What to request and inspect before you remove contingencies on a warehouse, manufacturing building or industrial yard in California, with Kern County specifics.
A commercial real estate due diligence checklist for an industrial building covers six areas: title and survey, zoning and permits, environmental condition, physical condition, leases and income, and operating costs including the tax reset at purchase. California purchase contracts set short, separate contingency deadlines, so order reports on day one and put every objection in writing.
Key takeaways
- Due diligence happens inside contingency periods set in the purchase agreement. Under the AIR CRE form, failing to disapprove a contingency in writing on time can be treated as approval.
- Order the Phase I environmental site assessment (ASTM E1527-21), property condition assessment (ASTM E2018-24), survey and title review right away, because every other decision depends on them.
- Industrial specs are measured in the field, not read off a marketing flyer: clear height, dock doors, sprinkler design, electrical service and truck court depth.
- Underwrite property taxes at your purchase price, not the seller’s Prop 13 bill, because the building is reassessed when you buy it.
- In Kern County, city versus county jurisdiction, nearby oil and gas wells, high-piled storage permits, and flood and fault zone maps also bear on a deal.
What is commercial due diligence, and how long do you get?
Due diligence is the buyer’s investigation of a property after the purchase agreement is signed and before the deposit goes hard. Commercial sales in California are largely negotiated between sophisticated parties, so the burden of finding problems sits mostly with the buyer. For the contract side, see our guide to commercial purchase contracts, contingencies and the escrow timeline.
Many California commercial deals use the AIR CRE Standard Offer, Agreement and Escrow Instructions for Purchase of Real Estate. It lists separate buyer contingencies, each with its own deadline: Disclosure, Physical Inspection, Hazardous Substance Conditions, Soil Inspection, Governmental Approvals, Conditions of Title, Survey, Existing Leases and Tenancy Statements, Other Agreements, Financing and Personal Property, among others.
The trap is in the default. A publicly filed copy of an older AIR form says that if the buyer does not notify escrow in writing of disapproval within the stated time, “it shall be conclusively presumed that Buyer has approved” the contingency. A 2020 executed agreement filed with the SEC reversed that by addendum, so silence meant disapproval.
There is no standard length. Match each period to the reports you need and how fast your consultants can deliver them. Ask for any extension in writing before a deadline, not after.
What should an industrial due diligence checklist include?
It should cover title, survey, zoning, environmental, physical condition, building specs, leases, operating costs, hazards and financing. Use this table as a starting list and adjust it for the property type. A vacant owner-user building puts more weight on physical condition and permits. A leased investment puts more weight on the leases and income.
| Category | Request or order | What to look for in an industrial building |
|---|---|---|
| Title | Preliminary title report and copies of every recorded exception | Access and utility easements across the truck court, CC&Rs limiting outdoor storage or uses, liens |
| Survey | ALTA/NSPS land title survey | Encroachments, setbacks, true parcel lines on the yard, easement locations, flood zone notation |
| Zoning and permits | Zoning verification, permit history, certificates of occupancy, open code cases | Your use is allowed by right or needs a conditional use permit; legal occupancy for the current racking and storage |
| Environmental | Phase I ESA to ASTM E1527-21; seller’s prior reports; Phase II if recommended | Former underground tanks, clarifiers and sumps, truck maintenance, oilfield or ag chemical history, neighboring sites |
| Physical condition | Property condition assessment to ASTM E2018-24 plus roof, fire protection and electrical specialists | Roof age, slab cracking, dock equipment, sprinkler design versus planned storage, HVAC, paving |
| Building specs | Field measurement and as-built plans | Clear height to lowest obstruction, column spacing, door count, truck court depth, power in amps and volts |
| Leases and income | All leases and amendments, rent roll, estoppel certificates, SNDAs, CAM reconciliations | Options, ROFRs, early termination rights, unpaid landlord obligations, who pays taxes and roof |
| Operating costs | Two to three years of operating statements, tax bills, insurance loss runs, service contracts, utility bills | Expenses the seller absorbed, contracts you must assume, a tax bill based on an old assessed value |
| Hazards and insurance | FEMA flood map check, earthquake fault zone map check, insurance quote | Special flood hazard area, fault zone, insurability of the roof and fire protection |
| Financing | Lender’s appraisal and third-party report requirements | Lender-required report formats and timing, so you do not pay for reports twice |
Which third-party reports should industrial buyers order?
Order a Phase I, a property condition assessment, a survey and a zoning report, then add specialists where those reports raise questions.
- Phase I environmental site assessment. Performed to ASTM E1527-21, it supports landowner liability protections under federal law. Key parts must be completed within 180 days before you acquire the property, so update any older report. See our Phase I guide and the EPA’s All Appropriate Inquiries page.
- Property condition assessment (PCA). ASTM E2018-24 covers a walk-through survey, document review, interviews and opinions of cost to fix physical deficiencies. It is a baseline review, not an engineering study.
- ALTA/NSPS survey. Needed for extended-coverage title insurance and to see where easements actually run across the yard. The current standards are the 2021 ALTA/NSPS requirements.
