REALWorld Law

Sale and purchase

Due diligence

Do buyers usually carry out due diligence?

Angola

Angola

Yes. Buyers tend to carry out a due diligence process in order to ascertain the current state of the land or property, including to obtain information to confirm title.

Australia

Australia

Yes. Buyers should undertake their own investigation of title, searches and survey.

The buyer's lawyer will review the title information provided by the seller's lawyer (including copies of the registered title if applicable) and will carry out standard conveyancing searches.

Some states and territories require a seller to provide certain minimum information to a buyer (in the nature of statutory certificates and approvals relating to the property) before a contract is entered into. Other States and Territories have no such requirement.

Buyers can undertake due diligence either:

  • before a contract of sale is formally executed (often under an exclusivity agreement with the seller), or
  • after a contract of sale has been executed

A buyer would generally undertake due diligence after a contract is formed if the contract contains a broad due diligence special condition by which the buyer may be released from the contract if the outcome of the due diligence is unfavourable.

Standard form contracts in use in some jurisdictions provide that a buyer may terminate a contract in circumstances where due diligence enquiries reveal that the property is adversely affected. These are fairly restricted rights and are not a substitute for a broad due diligence condition in favour of the buyer.

Belgium

Belgium

Deals are either structured as share purchases or asset purchases, ie a buyer can either purchase real estate directly or buy the shares in the company owning the real estate. Share deals are often chosen to avoid registration duties but have other disadvantages.

Buyers usually carry out due diligence, which is particularly important for assessing any environmental issues and liabilities. In addition, due diligence provides an opportunity to verify whether there are any liens on the real estate. Due diligence typically takes place prior to the execution of the contract, but the parties are free to agree for it to be carried out afterwards. The contracts will then normally contain specific protection measures for the buyer during the due diligence period, such as an exclusive right to buy.

Bosnia-Herzegovina

Bosnia-Herzegovina

Investors should carry out legal due diligence on title, building permits, leases and contracts relating to the property and technical due diligence on the condition of the buildings.

Due diligence is conducted before completion of the contract. It is possible for the buyer to agree with the seller an exclusive right to buy the property subject to the results of the due diligence.

Canada

Canada

Yes. It is customary for the buyer to be entitled to a period of time after signing the contract, known as a 'due diligence' period, in which to conduct investigations of the property and during which the buyer may withdraw from the transaction. The contract should specify the length of the due diligence period (usually in the range of 30 to 90 days) and the scope of documents and information that must be provided by the seller to the buyer before or during this period.

If the contract does not provide for a due diligence period, the buyer should conduct its due diligence investigations prior to signing the contract. As part of its due diligence investigations the buyer will, with the aid of its counsel, review the title report prepared by the buyer’s counsel, the charges and encumbrances registered on title to the property, any survey, seller searches, permits, environmental reports and physical condition reports and all contracts affecting the property, including:

  • Leases
  • Service contracts
  • Insurance certificates
  • Warranties
  • Appraisals, and
  • Financial documents
China

China

Buyers of large real estate transactions will typically carry out extensive due diligence to identify problem areas and seek remedies. Individual buyers of residential properties are typically only checking titles to the properties.

Due diligence will generally cover the following:

  • confirming if the seller has a valid and clear title to the target real estate
  • identifying any encumbrances on the target real estate
  • confirming if the construction and completion of the target real estate comply with laws and regulations, and
  • confirming if the operation of the target real estate complies with laws and regulations and if operation of the target real estate meets the commercial expectation (eg rent roll generated from leases)
Croatia

Croatia

Whether due diligence should be conducted before purchase depends on the complexity of the real estate in question. The status of all real estate can be checked in the land register.

However, before the acquisition of larger, more complex properties (such as a shopping centre), investors should carry out due diligence covering building permits, leases and contracts. This is normally done before purchase, typically after signing an agreement ('letter of intent' or 'heads of terms') providing the buyer with an exclusivity period.

Czech Republic

Czech Republic

Yes, the extent of due diligence depends on the type of real estate. In-depth legal due diligence is normally carried out in relation to land since, for historical reasons, the information in the Cadastral Register is not completely reliable. This especially applies to pre-1993 records. Special attention needs to be paid to what are known as 'restitution claims' which may have been filed by individuals, or by institutions such as churches and civic associations, for the restitution of their title to holdings which were nationalised under communist rule. Due to the enormous number of claims made, not all have yet been fully resolved. Due diligence usually provides an accurate evaluation of the history of titles and therefore provides investors with the information they require.

