Real Estate Due Diligence Checklist

Use the Real Estate Due Diligence Checklist to facilitate comprehensive property evaluations through acquisition documents, zoning and lease matters, etc.

Real Estate Due Diligence Checklist



Governmental Review

1. Are licenses and permits reviewed to verify no breach, satisfaction of all conditions, current ownership, and necessity of transfer?


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2. Are certificates of occupancy for property and tenant spaces verified?


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3. Is proper zoning verified, and a zoning letter obtained?


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4. Do improvements comply with governmental regulations?


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5. Are there no transferred development rights?


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6. Are there no existing contemplated assessments?


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7. Are there no pending rezoning?


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8. Are there no pending administrative proceedings, governmental plans, or studies?


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9. Is there no utility moratorium?


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Closing And Miscellaneous Actions

1. Is the seller notified of any breach or misrepresentation discovered during the due diligence review?


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2. Is the aggregate cost of correcting any problems discovered through due diligence determined?


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3. Are any necessary changes to forms of closing documents initiated?


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4. Are authority documents prepared and approved?


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5. Is current financial information requested from the Seller for prorations?


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6. Are prorations for taxes and assessments confirmed?


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7. Are prorations for utilities confirmed?


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8. Are prorations for rents confirmed?


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9. Are prorations for permit and license fees confirmed?


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10. Are prorations for utility deposits confirmed?


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11. Are prorations for operating accounts confirmed?


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12. Are prorations for obligations under contracts confirmed?


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13. Are prorations for security deposits confirmed?


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14. Are prorations for closing costs confirmed?


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15. Are prorations for commissions, tenant improvements, or other leasing expenses confirmed?


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16. Are prorations for any other apportionments confirmed?


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17. Is the schedule of the Buyer’s title-related costs requested from the title company?


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18. Is the schedule of estimated closing costs prepared?


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19. Is the form of Tenant Notice prepared and distributed?


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20. Is the assignment of the Purchase Contract prepared?


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21. Is the Buyer’s replacement/additional cash deposit arranged?


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22. Is the investment of the Buyer’s replacement/additional cash deposit arranged?


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23. Is the return receipt of the initial LC confirmed and returned to the bank?


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24. Is the initial/additional cash deposit return receipt confirmed?


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25. Is the bank instructed to transfer the returned cash deposit to the line of credit?


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26. Is the schedule of the Buyer’s funding into escrow prepared?


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27. Are the buyer’s purchase proceeds arranged to be funded into escrow?


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28. Are the buyer’s purchase proceeds arranged to be invested overnight?


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29. Are closing escrow instructions and exhibit documents reviewed?


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30. Are the original documents delivered to the property manager coordinated?


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31. Is the closing statement obtained and reviewed?


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32. Is the funds recording/disbursement confirmed?


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33. Is property/liability insurance in place confirmed?


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34. Is a letter sent to the client confirming closing (with closing statement/funding schedules)?


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35. Is counsel instructed to distribute the closing binders?


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Property Operations And Management

1. Is a Property Management company selected?


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2. Is the Property Management Agreement finalized?


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3. Are the financial terms of the Property Management Agreement reflected in the proforma?


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4. Is a leasing company selected?


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5. Are Service Contracts verified to be on the market?


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6. Are there no disputes with brokers, suppliers, or employees?


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7. Are there no existing or contemplated labor strikes?


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8. Are all obligations and trade creditors being paid in the normal course?


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9. Are property management files reviewed?


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10. Are warranties and expiration dates reviewed?


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11. Are maintenance schedules for equipment, repairs, and maintenance expenses reviewed?


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Financing Matters (If Applicable)

1. Is a Mortgage Consultant contacted?


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2. Is property information provided to the Mortgage Consultant?


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3. Are Loan Quotes received and reviewed?


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4. Is a Lender selected?


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5. Is a Signed Loan Commitment obtained?


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6. Are Loan Commitment Fees arranged for payment?


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7. Is the Loan Application received, reviewed, and negotiated?


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8. Is a Signed Loan Application obtained?


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9. Are requested documents provided to the Mortgage Consultant/Lender?


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10. Are Loan Documents finalized and signed?


