Commercial Lease Diligence

In many acquisition and merger transactions, a component of the real estate holdings of the selling entity is leased commercial property. Counsel to a potential purchaser in an acquisition transaction, whether in the form of an asset purchase, stock or membership interest purchase, or merger, must be equipped to advise the client regarding the leased property both for negotiation of the purchase agreement and for the client's use of the property after the transaction has closed. This article reviews the recommended due diligence efforts of the purchaser's counsel with respect to leased commercial property, and elaborates on the pre- and post-closing rationales for completing such diligence review. The main focus of this article is the due diligence activities and rationale of counsel to a potential purchaser of all of the stock of a selling entity. Where relevant, it incorporates the alternate considerations that might arise in the context of an asset purchase or merger structure.