From 1 January 2014, the reliability of the accuracy of the information in Cadastral Register has been strengthened by the rebuttable presumption that rights registered in the Cadastral Register have been registered in compliance with their actual legal status. This presumption may, however, be rebutted by the person with the true legal interest. Nevertheless, if the legal status registered on the Cadastral Register does not comply with the actual status, the registered status prevails provided the person obtained the registered right in good faith and for consideration. Because this regulation has only very recently been introduced into Czech law, it is not yet clear, how the courts will interpret the term "good faith". Proper due diligence should still therefore be carried out.

Due diligence in relation to buildings is normally less complex and concentrates on the validity of title and of building and use permits.

Due diligence will also cover any encumbrances on the real estate and any leases and contracts relating to the property.

It is normally carried out before purchase. The buyer will normally provide for a period of exclusivity. This can either be in a non-binding form, such as through letters of intent or heads of terms, or set out in a binding contract for future purchase.

Denmark

Denmark

Investors will normally conduct technical and legal due diligence before the purchase. Legal due diligence includes an investigation of title, easements, encumbrances, leases and all documents relating to the property.

Timing depends on the agreement made between the buyer and seller. Due diligence can take place before or after execution of the contract.

The parties can make an agreement providing protection for the buyer during the due diligence period. This could be an agreement by which the buyer deposits the purchase sum until the end of the due diligence period.

France

France

With the assistance of their lawyers and notaries, buyers will normally conduct due diligence on significant transactions involving commercial properties, portfolios of assets, hotels, etc. Lawyers and notaries share the responsibility for conducting these investigations, with the former being responsible for tax, social, leasing and insurance matters, while the latter are normally responsible for title, zoning, construction and commercial status.

Due diligence is normally much more limited on smaller residential and commercial transactions.

Due diligence is generally conducted between the acceptance of an offer and the execution of a preliminary sale agreement.

Germany

Germany

Yes, usually before the execution of the sale and purchase agreement. For a single asset transaction due diligence normally takes around two to three weeks. In particular, investigations include verification of the title and encumbrances, leases and the zoning and planning situation.

It is common to agree on an exclusivity period for the buyer to carry out due diligence.

Hong Kong, SAR

Hong Kong, SAR

Yes. Purchasers should rely on their own investigation of title, searches, site inspection and survey. The purchaser's lawyer will review the title information provided by the vendor's lawyer (including all title deeds and related documents) and will carry out a set of searches, including a search in the Land Registry to check for any adverse entries such as charges over the land and other encumbrances. If there are any problems on title, the purchaser's solicitors will raise formal queries which the vendor's solicitors are obliged to answer satisfactorily in order to prove good title. Otherwise, the purchaser can refuse to proceed with the purchase.

Hungary

Hungary

When buying an asset, investors usually carry out technical, environmental and legal due diligence on title, building and occupancy permits, leases and contracts relating to the property. When buying shares in a special purpose vehicle holding the real estate, corporate and financial due diligence is also carried out.

Due diligence is usually started after the signing of a letter of intent (heads of terms) and is completed before purchase.

An exclusivity period is in most cases agreed between the buyer and the seller.

Ireland

Ireland

The buyer's solicitor will carry out due diligence, including a full investigation of title, before the buyer signs the sale agreement.

Italy

Italy

Investors usually carry out technical and legal due diligence on title, building permits, leases, tax aspects and contracts relating to the property. With reference to greenfield/brownfield and/or industrial complex it is customary also to carry out an environmental due diligence.

Japan

Japan

Yes.  In many cases, the purchaser obtains an engineering report (ER) prior to purchase.  An ER contains information regarding the real property condition, legal compliance, environmental risks, soil contamination risks, earthquake risks etc.  In addition, due diligence covers review of title documents, agreements such as lease agreements etc.

Netherlands

Netherlands

The buyer and seller will agree on the scope of the investigations in a letter of intent. The buyer will, in particular, investigate the title of the real estate, lease contracts, zoning and environmental issues, such as asbestos and soil pollution.

Due diligence normally takes several weeks.

Nigeria

Nigeria

Conducting due diligence on title to the property and the capacity of the seller to alienate the interests is the discretion of the purchaser. It is a necessary process to be carried out for the buyer’s protection and it is usual in the transfer of title process for the buyer to instruct a solicitor to conduct due diligence to ascertain the title and interests in the real property, the land use and zoning purpose, external or third party interests, residue or the term of years and the status and capacity of the seller.