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11. Are Financing Proceeds funded?


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Internal Procedures And Reporting

1. Is a property visit confirmed by an Asset Management and Management Committee member?


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2. Are all client-specific acquisition requirements met?


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3. Is a transition memo issued to Asset Management, Property Management, and Accounting (if applicable)?


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Financials

1. Is the rent roll reviewed?


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2. Are the leases including amendments, extensions, modifications, guarantees, and estoppels reviewed?


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3. Are the lease abstracts reviewed?


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4. Are the accounts receivable and delinquencies reviewed?


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5. Are the reconciliations (if any) reviewed?


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6. Is the balance sheet for the past three years reviewed?


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7. Is the check register for the prior year and year-to-date reviewed?


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8. Is the general ledger for the prior year and year-to-date completed?


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9. Are the sales histories for tenants year-to-date, and the last three years' report checked?


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10. Are the tax bills for the past three years reviewed?


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11. Is the schedule of CapEx for the past three years and the current budget reviewed?


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12. Is the recovery worksheet for CTI reviewed?


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13. Is the current month's TI reviewed?


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14. Is the schedule of tenants' security deposits reviewed?


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15. Is the schedule of any outstanding TI and/or leasing commissions reviewed?


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16. Are the utility records reviewed?


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17. Are the current invoices for service contract providers and utilities reviewed?


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18. Is the insurance quote reviewed?


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19. Is a copy of the loss report from the insurance company for the last three years reviewed?


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Building

1. Are the site plans and building plans (including any warranties from subcontractors) reviewed?


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2. Is the existing Phase I report reviewed?


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3. Is the insurance quote reviewed?


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4. Are the POA documents (if applicable) reviewed?


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5. Are the easement agreements (if any) reviewed?


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6. Are the building service contracts (including leasing and property management) reviewed?


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7. Is the building maintenance log and CapEx reviewed?


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8. Are the warranties reviewed?


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9. Is the property management agreement reviewed?


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10. Are the tenants contacted, and is a contact list created?


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Acquisition Actions / Documents

1. Is the Letter of Intent signed?


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2. Is the Investment Committee presentation created and approved?


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3. Are due diligence materials requested and obtained?


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4. Is legal counsel selected?


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5. Is UBIT/ERISA counsel selected?


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6. Is the 1st draft of the Purchase Contract obtained and reviewed?


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7. Is the 2nd draft of the Purchase Contract obtained and reviewed?


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8. Is the 3rd draft of the Purchase Contract obtained and reviewed?


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9. Is the 4th draft of the Purchase Contract obtained and reviewed?


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10. Is the 5th draft of the Purchase Contract obtained and reviewed?


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11. Is the Access Agreement obtained?


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12. Is the Client Authorization Letter obtained?


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13. Is the Portfolio Manager Authorization Letter obtained?


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14. Is the fully executed Purchase Contract obtained and reviewed?


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15. Is a copy of the fully executed Contract delivered into escrow?


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16. Is the Buyer’s initial LC or cash deposit with the Escrow Holder arranged?


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17. Is the investment of the Buyer’s initial cash deposit arranged?


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18. Is the Independent Contract Consideration provided to the Seller?


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19. Is the funding schedule prepared and forwarded to the portfolio manager/client?


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20. Is the name of the acquiring (title-holding) entity obtained?


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21. Are the required bank accounts set up?


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22. Is the fully executed 1st Amendment to the Purchase Contract obtained?


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23. Is the fully executed 2nd Amendment to the Purchase Contract obtained?


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Title/Survey/Zoning Matters

1. Is a title company selected?


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2. Are the Seller’s title commitment and underlying documents received, reviewed, and forwarded to the title company?


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3. Are the current title commitment and underlying documents ordered?


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4. Are UCC and judgment line searches conducted?


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5. Is the existing survey received and reviewed?


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6. Is a new ALTA survey (or update) ordered?


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7. Are subdivision and parcel maps obtained?


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8. Are restrictive covenants, easements, and agreements reviewed?


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9. Is local improvement district information gathered?


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10. Are leases, entitlements, and other assets verified to be in the seller’s name, or are appropriate assignment documents obtained?