- Zoning report or verification letter. Confirms the zone, whether your use is permitted and any open violations.
- Specialty inspections. Roof, fire sprinkler and electrical inspections are often the most valuable reports on an older warehouse, because those three systems are the most expensive to fix.
- Appraisal. Your lender will order it. Read it for comparable sales and condition notes.
In what order should you do the work?
Start the long-lead reports first and build the schedule around them. A practical order for a single industrial building:
- At signing: open escrow, deliver the deposit and send the seller a written document request that matches the contingency list.
- First week: order the title report, Phase I, PCA, survey and zoning report, schedule roof, sprinkler and electrical specialists, submit your loan application and send estoppel requests to tenants.
- Middle of the period: review title exceptions against the survey and send a title objection letter. Read every lease and amendment against the rent roll, and compare operating statements to tax bills and contracts.
- Last week: collect all reports, price the findings and negotiate. If you need more time, get a signed extension.
- Before each deadline: deliver written approval or disapproval to escrow for every contingency, as the contract requires.
How is due diligence different for an owner-user versus an investor?
An owner-user focuses on whether the building will work, while an investor focuses on the rent. An owner-user asks physical and regulatory questions. Will my racking fit under the sprinklers? Is there enough power for my equipment? Is my use allowed in this zone, and can I get a storage permit? Wrong answers can force expensive changes after closing. Our owner-user buying guide covers that side in more detail.
An investor is buying a stream of rent, so the leases come first. Who pays taxes, insurance and the roof? Does the tenant hold a fixed-rate renewal option, a right of first refusal or an early termination right? An estoppel certificate turns the seller’s rent roll into statements the tenant has signed.
A sale-leaseback falls in between. The seller becomes your tenant, so you need both a building review and a careful read of the new lease and the tenant’s financial statements.
What industrial items do generic checklists miss?
Generic checklists skip the specs that decide whether a warehouse works. Industrial buyers measure these themselves:
- Clear height: measure to the lowest obstruction (joists, sprinkler mains, lights), not the roof deck. A building marketed at 28 feet may rack to less.
- Fire protection and storage permits: the sprinkler system has to support your commodity and storage height. In unincorporated areas, the Kern County Fire Department requires a permit for high-piled combustible storage, and the permit may need renewal. See our guide to ESFR sprinklers and high-piled storage permits.
- Electrical service: the switchgear nameplate shows the building’s capacity, and the utility confirms what is available. Upgrades can take months.
- Docks and doors: test levelers, seals and door operators, and count usable dock positions, not just door openings.
- Slab: look for cracking, curling joints and settlement where forklifts and racks will sit.
- Yard and truck court: paving condition, trailer parking, turning radius and whether zoning and CC&Rs allow outdoor storage all matter.
- Cold storage and processing: ammonia refrigeration, insulated panels and floor heating systems need their own inspections.
What Kern County issues matter to industrial buyers?
Jurisdiction, wells, flood zones, fault zones and farmland contracts all come up before contingencies are removed. Local issues can matter as much as the building.
- Jurisdiction: parcels around Bakersfield can sit in the city or in unincorporated county islands, with different zoning codes, fire departments and permit counters.
- Oil and gas wells: the state’s CalGEM Well Finder maps wells on or near a parcel, which matters most for land or expansion sites.
- Flood zones: FEMA’s Flood Map Service Center shows flood designations. A special flood hazard area affects insurance cost and lender requirements.
- Earthquake fault zones: California Geological Survey maps show fault zones, particularly for sites near the Tehachapi Mountains and the Tejon Pass.
- Land deals: unimproved land near farm areas can carry Williamson Act contracts and open entitlement questions.
What must a California seller disclose?
Less than a residential seller must, which is why buyer due diligence matters. One key exception applies to hazardous substances. California’s Health and Safety Code section 78700 requires an owner of nonresidential property who knows, or has reasonable cause to believe, that a hazardous substance release is on or beneath the property to give written notice before a sale, lease or rental. A knowing and willful failure to disclose can bring a civil penalty of up to $5,000 per violation.
The statute was previously numbered 25359.7. California recodified the Hazardous Substance Account Act in 2024, so older documents and forms may cite the old section.
Buyers ask the seller for every report it has: prior Phase I and Phase II reports, roof warranties, permits, plans and service records. Under the AIR form, the Disclosure contingency is the time to review what the seller provides.
What happens when due diligence finds a problem?
Most findings become a negotiation, not a deal-killer. Your options are a price reduction, a seller repair before closing, a closing credit, an escrow holdback, more time, or cancellation within the contingency period.
Whatever you agree to, put it in a signed amendment before the contingency deadline. A phone call with the seller’s broker does not protect your deposit.
Example: how findings change the price on a 40,000 SF Bakersfield warehouse
A buyer agrees to pay $5,200,000 ($130 per SF) for a 40,000 SF Bakersfield warehouse leased to a single tenant on a modified gross lease, where the landlord pays property taxes and the roof. Due diligence turns up three issues.
