Five Ways a Retail Deal Dies in Escrow

By Bobak Kalhor, President, K2 Investment, Inc. — September 19, 2026

Every one of the five is discoverable in the first week of escrow. Almost all of them surface in the last week instead. That gap is not bad luck. It is the order most buyers run their diligence in, and it is fixable.

The standard sequence is to order reports, wait for them, review the leases while waiting, and take up the hard questions when someone raises them. The better sequence is to ask the five questions below on day one, in writing, before you spend money on anything. Four of them cost nothing to answer.

1. Who holds a right of first refusal, and how broad is it?

A right of first refusal lets a tenant match a third-party offer and take the property instead of you. A right of first offer requires the seller to come to the tenant before marketing. Both appear in retail leases, and the refusal version is the one that does damage, because it triggers after you have negotiated, opened escrow and started spending.

Two things to check. First, who holds one. Check every tenant, including the rooftop cell antenna, which is easy to overlook and frequently holds rights out of proportion to its rent. Second, and more important, the scope language. A right limited to that tenant's own premises is ordinary and usually harmless. A right reaching “all or any portion of the property, including as part of a larger parcel of which the premises is a part” is a different instrument entirely. The second version covers the whole center.

Ask in week one: has the holder ever been noticed on a prior offer, how did they respond, and is there a recorded waiver or a current estoppel addressing it? A seller who has been through this before will have the answer in a file. A seller who has not should go find out before you pay for a survey.

2. Will the estoppels match the rent roll?

An estoppel certificate is each tenant confirming, in writing, what their lease actually says and what they believe they are owed. They typically arrive two to three weeks before closing, which is the worst possible time to learn something new.

What comes back that was not in the rent roll: an unpaid tenant improvement allowance the prior landlord promised, a disputed common area reconciliation from two years ago, a side letter nobody disclosed, a rent credit for a repair the tenant made, a verbal agreement about parking or signage, or a claimed offset right. Any of these can be small money and still reprice the deal, because they signal how the property has been administered.

Send the estoppel forms out in the first week rather than the last. It costs nothing, it takes tenants weeks to respond anyway, and the answers change what you are willing to pay while you still have leverage to use them.

3. What is recorded against the land that is not in the lease file?

Multi-tenant retail sits on land that has usually been subdivided, reciprocally eased, and cross-parked over several decades. The preliminary title report and the survey are where that history lives, and buyers routinely skim both.

What matters:

• Reciprocal easement agreements. Access, parking and maintenance shared with an adjacent owner, often recorded in the 1980s and never looked at since. They can dictate hours, signage, cost sharing and even what uses are permitted.
• Parking covenants and counts. If a required ratio runs with the land, it constrains any future expansion or reconfiguration, and can affect what tenant you are permitted to put in a vacant space.
• Exclusive use restrictions. These live in leases rather than title, but they function the same way. A grocery exclusive granted to your anchor can block the replacement anchor you were counting on. Build a matrix of every exclusive and every prohibited use before you underwrite re-leasing.

4. Will the lender still be there at the number they quoted?

Loan quotes issued before an appraisal and a full lease review are indications, not commitments. What changes them is almost always the same thing: remaining lease term.

When a lender's appraisal confirms that the anchor's term is shorter than the loan, the response is predictable. Proceeds come down, amortization shortens, a reserve gets required, or the debt service coverage test fails outright. The buyer then has to bring more equity, late, or renegotiate a price that was agreed weeks earlier. On a 1031 purchase with a 180-day clock running, that is not a negotiation you want to be having.

Give the lender the full rent roll and the anchor's actual expiration on day one, not the summary. If the loan does not work on real term, you want to know before the deposit goes hard, not after.

5. Was there ever a dry cleaner?

Environmental issues kill more retail deals than any other physical condition, and in neighborhood centers the source is usually mundane. Dry cleaners using chlorinated solvents, and auto service or fueling uses, are the two histories that turn a routine Phase I into a recognized environmental condition and a recommendation for further investigation.

A Phase II is not the end of a deal, but it costs weeks and real money, and it arrives right when your contingency period is expiring. Order the Phase I immediately and, separately, ask the seller for the property's tenant history going back as far as they have it. A list of who occupied each suite over thirty years tells you whether to expect a problem long before the consultant does.

The pattern. Rights of first refusal, estoppels, title and survey, the lender's read on term, and the environmental history are all knowable in week one. None of them require a report you have not ordered yet. They surface late because buyers sequence diligence by cost rather than by consequence, and then discover the expensive facts after the cheap money is already spent.

What the first week should look like

A working checklist, not legal advice. Your counsel should set the actual contingency structure and deadlines for your transaction.

None of this makes a bad deal good. What it does is move the bad news forward, into the window where you still have a deposit that has not gone hard and a seller who still wants to close. That is the whole objective of diligence, and sequence is most of it.

Before you open escrow

If you are under contract or about to be on a retail property anywhere in California, send us the offering memorandum and the lease abstract. We will tell you which of these five apply and what to ask for first, at no cost and with no obligation to work with us afterward.

Contact K2 Investment  |  (213) 624-0490  |  bk@k2investments.com

Downtown Los Angeles is where we have spent the last thirty years, and it remains our proof rather than our perimeter. We represent buyers and sellers throughout California.

Related reading: How to Read a Shopping Center Rent Roll  |  Buying a Smart & Final or Sprouts  |  Current K2 listings

Bobak Kalhor is President of K2 Investment, Inc., a boutique commercial real estate brokerage founded in 1995 and based at 530 E. 8th Street, Suite 400, Los Angeles, CA 90014. CA DRE #01198998  |  Corporate DRE #01201662  |  (213) 624-0490.

Published September 19, 2026. This article is general information from a licensed California real estate broker and is not tax, legal or investment advice, and does not describe any specific property, offering or transaction. Diligence checklists and timelines are illustrative. Retain your own counsel, environmental consultant, CPA and qualified intermediary, and confirm all contingency deadlines under your purchase agreement before acting.