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11. Are releases from current lienholders confirmed as available (if applicable)?


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12. Is the title and survey objection letter delivered to the Seller (if applicable)?


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Tenant/Lease Matters

1. Are issues regarding leases resolved?


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2. Are Tenant Correspondence Files reviewed?


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3. Are expense pass-throughs/CAM charges compared to Operating Statements?


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4. Are cost pools reviewed for overcharges to tenants?


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5. Are tenant sales reports received and reviewed?


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6. Is the list of security deposits received and reviewed?


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7. Is the aged receivables report received and reviewed?


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8. Is tenant credit information and payment history reviewed?


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9. Are leases reviewed for any contractual landlord obligations (e.g., construction, payments to the tenant)?


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10. Is the square footage between Leases and Rent Roll compared?


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11. Are Tenant Estoppel Certificates prepared?


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12. Are signed Tenant Estoppel Certificates reviewed?


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13. Are signed estoppels cross-checked against the rent/deposit schedule?


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Financial Matters

1. Are copies of historical and pro forma financial information received and reviewed?


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2. Are utility bills (electric, water, gas) received and reviewed?


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3. Are the most recent tax statements and related information received and reviewed?


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4. Are all expenses of operating the property verified to be reflected in the financial information provided by the seller?


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5. Are expenses compared to comparable building data?


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6. Are past and budgeted capital improvements received and reviewed?


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Service Contracts

1. Are service contracts received and reviewed?


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2. Are all service contracts terminable without penalty verified?


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3. Is the assignability of service contracts confirmed?


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4. Are the contracts to be transferred approved and the Seller notified?


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Litigation

1. Is the litigation list reviewed (if applicable)?


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2. Is the existence of contingent liabilities or open claims against the property determined?


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Insurance

1. Is an insurance quote obtained from Risk Management?


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2. Is the third-party Property Management Agreement reviewed for adequacy of insurance coverage?


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3. Is information provided to Risk Management for the final Certificate of Insurance?


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Physical Property Inspection And Review

1. Is the current Certified Rent Roll obtained?


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2. Are the Leases, Amendments, and all related documents received and reviewed, and are Lease Summaries prepared?


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3. Is Legal Counsel engaged to review Leases and prepare Lease Summaries?


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4. Are Internal Lease Summaries compared to Legal Counsel’s Lease Summaries?


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5. Are Lease Summaries compared with the Rent Roll and Pro Forma?


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6. Are Tenant Lease Files reviewed?


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7. Are as-built plans/specs (electrical, mechanical, structural) received and reviewed?


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8. Are existing inspection reports (roofing, HVAC, seismic, soils) received and reviewed?


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9. Is a current engineering report (Property Condition Assessment) ordered, including structural, mechanical, code compliance, and ADA compliance?


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10. Are existing environmental reports and studies received and reviewed?


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11. Is a current Phase I Environmental Site Assessment ordered?


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12. Is a current Additional Site Investigation (Phase II) ordered?


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13. Are building permits, licenses, and certificates of occupancy received and reviewed?


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14. Is parking verified to be adequate (i.e., governmental regulations, practical requirements, lease requirements)?


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15. Is the approximate square footage of improvements verified?


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16. Is the utility site plan reviewed, adequate utility hook-ups verified, all utility hook-up fees verified as paid, and requirements for utility deposits identified?


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17. Are energy usage reports reviewed and usage compared to expenses?


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18. Is the amount of available wattage per square foot verified and compared to the market?


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19. Are construction contracts/subcontracts received and reviewed?


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20. Are building warranties/guarantees received and reviewed?


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21. Is a list of personal property and trade/service names received?


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22. Are copies of liability, casualty, and other insurance received?


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23. Are site plans, leasing brochures, maps, and photographs received and reviewed?


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Personal Property Inventory

1. Is the list of personal property received and reviewed?


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2. Is it verified that no material personal property is omitted from the personal property list?


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3. Is it verified that the personal property is in good operating condition?


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Checklist by GoAudits.com – Please note that this checklist is intended as an example. We do not guarantee compliance with the laws applicable to your territory or industry. You should seek professional advice to determine how this checklist should be adapted to your workplace or jurisdiction.

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