How to know what you’re REALLY buying- Surveys in Commercial Real Estate

By Lenore Livingston

When you decided to purchase a commercial real estate property you have likely already completed significant analysis sorting through the asset class you’d like to purchase, considered the business implications and concessions you’re willing to accept to acquire the property, evaluated the return on investment, and may have negotiated a contract with the Seller of commercial real property. As you continue to consider all the inspection items you want to evaluate to determine whether this is a suitable property for your portfolio or investment, two of the many questions that arise include, do I need a survey for a commercial property that is already operating a business, and can I just use the Seller’s survey that I asked for as part of my due diligence items in contract negotiations?

The short answer is YES, you want to get your own survey and use the seller’s survey as a tool to for an initial evaluation of the property. Often contacting the previous surveyor to ask them to update the pre-existing survey will also be more cost and time effective. Prior to entering into the Contract, you likely received the legal description of the property, visited the property and/or looked on various mapping tools and geographic information systems (GIS) to learn about the site you intend to purchase. While this is helpful due diligence in the initial contract stage, not only may your lender require an updated American Land Title Association (ALTA) survey, but you will want one because there are potential risks to the property that you should be aware of that will only be revealed through a current survey. Some of these potential risk(s) may not be seen on the various mapping tools or the previous survey as it may have changed over time.

These risks may include environmental impacts such as streambeds, structural defects with the buildings, encroachments from and onto neighboring properties, easements, utility lines, etc. Depending on the age of the seller’s survey, some of these items may not be shown, may have shifted, or may no longer be relevant concerns. Therefore, relying on an old survey with potential inaccuracies may result in you making misinformed decisions about the desirability of the property.

The American Land Title Association (ALTA) and the National Society of Professional Surveyors established minimum detail standard requirements for a survey. Your lender will likely have specific requirements for the ALTA survey, so check in which the lender for their requirements, preferably before the surveyor begins the fieldwork step of the process. As you work with a surveyor, many of the items identified will include:

1. 1. 1. 1. All boundary monuments found during the fieldwork;
         2. Rights of way and access to public streets and highways or private ways;
         3. Lines of possession and improvements along the boundaries;
         4. Buildings and structures on the surveyed property;
         5. Easements, cemeteries, water features;
         6. Utilities and utility lines on the site. Some additional items that are often depicted on surveys at your request are: zoning, flood zone classification, parking count, size and height measurements of structures, underground utilities, wetlands and offsite easements. Your real estate attorney can further review and answer additional questions, as well as provide solutions to mitigate potential risks that may be identified on the survey.

What if the lender is telling me I don’t need a survey? While the lender may not “require” a survey, they may require endorsements on the title policy that require a survey. Confirm with your lender their title requirements and not just whether they are requiring a survey before you decide to forego a survey, and then confirm with your title insurer whether the lender’s endorsements will require a survey.

In summary, while the lender may not require a survey for closing, you should not ignore the benefits listed above for your ownership of the property and risk management decisions before you decide to forego a survey