REALWorld Law

Sale and purchase

Steps in the transaction

What are the normal steps involved in a real estate transaction?

Angola

Angola

The procedure for the granting of surface rights (the most common title) is organized by the Instituto Geográfico e Cadastral de Angola (Geographical Institute of Angola). The procedure for the acquisition of such rights is as follows:

  • Phase 1: Filling the application for the granting of surface rights. The application must specify (a) the location of the plot of land, (b) the use that will be made of the plot of land, (c) the price and (d) information on any other surface right granted.
  • Phase 2: Gathering information and reports on suitability of the plot of land, any third-party rights, term and phases of the use of land in accordance with the type and volume of construction, additional clauses for the agreement adjusted to the purpose of the concession.
  • Phase 3: Interim Decision. The procedure may be dismissed or if there is no reason for dismissal, the plot of land will be marked out.
  • Phase 4: Decision. The concession decision will set forth the conditions to which the right will be subject and may determine a deadline during which the concession will be provisional. This is also the time to decide whether a public auction must take place. If not public auction takes place the applicant must confirm within ten days the acceptance of the concession under the terms set forth by the concessionaire. Specific rules apply in case a public auction takes place.
  • Phase 5: Final marking out of the plot of land. Topographic operations that allow the full identification of the plot of land and its location by marking it out with marks made of cement or stone.
  • Phase 6: Public deed of concession. Granting of the public deed. Issuance of the concession decision followed by publication in the Official Gazette.
  • Phase 7: Payment of the price. Depending on the pre-existence of a public action, payment shall be done as follows: if there was a public action payment shall occur under the terms of the procedure of such public action. In case public action was waived by the authorities, payment slips must be obtained 5 days from the gazetting of the concession decision.

The concessionaire must register the concession deed with the Real Estate Registry being all costs bear by the applicant now owner of a surface right.

Australia

Australia

Following the investigation of title, the parties will enter into a formal contract for the sale and purchase of the property.

There will usually be a period between the date of contract and the date when settlement (financial close) occurs and title transfer takes place. The contract will set out the documents that must be entered into at completion, including the formal transfer and any other related documentation.

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 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.

An asset deal must be effected by a deed executed in the presence of a notary public, within four months of the signing of the initial agreement. The deed must be presented to the Administration of Legal Security. The applicable registration duty must be paid within the same four-month period. In Belgium these obligations do not apply to share purchase agreements.

Common elements of contracts for both asset and share deals include a description and identification of the parties and the subject of the contract (ie the real estate or shares being sold), as well as a clear description of the price. If these elements are absent the purchase agreement is invalid.

Asset deals

The first stage of an asset deal is the drafting and signing of a sale agreement (compromis de vente/verkoopcompromis). This is the document that actually transfers ownership of the real estate, but it is not the same as the notarial deed by which the transfer is made effective. Note that the transfer of ownership is only binding as far as third parties are concerned when the notarial deed has been registered on the Administration of Legal Security.

Share deals

A share deal only transfers ownership of the company owning or holding the real estate. A notarial deed is not required, and a private agreement is sufficient.

Bosnia-Herzegovina

Bosnia-Herzegovina

In general, there are three different approaches to the acquisition of real estate in the Federation of Bosnia and Herzegovina (FBiH):

  • direct acquisition of real estate (asset purchase);
  • the purchase of all, or part, of an enterprise holding real estate; or
  • the acquisition of the company holding title to the property (share purchase).

Asset purchase means that the real estate in question is directly purchased from its owner. Ownership rights are transferred upon registration in the land registers.

Real estate can also be acquired indirectly through the purchase of an enterprise (share purchase) under the Law on Commercial Companies.

In this way the owner of the business interest acquires the rights and liabilities of the local company owning the real estate.

A share purchase is normally a better way of purchasing real estate, since the buyer does not pay VAT or tax on the transfer of ownership.

Canada

Canada

After reaching agreement on the purchase price and other fundamental terms of the transaction, the parties negotiate and enter into a formal contract of purchase and sale. There will usually be a period of time between the date of contract and the date that money is paid and title transfer takes place, called ‘closing’ or ‘completion’. The contract will set out the documents that must be entered into at closing, including the formal transfer and any other related documentation.

China

China

The normal steps involved in a real estate transaction are as follows:

  • The parties in large real estate transactions will normally enter into a set of heads of terms or a memorandum of understanding.
  • For a purchase by individuals of residential property from real estate developers, the developer will require an irrevocable purchase order which will provide a long stop date for the conclusion of the sale contract, and under which the purchaser will pay a deposit on the property. If the sale contract is not signed, the irrevocable purchase order will cease to be binding and the deposit will be forfeited.
  • Purchasers in large real estate transactions will undertake due diligence so as to identify problem areas and seek remedies in definitive documentation.
  • For individual purchasers of residential units, the parties will enter into a sale and purchase agreement (or in some cases, a pre-sale agreement) based on a standard form provided by local real estate administrative authorities. For large transactions, the parties will usually enter into another more detailed contract.
  • The parties will submit the duly executed pre-sale agreement (if any) and sale and purchase agreement to the relevant local land bureau for registration. The land bureau will issue a property title certificate in the name of the purchaser. If the purchase is made with borrowed finance, a mortgage over the property will usually be granted at the same time.

