In a high-value property transaction, the greater part of the risk a buyer assumes can be identified before the title is transferred. The problem is that the identification is often never carried out. Due diligence closes that gap by examining the legal and factual position of the property systematically, in advance of the transaction.
What the review covers
Due diligence is not the inspection of a single document. A thorough review considers the following together:
- Title record review. Who the owner is, how ownership was acquired, and the full history of entries in the land register.
- Mortgage, annotation and attachment checks. Limited rights in rem, declarations and encumbrances registered in favour of third parties.
- Zoning verification. The property's position in the development plan, permitted building conditions, and whether current use conforms.
- Building and occupancy permits. Construction permit, occupancy permit, and conformity with the approved project.
- Litigation and risk analysis. Pending or concluded disputes concerning the property or its owner.
Any one of these headings can produce a finding significant enough to halt a transaction. Considered together, they give the investor a picture capable of reshaping both the price negotiation and the structure of the deal.
When the review should take place
Due diligence should be completed before any binding commitment is made. A common error in practice is to begin the review after a deposit or advance payment has been made. The investor is then caught between the cost of withdrawing from the contract and accepting the risk.
The correct sequence is to complete the review and reflect its findings in the contract. Identified risks can then be managed through price adjustment, seller undertakings, the payment schedule, or withdrawal.
The link between review and payment
Due diligence alone is not sufficient. Its findings offer no protection unless they are tied to the flow of payment. In a secure transaction structure, payment is arranged to occur simultaneously with the transfer of title, and any interim payments remain under legal oversight.
Review, payment coordination and title procedures should therefore be treated not as separate services but as parts of a single transaction discipline.
Corporate transactions
Where the buyer is a company, fund or financial institution, the scope widens. Alongside the property headings, the counterparty's corporate structure, authority to represent and compliance profile are also assessed. AML and KYC procedures engage at this stage and are frequently as decisive as the transaction itself.
This content is provided for general information only and does not constitute legal advice. Specialist advice should be obtained in respect of any specific transaction.