Norway

Norway

Yes. Investors usually carry out technical, environmental and legal due diligence on title, building permits, leases and contracts related to the property. This is normally carried out before purchase, but may also be done during a short specified period after the contract is signed if agreed between the parties in the contract.

If the due diligence is carried out after the contract is signed, the contract will specify how to deal with any negative findings.

Poland

Poland

Yes. Depending on the structure of the deal, legal due diligence normally covers:

  • Title
  • Encumbrances
  • Easements
  • Planning and zoning permits
  • Construction and environmental matters
  • Leases
  • Tax (including stamp duty)
  • Insurance
  • Service agreements
  • Corporate matters
  • Loans
  • Employment issues
  • Potential restitution claims

Due diligence is normally conducted prior to entering into a purchase agreement and the findings are normally included in the agreement. However, from time to time, where an asset is acquired indirectly by the acquisition of shares in the company owning the asset, both pre-closing and post-closing due diligence is conducted.

In order to minimize risk, the parties often decide to execute a preliminary sale and purchase agreement before transferring real estate. This gives the buyer an opportunity to conduct an examination of the current legal and physical condition of the property with a secure right to purchase once this is completed satisfactorily.

If the real estate is not as the seller has declared it to be, then the agreement will normally allow the buyer to terminate the initial agreement. In some situations, the parties also agree for the buyer to benefit from an exclusivity period but this is normally dealt with in a separate letter of intent.

Portugal

Portugal

Yes. Due diligence is usually carried out by buyers, in order to obtain information regarding ownership, charges, encumbrances, tax debts, licenses, contracts concerning the property, and other contingencies and/or liabilities. Part of the relevant information can be accessed directly with public authorities such as Land Registry Office, Tax Services and Municipalities, but in most transactions sellers provide themselves the documentation required by the purchasers.

Romania

Romania

Buyers usually carry out legal, environmental, tax and technical due diligence exercises prior to acquiring real estate. The transfer of the title to the real estate may also be subject to a satisfactory outcome in the due diligence investigations or the resolution of any issues discovered during the process.

Slovak Republic

Slovak Republic

Investors normally carry out legal due diligence on title, building permits, charges, liens or encumbrances, leases and contracts relating to the property, and, in the case of buildings, technical due diligence on their physical condition. This is mainly because any registration with the Cadastral Registry is deemed to be correct unless the opposite is proven. To limit the risk of a previous imperfect registration at the Cadastral Registry, due diligence is always recommended.

Spain

Spain

Investors normally carry out technical and legal due diligence on title, building permits and the leases and contracts relating to the property. Due diligence is carried out before purchase, typically after the signing of an agreement (letter of intent or heads of terms) providing the potential buyer with an exclusivity period.

Sweden

Sweden

Buyers generally carry out due diligence prior to acquisition, typically after signing a letter of intent or similar agreement providing exclusivity for a limited period of time. Bidding contests are also frequent, with several potential buyers carrying out limited investigations of a company or real estate before submitting their bids. Both the buyer and the seller are normally assisted by professional legal, financial, commercial and technical advisors.

The due diligence process for different types of investment is normally very similar in relation to the real estate itself. However, in the case of share deals additional due diligence must be carried out concerning corporate, tax, employment, insurance, disputes and other historical matters as is usual with the acquisition of any company.

It is worth noting that in Sweden information is more easily accessible via the official records than might normally be expected in Central and Eastern Europe. For example, all real estate is registered in the Swedish Real Property Register kept by the Swedish Land Survey Authority. The Real Property Register contains details of, among other things, owners (present and former), mortgages, tax values, easements etc. It is also possible to obtain information about the purchase price paid by the present and former owners of the real estate. The easy accessibility of such information facilitates a secure, reliable, timely and cost-efficient due diligence process.

Thailand

Thailand

The buyer will use his discretion as to whether he wishes to carry out due diligence. Buyers (with the assistance of their lawyer) will normally conduct due diligence on significant transactions involving commercial property, hotels, resorts, department stores, etc before entering into the sale and purchase agreement.

United Arab Emirates - Abu Dhabi

United Arab Emirates - Abu Dhabi

Yes. Buyers should rely on their own investigation of title and survey.

The buyer’s lawyer will review the title information and any searches (which are private and only available to interested parties) provided by the seller’s lawyer (including copies of the registered title, if applicable) and then raise enquiries with the seller’s lawyer. In relation to property located within the Abu Dhabi Global Market free zone, (ADGM), the ADGM land register is publicly searchable and certificates of title can be obtained by interested parties. The seller’s lawyer will then prepare responses to queries relating to the property for the buyer’s lawyer to review.