The processes of registration of local land bureaus may vary from region to region.

Croatia

Croatia

In the case of a share deal the buyer acquires the shares in the company owning the property through a share purchase agreement (in the form of a notarial deed) and the entry of the share transfer in the company records (this is normally just a formality which will be completed on the same day).

In the case of an asset deal, the title to the property is acquired through registration with the land registry. This may take several days (and, in some very complex cases, several years).

Czech Republic

Czech Republic

Real estate transactions are normally either in the form of direct acquisition of the real estate (asset deal) or an acquisition of the company holding title to the property (share deal). The choice primarily depends on tax and risk considerations, the type of real estate, and the reliability of the other party to the transaction. A share deal provides certain tax benefits but there can be some associated risks for the holding company. The steps involved in the transaction as asset deal are:

  • Letter of intent
  • Exclusivity agreement
  • Agreement for future purchase
  • Due diligence
  • Purchase agreement
  • Registration in the Cadastral Register
Denmark

Denmark

Initially the buyer and the seller agree on the purchase price and then move forward in negotiating the further details of the transaction.

Once the terms are negotiated between the buyer and the seller they are formalised in a contract.

As a template for the terms of the transaction the Danish Association of Real Estate Agents (Dansk Ejendomsmaeglerforening) has drafted a standard formula (In practice primarily used between non-professional parties or between a professional party and a consumer).

Contracts vary depending on the specific transaction but all agreements should be concluded in writing. Usually, essential elements include: an indication of the price, how payment is to be made, the identity of the property, information about relevant building permits and rules regarding the allocation of risk and benefits associated with the property.

A formal deed of transfer consisting of a written summary of the contract is drawn up. The parties must digitally upload a request based on the contract or a written deed to the Court of Registration to register the transfer. This will protect the transfer from any claims made by third parties. Both the seller and the buyer must sign the deed.

France

France

The purchase of real estate is traditionally structured as a two-tier process:

First, the execution of a promise to sell, which can be a reciprocal agreement between the buyer and seller or an undertaking by the seller only. A deposit is normally paid by the buyer, through an escrow agent, of 10% of the purchase price (less for larger transactions). The deposit is offset against the purchase price when the sale is completed; returned to the buyer if, for some reason, a clean title cannot be transferred to the buyer within the stated period; or forfeited by the buyer if he no longer wishes to proceed with the purchase.

There is no legal requirement for a specific deposit to be paid or for this to be done through an escrow arrangement.

The time limit specified in a promise to sell is normally set for a few weeks after the expiry of the public authorities' pre-emptive rights. During this time, the notary is responsible for securing official copies of entries from the mortgage registry that provide details of any recorded mortgages on the property, so that title can pass to the buyer without any interference from creditors.

Secondly, the parties will proceed to the execution of the deed of sale in front of the notary. Title passes to the buyer upon the execution of the deed, unless this states otherwise.

Germany

Germany

Following due diligence by the buyer, the sale and purchase agreement is entered into. The purchase price is usually payable once a priority notice of conveyance has been registered in the land register and any other conditions agreed by the parties have been met. After payment of the purchase price the notary applies for registration of the transfer of ownership in the land register.

Hong Kong, SAR

Hong Kong, SAR

A typical sale and purchase transaction relating to a residential property involves:

Preliminary negotiations

The purchaser goes to view the flat. Usually no legal advisors are involved at this stage.

Written agreement for sale and purchase

Once it is agreed between the vendor and purchaser that the transaction should proceed (price, etc has been agreed), they will enter into the following written agreement(s).

The provisional agreement

This is usually short and simple and is normally prepared by the estate agent and executed by the vendor, purchaser and estate agent. The usual terms include:

  • The parties
  • The property
  • The price
  • Amount of deposit and payment details
  • Date of execution of the formal agreement
  • The property will be vacant or subject to tenancy upon completion
  • The completion date
  • Which of the parties is responsible for paying the stamp duty and other legal expenses on the transaction
  • The amount of commission payable to the estate agent
  • Liability for breach of the agreement, and
  • Any special terms

The formal agreement

The formal agreement contains more detailed terms of the transaction based on the provisional agreement. It is usually prepared by the vendor’s solicitor and approved by the purchaser’s solicitor. The parties would sign this agreement after taking legal advice on the terms and the transaction.

