What to check before buying commercial real estate: legal risks beyond the purchase price

Commercial real estate transactions are often framed primarily as financial decisions – focusing on the purchase price, location, expected return, or rental income. In practice, however, the real risk of a transaction is rarely determined by the financial model alone.

More often, it depends on the legal rights, obligations, and liabilities that the buyer effectively assumes together with the property.

When acquiring commercial real estate, it is therefore essential to assess not only the asset itself but also its legal status, the regulatory framework governing its use, existing tenant relationships, and the overall structure of the transaction. These factors often have the greatest impact on the long-term value of the investment.

Legal due diligence is a fundamental step in any commercial real estate acquisition. During this process, relevant public registers and property-related documents are reviewed in order to confirm that the seller has full legal title to the property and that no restrictions exist which could limit its use, management, or development.

Even issues that appear relatively minor at first glance – such as special land use conditions, easements, or the factual use of the property by third parties – may significantly affect the value of the investment.

It is equally important to assess whether the actual use of the property complies with zoning, construction, and other public regulatory requirements. Non-compliance in this area may lead not only to regulatory sanctions but also to the need for additional investments or operational restrictions after the transaction has already been completed.

When commercial property is acquired together with existing tenants, the buyer assumes all rights and obligations of the landlord. For this reason, careful review of lease agreements is essential.

In practice, this includes analysing:

• the duration of lease agreements and termination conditions

• rent adjustment and indexation mechanisms

• tenant rights to sublease or assign the lease

• provisions regarding reimbursement of tenant investments

• pre-emption rights or renewal rights related to the property

Another important aspect is whether the parties’ actual behaviour corresponds to what is written in the lease agreements. In practice, lease relationships sometimes function differently from the contractual wording, which may affect the future owner’s flexibility in managing the property.

In other words, lease agreements define not only expected cash flows but also the future owner’s strategic freedom.

In some cases, commercial real estate is not acquired directly but through the purchase of shares in the legal entity that owns the property. In such situations, the nature of the transaction changes significantly.

Instead of acquiring only the property and its lease relationships, the buyer effectively acquires the entire company together with its legal, tax, and regulatory history.

In practice, even the ownership chain of the shares may create risks. For example, shares may have been transferred through a series of transactions designed to avoid mandatory notarial formalities or other legal requirements. Such circumstances may raise doubts regarding the legality of share ownership and may create significant legal consequences for the new owner.

In addition, the buyer may assume less visible risks associated with the company, including unresolved or disputed contracts, historical tax liabilities, labour law violations, regulatory investigations, or liability for incidents that occurred in the past.

A key characteristic of such transactions is that many of these risks are not reflected in financial statements and may only become apparent after the transaction has closed.

For this reason, when commercial real estate is acquired through a share deal, the real estate review cannot be performed in isolation. It must form part of a broader legal and tax due diligence of the entire legal entity.

In practice, the risks identified during due diligence are typically managed through seller representations and warranties, liability limitations, and indemnity mechanisms included in the transaction documents.

A commercial real estate transaction is not merely the transfer of an asset. It is also a strategic decision about the allocation and management of legal, regulatory, and commercial risks.

In many cases, the long-term value of the investment is determined not by the nominal purchase price but by how accurately these risks are identified, assessed, and structurally managed before the transaction is completed.

For this reason, when planning a commercial real estate acquisition, it is important to view the transaction not only as a financial investment but also as a complex legal decision.