Commercial Real Estate Due Diligence in Alberta: A Comprehensive Guide for Property Buyers
Written by: Roshan Kalra, Co-Managing Partner
Purchasing commercial real estate in Alberta is a significant investment that carries legal, financial, and operational risk. Proper due diligence is essential to identify potential issues before closing and to ensure the property can be used, financed, and operated as intended. This article provides a comprehensive overview from a Commercial Real Estate Lawyer of common due diligence searches and investigations undertaken in Alberta commercial property purchases.
While the searches outlined below are widely used, this is not an exhaustive list, and some searches will be more relevant depending on the property type, location, historical use, and intended purpose of the acquisition.
What Is Due Diligence in a Commercial Property Purchase?
Due diligence is the process of investigating a property’s legal status, physical condition, regulatory compliance, and financial performance. In Alberta, due diligence is typically conducted during a negotiated conditions period and involves coordination between legal counsel, lenders, consultants, and municipal authorities.
Effective due diligence helps buyers:
Avoid undisclosed liabilities
Confirm permitted use and development potential
Identify compliance issues and remediation costs
Protect financing and long-term asset value
Core Legal and Ownership Searches
1. Land Title Search
A title search confirms legal ownership and identifies registered interests such as mortgages, caveats, easements, restrictive covenants, and rights-of-way.
Why it matters:
Registered encumbrances can restrict development, impact financing, or create third-party rights that survive closing.
2. Real Property Report (RPR) with Municipal Compliance
An RPR illustrates property boundaries, building locations, encroachments, and improvements, together with municipal confirmation of bylaw compliance.
Why it matters:
Non-compliant structures or encroachments may require remediation, removal, or variances, all of which can be costly.
3. Property Tax Search and Tax Certificate
Confirms property tax payment status and identifies arrears or reassessments.
Why it matters:
Unpaid taxes can transfer to the buyer, and reassessments may materially affect operating costs.
Regulatory and Municipal Compliance Searches
4. Zoning and Land Use Compliance
A zoning review confirms that the property’s current and intended uses comply with municipal land use bylaws.
Why it matters:
Non-conforming uses may be restricted, terminated, or limit redevelopment options.
5. Permit Search
Reviews development permits, building permits, occupancy permits, and any outstanding compliance or stop-work orders.
Why it matters:
Unauthorized construction or outstanding orders can result in fines, forced remediation, or demolition.
6. Fire Department Search
Identifies outstanding fire code orders or non-compliance issues related to alarms, sprinklers, fire separations, and egress.
Why it matters:
Fire code violations can trigger mandatory upgrades, increased insurance costs, or building closure orders. This is particularly important when purchasing any multi-family property.
7. Alberta Health Services (AHS) Search
Reveals health-related orders involving sanitation, pests, safety, or habitability.
Why it matters:
Unresolved health orders may expose owners to liability and operational disruption.
Off-Title Searches
8. Personal Property Registry (PPR) Search
Identifies security interests registered against the seller or assets associated with the property, such as equipment or fixtures.
Why it matters:
Some assets located on the property may be subject to third-party financing and require discharges prior to closing.
9. Bank Act (Section 427) Search
Searches for federally registered Bank Act security over business assets.
Why it matters:
Bank Act security can take priority over other interests and may encumber assets critical to property operations.
10. Bankruptcy and Insolvency Search
Confirms whether the seller is subject to bankruptcy, receivership, or insolvency proceedings.
Why it matters:
Insolvency can affect authority to sell, require court approval, or expose the transaction to creditor challenges.
11. Courthouse (Litigation) Search
Identifies ongoing or past litigation involving the seller or the property.
Why it matters:
Litigation may reveal unresolved disputes, construction defects, lease issues, or regulatory enforcement actions.
Environmental and Land Use Risk Searches
12. Environmental Site Assessments (Phase I and II)
Evaluates historical and current land use to identify potential environmental contamination.
Why it matters:
Environmental liability in Alberta can attach to landowners regardless of fault and may significantly affect value and financing. This is particularly important when purchasing industrial property, or when a certain parcel of land may have had a gas station or laundromat as a tenant.
13. Alberta Energy Regulator (AER) Search
Determines whether active, suspended, abandoned, or orphan wells exist on or near the property.
Why it matters:
Energy infrastructure can create environmental risk, development restrictions, and costly reclamation obligations.
Income and Contractual Review
14. Lease Review and Rent Roll Analysis
Involves reviewing tenant leases, amendments, and rent rolls to confirm income, expenses, and tenant rights.
Why it matters:
Inaccurate income assumptions or undisclosed tenant rights can materially affect valuation and financing.
15. Tenant Estoppel Certificates
Tenants confirm key lease terms directly to the buyer.
Why it matters:
Estoppels reduce the risk of post-closing lease disputes and undisclosed obligations.
16. Service Contracts Review
Reviews assignability and terms of utility and service agreements.
Why it matters:
Some contracts may not transfer automatically or may impose unfavorable terms on a new owner.
Insurance and Risk Management Review
17. Insurance Claims History
Reviews prior insurance claims related to the property.
Why it matters:
Recurring claims may indicate underlying issues and affect future insurability and premiums.
Condominium-Specific Review (Where Applicable)
18. Condominium Document Review
Includes bylaws, rules, financial statements, and reserve fund studies.
Why it matters:
Condo documents may impose usage restrictions, special assessments, or governance risks that affect value and operations.
The searches outlined above represent common and prudent due diligence steps, but they are not exhaustive. Additional searches or investigations may be required depending on:
Property type and location
Historical use of the land
Intended redevelopment or change of use
Lender requirements
SB LLP: Your Essential Commercial Real Estate Lawyer for Alberta Property Purchases
Commercial real estate due diligence in Alberta goes well beyond a simple title search. A thorough, tailored due diligence process helps buyers identify hidden risks, negotiate appropriate protections, and proceed with confidence.
This article is not intended to provide legal advice and is for guidance purposes only. At SB LLP, we regularly advise commercial property owners, developers, and investors across Alberta on acquisitions, financing, and risk management. If you are considering a commercial property purchase, contact our commercial real estate team to ensure your due diligence process is comprehensive and aligned with your investment goals.