First, the PCA and a roofer estimate the roof needs replacement within two years at an assumed $9.00 per SF, or $360,000. Second, the seller’s operating statement shows property tax of $30,258, based on an assessed value of $2,600,000. At the buyer’s price and the 2025-26 rate of 1.163785% for Bakersfield tax rate area 001-001, from the County of Kern’s published rate tables, the tax becomes $60,517. The landlord pays it. Third, the tenant’s estoppel certificate claims the landlord owes $25,000 for an HVAC replacement.
The added tax cuts net operating income (NOI) by about $30,258 a year. At an assumed 6.5% cap rate, that is roughly $465,500 of value. With the roof and the HVAC claim, the buyer’s case for an adjustment is about $850,500. The parties might settle on a smaller price reduction plus a credit, but the buyer now negotiates from documented facts. All figures are illustrative. See also our guide to Prop 13 reassessment.
| Finding | Source | Annual impact | Price impact |
|---|---|---|---|
| Roof replacement within 2 years | PCA and roofer bid | Capital cost | $360,000 |
| Property tax reset to purchase price | Seller tax bill vs. Kern rate book | -$30,258 NOI | About $465,500 at a 6.5% cap rate |
| Landlord owes tenant for HVAC | Tenant estoppel certificate | One-time | $25,000 |
| Total adjustment requested | About $850,500 |
Frequently asked questions
How long is the due diligence period on a commercial property in California?
No law sets it; the purchase agreement does. The AIR CRE form gives each contingency its own deadline, such as title, physical inspection and hazardous substances. Buyers ask for enough time to receive the Phase I, property condition assessment and survey and still respond.
Do I need a Phase I environmental site assessment to buy an industrial building?
The law does not require one, but most lenders do, and it is the main way a buyer qualifies for federal landowner liability protections. Industrial sites often have a history of fuel, solvents, oil or farm chemicals. Follow ASTM E1527-21, and make sure key parts are completed within 180 days before closing.
What is a property condition assessment?
A property condition assessment, or PCA, is a baseline review of a commercial building’s physical condition under ASTM E2018-24. A consultant walks the site, reviews documents, interviews the owner or manager and estimates the cost of fixing deficiencies. It is broader than a single trade inspection but stops short of an engineering study.
What documents should I ask the seller for?
Ask for the title report and exceptions, any survey, prior environmental reports, permits and plans, certificates of occupancy, roof warranties and service contracts. Add two to three years of operating statements, tax bills and insurance loss runs. For a leased building, request every lease, amendment and recent CAM reconciliation, then order tenant estoppels to confirm the terms.
Does a California seller have to disclose contamination?
In part. A nonresidential owner who knows or has reasonable cause to believe a release occurred on or beneath the property must give the buyer written notice before the sale. The duty covers only what the seller knows, so a Phase I is still essential.
Should I get an ALTA survey on a warehouse purchase?
Usually. An ALTA/NSPS land title survey shows boundaries, improvements, easements and encroachments, and title companies typically need one for extended-coverage insurance. On industrial property it often turns up easements through truck courts or yards, or fences and paving that cross a property line.
How does zoning work on an industrial property in Kern County?
It starts with whether the parcel is inside a city such as Bakersfield or Shafter or in unincorporated Kern County, since each has its own zoning code. The zone then decides whether a use is allowed by right or needs a conditional use permit, and whether any code cases are open. A zoning verification letter documents the answer for a lender.
Buying an industrial building in Bakersfield or elsewhere in Kern County? We can help you set realistic contingency periods, line up local consultants and turn what they find into a better deal. Call Kern CRE at 855-KERN-CRE (855-537-6273) or contact us. Get Kern County CRE news monthly: subscribe to the Kern CRE report.
Sources
- Brownfields All Appropriate Inquiries, U.S. Environmental Protection Agency.
- E1527-21 Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process, ASTM International, December 2021.
- E2018-24 Standard Guide for Property Condition Assessments: Baseline Property Condition Assessment Process, ASTM International, January 2024.
- AIR Standard Offer, Agreement and Escrow Instructions for Purchase of Real Estate (Form OFA-5-3/04E), paragraph 9 contingencies, exhibit filed with the U.S. Securities and Exchange Commission (Resources Connection Inc.), January 2006.
- AIR CRE Standard Offer, Agreement and Escrow Instructions for Purchase of Real Estate (Non-Residential), executed agreement with addendum, exhibit filed with the U.S. Securities and Exchange Commission (Unico American Corp.), October 2020.
- California Health and Safety Code Section 78700 (formerly section 25359.7), Justia.
- Well Finder, California Department of Conservation, Geologic Energy Management Division (CalGEM).
- FEMA Flood Map Service Center, Federal Emergency Management Agency.
- High-Piled Combustible Storage Permit Requirements, Kern County Fire Department, form revised January 2021.
- County of Kern Tax Rates and Assessed Valuations 2025-2026, Kern County Auditor-Controller, 2025.
About this article
Kern CRE prepared this article with help from AI research and writing tools. An editor reviewed the draft, checked its facts against the sources linked above and edited it for accuracy and clarity. It is general information, not legal, tax, investment or financial advice; talk with a qualified professional about your situation.