Legal Due Diligence of Commercial Real Estate

Commercial real estate is one of the most valuable assets for a business. Purchasing, leasing, or investing in commercial property can be a crucial step toward building a successful enterprise. However, without thorough legal due diligence, it may also become the starting point of lengthy disputes, resulting in wasted money and time — or in the worst-case scenario — the loss of the property itself.
Despite being a highly valuable asset, commercial real estate is a complex object often subject to numerous restrictions and legal nuances. A comprehensive examination of its legal status enables early identification of potential risks and helps avoid serious problems in the future. Proper assessment of all legal nuances requires the expertise of qualified legal professionals. Relying on its positive experience, the law firm “Dominion” provides expert services in the real estate sector, offering in-depth legal research tailored to your request.

What legal risks may arise before acquiring or leasing commercial property?

Acquiring, leasing, or investing in commercial property is always associated with numerous legal issues — from the land on which your future office, beauty salon, coffee shop, flower store, or clothing boutique is located, to the accuracy of the purchase or lease agreement. Even a minor noncompliance with legal standards can negatively affect your property rights and cause unwanted complications.

Disputes over ownership rights

One of the most common risks is disputes regarding the ownership of the property. The real estate may be subject to a long-standing court case, inheritance conflict, or may be jointly owned by individuals who have not consented to the sale or lease. Without proper legal review, the transaction may be challenged in court by another owner, and you risk losing both the property and the funds already invested, which would need to be recovered through litigation.

Encumbrances and obligations

Commercial properties are frequently burdened with encumbrances such as mortgages, liens, or pledges. For instance, if a property is pledged to a bank, the bank may demand debt repayment (involving the property) even after you’ve become the new owner. Or, the property might be under arrest due to a criminal or commercial dispute as a security measure.

Discrepancies between documentation and the property

In some cases, the technical specifications of the property may not match the official records. For example, the building’s area or number of floors may differ from the data in its technical passport. Another common issue is unauthorized renovations or additions, which can lead to fines or mandatory demolition. This includes properties that have not been officially commissioned or have expired or revoked building permits.

Land plot issues

Ownership of a building is often tied to the land on which it is situated. If the land is leased or has a different designated use, this may limit how the property can be used.

Tax and financial risks

The seller or lessor may have outstanding tax debts, liabilities to other parties, or may be in bankruptcy. In such cases, the transaction may be challenged by tax authorities or creditors in court. Furthermore, creditors may satisfy their claims through the property, leading to its forced sale to cover debts.

Contract-related risks

Real estate transfers may occur through purchase agreements, annuity contracts, sale of corporate rights, investment contracts, shared participation agreements, or commercial lease agreements. These may include hidden clauses creating additional obligations for you. For instance, a lease agreement might include a clause allowing unilateral termination or unfavorable rent increase terms. Another risk involves unauthorized signatories — individuals lacking authority to sign the agreement — which could result in the contract being declared invalid.

Assessing Your Property for Legal Risks

Do the same risks apply when acquiring or leasing commercial real estate in new developments (residential/office buildings)?

Developers often offer attractive terms for purchasing commercial real estate at the construction stage, with prices significantly lower than completed properties. However, acquiring commercial property in new developments entails more risks and requires more careful scrutiny than in the secondary market.

If you’re purchasing commercial real estate during construction or shortly after commissioning, the above risks are compounded by new ones:

Risks associated with dishonest developers or construction participants

Financial instability of the developer, unreliable contractors, affiliated parties (founders, beneficiaries, directors) who may be under sanctions or are foreign nationals, and delays in construction timelines directly impact project completion. These are early warning signs for investors, indicating a risk of losing funds with no guarantee of project delivery.

Lack of necessary licenses and permits

A developer must possess all licenses and permits approved by state authorities. The absence of even a single document may suspend construction indefinitely.

How does legal due diligence of primary and secondary commercial real estate help avoid these risks?

Regardless of the client’s request, the real estate lawyers at the law firm “Dominion” conduct a full legal due diligence of all aspects involved, including:

Verification of title documents and ownership

Our real estate lawyers verify the consistency of declared and actual information, the completeness of the document package, and the duration of property ownership. Examining title documents and state registry extracts reveals whether the seller or landlord is the legitimate owner and whether there are other owners. This helps avoid situations where the property is under litigation or has multiple ownership claims.

Checking for encumbrances and obligations

We review relevant registers to determine if the property is subject to mortgages, arrests, pledges, or other restrictions. In practice, real estate may be seized as part of criminal or enforcement proceedings due to the owner’s debts. This verification ensures you acquire a “clean” asset free from hidden legal issues.

Assessment of documentation compliance

We cross-check the technical documentation against the property’s actual condition and verify whether all renovations or additions are legalized. This helps avoid fines or required remedial actions such as demolition.

Analysis of land-related issues

We verify land ownership rights, land use designation, and permits. This prevents scenarios where the building cannot be used due to discrepancies in the land’s intended use.

Verification of the counterparty’s reputation

We collect information about the seller, developer, or landlord, including financial standing, tax debts, property ownership history, and legal cases. This helps assess whether the deal is secure and not fictitious.

Contract analysis

Our lawyers ensure the correct drafting, review, or amendment of the purchase, lease, or other agreements. This guarantees all terms are clear and transparent, helping you avoid hidden pitfalls.

And we take all other necessary actions to ensure full transparency of the property and the upcoming transaction.

What will you gain from legal due diligence of your future commercial property?

• A clear understanding of the legal status of the asset

Due diligence before purchasing commercial property provides insights into key factors affecting the legality of ownership and use. You will receive information on the property’s legal status, owners, existing encumbrances (such as mortgages or arrests), ongoing litigation, and other risks that may hinder the transaction or future use of the property.

• Recommendations for a secure transaction

Based on the due diligence results, our lawyers provide specific guidance on next steps. This may include eliminating risks (e.g., lifting an arrest), renegotiating contract terms, or advising against the deal in case of critical issues. This empowers you to make an informed decision and protect yourself from future complications.

Request a real estate due diligence consultation

In conclusion, commercial real estate due diligence is not just about “reading the contract,” but involves a wide range of in-depth actions aimed at uncovering the full and accurate picture of the property before any acquisition, lease, or investment.