores, overlaps and contiguity issues
15.4.9 Noted violations or discrepancies
15.5 Obtain surveyor’s certificate
15.5.1 Should cover all parties
15.5.2 Use ALTA/ASCM form if applicable
15.5.3 Must comply with C.R.S. requirements

16.1 Conduct UCC Search
16.1.1 County real property records (for fixtures, minerals and timber to be cut)
16.1.2 Central Indexing System (for personalty and all else)
16.1.3 E.F.S.(Effective Financing Statement for farm products)
16.2 Conduct litigation search
16.3 Conduct bankruptcy search
16.4 Conduct judgment lien searches
16.4.1 Clerk and Recorder of County where debtor resides
16.4.2 Central Filing Office

17.1 Check tax assessment
17.1.1 Classification
17.1.2 Valuation
17.1.3 Assessor’s information correct?
17.1.4 Any pending protests?
17.2 Check for tax payments – Get tax certificate
17.3 Check special assessments
17.4 Check for transfer taxes
17.5 Check for special taxing districts
17.6 Check for tax liens (Central Filing Office and County Clerk and Recorder’s Office)
17.7 Investigate payment of taxes that are “hidden” statutory liens on personal property (withholding, sales/use, personal property)
17.8 Consider sales tax payable on transfer of personal property