Closing Costs & Prorations in a Commercial Purchase
Closing-cost allocation and prorations decide who pays for what at the closing table — small clauses that move real money.
Last reviewed: May 26, 2026 by the BizLeaseCheck Editorial Team
General information, not legal advice.
Overview
The closing section allocates the transactional costs (transfer taxes, title premiums, escrow and recording fees) and prorates the ongoing items (real estate taxes, rents, operating expenses) between buyer and seller as of the closing date.
These provisions are easy to skim and expensive to ignore — transfer taxes alone can be a meaningful percentage of the price in some jurisdictions.
Topics to check
Confirm the allocation of transfer/documentary/recording taxes, the owner’s and lender’s title premiums, escrow fees, and survey costs. These follow regional custom but are ultimately set by the contract; a clause making the buyer pay "all closing costs, including the seller’s attorneys’ fees" is one-sided and worth pushing back on.
For income property, also confirm who pays leasing commissions and tenant-improvement costs for leases signed before closing.
Real estate taxes, rents, CAM/operating expenses, and utilities are prorated as of closing so each party bears its share. Confirm how delinquent rents are handled, how percentage rent and year-end CAM reconciliations are trued up after closing, and that the buyer receives a credit for tenant security deposits the seller holds.
A buyer should get a credit for prepaid rent and for security deposits (so the buyer can repay tenants later); a seller should ensure it is reimbursed for prepaid expenses that benefit the buyer.
If the seller is a foreign person, FIRPTA generally requires the buyer to withhold a percentage of the amount realized and remit it to the IRS, unless an exception or reduced-withholding certificate applies. A non-foreign seller provides a FIRPTA affidavit (certificate of non-foreign status) at closing.
Confirm the contract requires the FIRPTA affidavit and addresses withholding, because the buyer — not the seller — can be liable for failing to withhold when required.
IRS — FIRPTA WithholdingKey takeaways
- Pin down who pays transfer taxes, title, escrow, recording, and survey costs.
- Push back on one-sided “buyer pays all costs” clauses.
- Confirm proration of taxes, rents, and CAM, and post-closing true-ups.
- Get a credit for tenant security deposits and prepaid rent.
- Require a FIRPTA affidavit; the buyer can be liable for failing to withhold.
Official resources
Legal-review notes
Guide confidence marker: Medium confidence.
- Customary cost allocation and transfer-tax rates vary by state and locality.
- FIRPTA withholding rates and exemptions change; confirm current IRS requirements and consult a tax advisor.
Frequently asked questions
What costs does a buyer usually pay at a commercial closing?
It varies by region and contract, but buyers commonly pay the lender’s title policy, their lender’s fees, recording fees, and often the survey; sellers commonly pay transfer taxes and (in some markets) the owner’s title premium. The contract controls.
How are rents and taxes prorated?
They are split as of the closing date so each party pays for its period of ownership. Watch how delinquent rents, prepaid rent, and year-end CAM/percentage-rent reconciliations are handled, since these are trued up after closing.
What is FIRPTA and why does it matter to the buyer?
FIRPTA is a federal tax rule requiring buyers to withhold and remit a portion of the price when the seller is a foreign person. Because the buyer is responsible for withholding, the contract should require a FIRPTA affidavit from a non-foreign seller.