2026-10-10 11:44

How do you carry out due diligence on commercial property before buying?

A commercial property is examined in four workstreams — legal, financial and tax, technical, and location — to answer a single question: does it justify the yield and the risk built into the price? In our experience, full due diligence on one supermarket costs €30,000–50,000, or 0.3–0.5% of a €10 million price. It is best begun with the lease and an extract from the land register (Grundbuch) — before the letter of intent.

The documents that can stop the deal come first

Sequence matters more than volume. Before the letter of intent, three documents are enough: the land register extract, the lease with all amendments and the rent roll. The buyer usually obtains the extract from the seller or through the notary, because only someone who demonstrates a legitimate interest may inspect the land register (§ 12(1) GBO). The seller or broker must present the energy performance certificate no later than the viewing (§ 80(4) GModG — the new name of the GEG).

The first question is whether the building stands on a heritable building right (Erbbaurecht): such a right has its own land register folio (§ 14 ErbbauRG). Its value melts away as the term runs down (see Part 7 of the series German Prime Retail).

Exhibit 1. Each workstream looks for its own risk; the legal one costs most, at €12,000–25,000

Workstream	Where the risk most often hides	Cost, in our experience
Legal	The lease; encumbrances outside the land register; the building permit	€12,000–25,000 including negotiation and closing
Financial and tax	Rent roll against the leases; non-recoverable costs; VAT	About €5,000
Technical	Roof, structure, building services, outstanding defects	From €5,000
Location	Catchment and competitors after the first lease expires	€5,000–15,000

The lease is examined as if it were the asset itself

By law, the buyer steps into the existing lease on its existing terms (§§ 566, 578 BGB). The lawyers therefore examine the term and options, indexation, cost allocation, subletting and early-termination rights — and exactly who signed the lease and whether a group guarantee stands behind it. A lease for more than one year that is not concluded in text form counts as open-ended (§ 550, § 578(1) BGB) and can be terminated on roughly six months' notice (§ 580a(2) BGB). In our Mannheim case, a single cost clause outweighed an exceptional location (Part 7). The arithmetic is simple: every 10% of rent left with the landlord takes 0.6 percentage points off a 6.0% yield.

The land register shows neither contamination nor public charges

The current owner, not only the polluter, can be ordered to remediate soil contamination (§ 4(3) BBodSchG). A former petrol station or workshop on the site is therefore a warning sign, and an extract from the contaminated-sites register is requested separately. Development charges are payable by whoever owns the land when the charge notice is served, and until paid they rest on the land as a public encumbrance (§ 134 BauGB). A municipal certificate on charges, and a contract clause allocating them between the parties, protect against a bill for works completed before the purchase. Public-law encumbrances (Baulasten) are kept in a separate register of the building-control authority, not in the land register (Part 7).

Tax and technical reviews determine the cost of ownership

The purchase of a property together with its leases is usually not subject to VAT, as a transfer of a going concern. But the buyer steps into the seller's ten-year input-VAT adjustment period (§ 1(1a), § 15a(1) and (10) UStG). If the buyer later lets part of the building without VAT, a share of the input VAT deducted on construction must be repaid.

Claims for defects in a new building become time-barred five years after acceptance (Abnahme; § 634a(1) no. 2 and (2) BGB). A technical inspection about six months before that date is therefore one of the checks that pay off best. When buying from a previous investor, the purchase agreement must assign that investor's claims against the developer and contractors to the buyer (§ 398 BGB).

Implications for investors

1. Start with the documents that can stop the deal. Request the land register extract, the lease with all amendments and the rent roll before the letter of intent — and first establish whether the building stands on a heritable building right.

2. Read the lease as the asset itself. You step into it on its existing terms, and every 10% of rent left with the landlord takes 0.6 percentage points off a 6.0% yield.

3. Look for what the land register does not show. Request separate extracts from the registers of contaminated sites and public-law encumbrances, and the municipal certificate on charges. In the contract, allocate between the parties any bills for works completed before the purchase.

What to check:
• Request the land register extract with the documents behind the entries in section II, and confirm that the building does not stand on a heritable building right.
• Examine the complete lease with all amendments in text form, the rent roll and three years of service-charge statements.
• Obtain extracts from the registers of public-law encumbrances and contaminated sites, and the municipal certificate on charges.
• Compare the acceptance record and the list of defects with the date on which claims for them become time-barred, and check the energy performance certificate.
• Commission a tax opinion on VAT and the ownership structure.

Sources: §§ 398, 550, 566, 578, 580a, 634a BGB; § 12 GBO; § 14 ErbbauRG; § 80 GModG; § 4(3) BBodSchG; § 134 BauGB; §§ 1(1a), 15a UStG; the series German Prime Retail, Part 7; Gordon Real Estate Group transaction experience. Legal position as of October 2026.

Photo: Jan-Philipp Thiele / Unsplash

This page is general information and not investment, legal or tax advice.

Ilya Gordon