Searches of public utilities cannot be done by the public and therefore, again, the purchaser is reliant on obtaining due diligence materials by request to the seller. The law does not imply any warranties into the sale and purchase of real estate so it is important for a purchaser to carry out as detailed investigation as possible before entering into a binding agreement, A valuation will be conducted by a bank if the purchaser is seeking to grant a mortgage over the property, Generally, the buyer and seller will not enter into a sale and purchase agreement until the due diligence is completed and is satisfactory.

United Arab Emirates - Dubai

United Arab Emirates - Dubai

Buyers do carry out detailed due diligence, as in any other jurisdiction. However, this is limited because of the lack of information available to the public. 

The register maintained by the Dubai Land Department (DLD) containing ownership details is private. In order to verify title, a seller must issue a 'no objection certificate' allowing the DLD to confirm ownership of the relevant property to a potential (and named) purchaser. More commonly, a seller would simply provide a copy of its title certificate to a potential purchaser to prove ownership, and possibly a copy of the 'affection plan' issued in respect of the property by Dubai Municipality in order to show the approved use of the land.

Increasingly, more detailed due diligence is being requested by potential buyers and provided by sellers, in particular for higher value deals and more complex deals. It is becoming reasonably common for enquiries before contract to be raised, and for copies of any site investigation studies (eg environmental surveys etc. to be requested) and site inspections undertaken. It is also more common now that purchasers request a due diligence report from their lawyers and obtain professional valuation surveys of the property.

UK - England and Wales UK - England and Wales

UK - England and Wales

Yes. Buyers should rely on their own investigation of title, searches and survey but in most cases the seller must provide the buyer with an energy performance certificate.

The buyer's lawyer will review the title information provided by the seller's lawyer (including copies of the registered title, if applicable) and will carry out a standard set of searches. The seller's solicitors will also prepare responses to a standard list of queries relating to the property for the buyer's solicitor to review.

The parties will not enter into the contract of sale until all investigations are completed. Until the contract of sale is entered into, either party may walk away from the deal.

By law, there is no opportunity to negotiate on an exclusive basis with the seller during this period, although sometimes the parties will enter into an exclusivity agreement.

UK - Scotland

UK - Scotland

Yes. A buyer will generally rely on their own due diligence investigations, title examination, searches and survey.

The buyer's lawyers will review the title information provided by the seller's lawyers. They will also carry out a standard set of searches (for example with the local authority). Any issues identified will then be raised with the seller's lawyers. There is no standard list of enquiries and the responses given have no contractual effect unless expressly stated to be seller warranties in the sale and purchase contract.

The parties will usually not enter into the contract until all due diligence investigations have been satisfactorily completed. In law, there is no automatic exclusivity for the buyer during this period. However, sometimes, but by no means always, parties will agree to enter into an exclusivity agreement for a set period of time.

Ukraine

Ukraine

Usually investors carry out financial, technical, legal and environmental due diligence on title, building permits, leases and contracts, and other aspects relevant to the property. As a rule this is carried out before purchase, either after signing the preliminary agreement, letter of intent or term sheet etc (which provides the buyer with an exclusivity period), or after signing a principal agreement, which will make the conduct of due diligence a condition precedent for completion.

United States

United States

Yes. In many but not all localities in the United States it is customary for the buyer to be entitled to a period after signing the contract, known as a ‘due diligence’ period, in which to conduct investigations of the property and during which the buyer may withdraw from the transaction. The contract should specify the length of the due diligence period (usually in the range of 30 to 90 days) and the scope of documents and information that must be provided by the seller to the buyer before or during this period.

If the contract does not provide for a due diligence period, the buyer should conduct its due diligence investigations prior to signing the contract. As part of its due diligence investigations the buyer will, with the aid of its counsel, review the title report prepared by a title insurance company, the underlying title documents, the survey, seller searches, certificates of occupancy and permits, any environmental reports and physical condition reports, all contracts affecting the property, including:

  • leases
  • any zoning reports
  • insurance certificates
  • appraisals, and
  • financial documents
Zimbabwe

Zimbabwe

This is an aspect within the sole discretion of the buyer, and in some instances, buyers wish to carry out due diligence on the property. Typically, this takes place with the assistance of legal advisors in order to protect the buyer against any future setbacks and losses pertaining to the property.