Buying commercial property in Texas: the diligence framework most buyers skip.

Commercial real estate due diligence is the structured investigation a buyer conducts during the contract period to confirm that the property is what the buyer believes it to be — that title is clean, the survey accurate, the environmental condition acceptable, the use permitted, the operating economics as represented, and the tenant relationships as described. The diligence period typically runs 30 to 90 days from contract execution and is the buyer's last meaningful opportunity to identify problems before closing makes them the buyer's problems. Texas commercial diligence covers six recurring categories: title and encumbrances; survey and boundary; mineral estate; environmental condition; land use, zoning, and property tax; and tenant, lease, and operating income matters. Each category has its own investigative procedures, document review requirements, and red flags. The cost of diligence is significant; the cost of skipping it on a property that has problems is consistently higher.

Texas commercial real estate transactions typically use the Texas Association of Realtors (TAR) commercial contract forms or custom-drafted purchase agreements. The Texas Real Estate Commission (TREC) does not provide standard commercial forms — TREC residential forms are not appropriate for commercial use. The TAR commercial forms are widely used for smaller commercial transactions, typically under $10 million. Larger or more complex transactions typically use custom-drafted purchase and sale agreements. The principal commercial provisions to negotiate include: the inspection or due diligence period (typically 30-90 days); the financing contingency; the title and survey objection process; the closing conditions; the representations and warranties; the indemnification structure; and the default remedies. The earnest money is typically deposited with a title company acting as escrow agent, and is non-refundable after the diligence period expires absent a specified default by the seller.

An ALTA/NSPS Land Title Survey is the customary survey for Texas commercial real estate transactions and is generally required by commercial lenders and title insurance companies issuing extended coverage policies. The ALTA survey shows boundaries, easements, encroachments, building locations, and other matters affecting title and use. For Texas commercial transactions, the survey serves several functions: confirms boundary lines and area; identifies easements and encroachments affecting use; supports the title company's deletion of the standard survey exception; identifies setback compliance and zoning issues; and provides a graphic record of the property at the time of purchase. The T-47 affidavit common in residential transactions is generally not adequate for commercial transactions. Costs typically range from $3,000 to $25,000 depending on property size, complexity, and selected Table A items. The survey is one of the higher-cost diligence items but identifies issues that title work alone cannot detect.

Yes — mineral rights are a critical and often overlooked aspect of Texas commercial real estate diligence. Texas law permits the severance of the mineral estate from the surface estate, meaning the right to drill for and produce minerals can be owned separately from the surface property. In many Texas properties, the mineral estate has been severed at some point in the chain of title and is owned by parties other than the current surface owner. The mineral estate is the dominant estate under Texas law — the mineral owner has the right to use the surface as reasonably necessary to develop the minerals, including for drilling, pipelines, access roads, and related activities. The diligence questions: who owns the mineral estate? Are existing oil and gas leases in place? What surface use accommodation provisions exist? What is the actual risk of mineral development based on the surrounding area, geology, and existing operations? For commercial properties in oil-and-gas-producing regions, mineral diligence is essential. For properties in urbanized areas where development is unlikely, the issue may be less pressing — but diligence should still confirm what the buyer is getting in the surface estate.

Texas property tax is one of the most important operating cost considerations in Texas commercial real estate. Texas does not have a state income tax, but property taxes are correspondingly high — Texas typically ranks among the highest property tax states in the country. Property taxes are imposed at the county, city, school district, and special district levels, with the combined rate varying by location but typically ranging from 1.5% to over 3% of assessed value annually. The annual property tax cycle is governed by the Texas Property Tax Code and includes January 1 valuations, May appraisal notices, June protest deadlines, and October tax bills payable by January 31. For commercial real estate, considerations include: current assessed value and tax burden; appeal history; valuation methodology; special districts; agricultural or open-space valuations; tax abatements; and the impact of the purchase price on future assessed values. A property under-assessed historically may face significant tax increases when the new value reflects the purchase price. Tax certiorari analysis is part of every meaningful Texas commercial real estate diligence.

Title insurance is an indemnification policy that protects the insured against losses arising from defects in title — including undiscovered liens, encumbrances, conflicting ownership claims, and other title defects existing at the time the policy is issued. Texas has one of the most heavily regulated title insurance markets in the country, with the Texas Department of Insurance regulating rates, forms, and practices. Rates are promulgated and generally uniform across companies — competition occurs on service rather than price. Two types of policies are typically issued: an owner's policy (protecting the buyer) and a lender's policy (protecting the lender). Most commercial transactions involve both. Title insurance is not legally required, but is universally required by commercial lenders and is standard practice in commercial purchases regardless of financing. The customary forms are the T-1 owner's policy and T-2 lender's policy, with various endorsements available. The title insurance commitment issued during the contract period is the central reference for the title diligence work.

A Phase I Environmental Site Assessment (ESA) is the customary environmental diligence. Phase I ESAs are conducted in accordance with the ASTM E1527 standard (currently E1527-21) and are designed to identify Recognized Environmental Conditions — past or present releases or threatened releases of hazardous substances on, at, or from the property. The Phase I includes records review, site reconnaissance, interviews, and a report identifying any RECs and recommending further investigation if appropriate. Where Phase I identifies RECs or where the property's history suggests potential contamination, a Phase II ESA may be conducted, involving actual sampling and testing. The legal significance extends beyond informational diligence: completion of a compliant Phase I within a defined time period before purchase is required to establish the "innocent landowner," "contiguous property owner," or "bona fide prospective purchaser" defenses to liability under CERCLA. Without these defenses, a buyer can be held liable for environmental contamination caused by prior owners. Texas-specific considerations include the TCEQ regulatory regime, voluntary cleanup programs, and oil and gas-related environmental issues in producing regions.

Yes, generally — Texas commercial real estate is typically held through limited liability companies for liability protection and tax flexibility, with single-property LLCs commonly used to compartmentalize liability. Holding commercial property in an LLC provides limited liability protection that prevents creditors of the property from reaching the owner's other assets. For investors with multiple properties, holding each in a separate LLC further limits cross-property liability. The structure typically combines a holding LLC (owned by the ultimate investors) with individual property LLCs (owned by the holding company), with the holding company providing investor-level governance and the property LLCs providing asset-level liability separation. LLCs are pass-through for federal tax purposes by default. For Texas franchise tax, the LLC is a separate taxable entity, and the property LLC structure should be evaluated for franchise tax efficiency. Charging-order-only protections under TBOC § 101.112 also apply to Texas LLC interests. The decision to use an LLC is rarely contested; the nuanced questions are about specific structure (single-property versus consolidated, Texas versus Delaware for the holding entity).