Instructing solicitors

The vendor and the purchaser are required to be separately represented by lawyers unless in certain circumstances, such as where the parties are related by blood or the consideration for the land does not exceed HK$1,000,000 or uncompleted development. The solicitors acting for the purchaser can also act for the mortgagee (if any) so long as there are no conflicts of interests or a significant risk that a significant conflict will arise.

Signing the formal agreement for sale and purchase

The vendor's solicitor prepares and sends the draft formal agreement to the purchaser's solicitor for approval. There may be subsequent negotiations about the draft terms. Once the terms are agreed, the vendor's solicitor prepares a clean copy for engrossment and sends it (in duplicate) to the purchaser's solicitor.

The purchaser's solicitor sends the agreement (signed by the purchaser) and the duplicate, together with the deposit, to the vendor's solicitor.

The vendor's solicitor then arranges for the vendor to sign the agreement and the duplicate and date them. The vendor's solicitor keeps the signed duplicate and sends the signed original to the purchaser's solicitor.

The purchaser's solicitor will first submit the signed formal agreement to the Stamp Duty office for stamping and subsequently lodge the stamped formal agreement in the Land Registry for registration.

Preparing the assignment

The document of transfer (known as an assignment), must be prepared for the vendor to transfer its interest in the property to the purchaser upon completion.

The purchaser's solicitor prepares the assignment and sends the draft to the vendor's solicitor for approval.

Completion

On completion, the purchaser hands over:

  • The balance of the purchase price to his solicitor in exchange for the assignment executed in its favour by the vendor
  • All other title deeds including the release from the vendor's mortgage (if any), and
  • The keys if the property is sold free of occupation by any other person.

The assignment must be stamped as having had the appropriate stamp duty paid and registered in the Land Registry by the purchaser's solicitor. A mortgage by a limited company must also be lodged with the Companies Registry for filing and registration. After stamping and registration, the title deeds are sent to the purchaser's mortgagee (if any) for retention as security. If there is no mortgage, the original title deeds are retained by the purchaser.

Hungary

Hungary

Prior to the conclusion of the sale and purchase agreement, due diligence is normally carried out. Afterwards, the sale and purchase agreement is entered into and submitted to the land registry office for registration. The purchase price is usually paid once the seller has given consent to the registration and other conditions agreed by the parties have been met.

Ireland

Ireland

The normal steps involved are the signing of a standard form contract for the sale followed by the execution of a formal legal document or 'deed' which is signed and delivered by the parties involved.

Italy

Italy

Usually, the parties to the transaction enter into an agreement such as a letter of intent or a head of terms, providing the potential buyer with an exclusivity period in which to carry out the due diligence.

Due diligence is undertaken in relation to technical and legal issues by the purchaser's professional advisers (usually this takes about two or three weeks).

Upon completion of due diligence, assuming the results are satisfactory, the parties negotiate the terms and conditions of the transaction. Often, the parties agree to enter into a preliminary agreement specifying certain conditions which must be fulfilled prior to the completion of the transaction and the signing of the final deed.

Japan

Japan

General steps in the Japanese commercial real estate transaction processes are as follows:

Step 1: Information Collection

Real estate is sought by investors/purchasers.  The most popular method of doing so is through consultation with a real estate broker.

Step 2: Basic Investigation and Submission of the LOI and CA

The purchasers then conduct a basic investigation of the target real estate.  If purchasers are seriously interested in buying the property after a basic investigation such as an initial property tour or evaluation of a simple rent-based cash flow, the interested purchaser would then submit a letter of intent (LOI) proposing a tentative purchase price along with a confidentiality agreement (CA) to the sellers in order to begin the due diligence process.  The LOI is not considered a legally binding document but does generally represent a commitment to purchase the property subject to execution of an SPA.

Step 3: Due Diligence

Due diligence is undertaken in order to estimate the physical and legal risk of the subject property. For further details, please see the ‘Due diligence’ section below.

Step 4: Documentation

Documents are then executed.  The purchaser usually enters into a real estate SPA with the seller and receives a property disclosure statement regarding important matters from the real estate broker.

Step 5: Closing

The sale and purchase then closes.  The closing is completed once the seller has received payment from the purchaser and the purchaser has received from the seller the documents required for registration of the transfer of the ownership.

Netherlands

Netherlands

The normal steps in a real estate transaction are as follows:

  1. Negotiate and sign a letter of intent
  2. Due diligence process, and
  3. negotiate and sign the sale and purchase agreement; executing the notarial transfer deed and registration of the deed in the Land Registry.

Both prior to and after executing the notarial transfer deed the Dutch civil law notary will check:

  • Whether the seller is still registered with the Land Registry as the owner of the property
  • Whether any new mortgages or enforcement have been established/levied on the property
  • Whether the extracts from the Chamber of Commerce Records are still correct (both for the buyer and the seller)
  • The marital status of the seller and the buyer (if applicable)
  • Whether the buyer and the seller have been declared bankrupt (or become insolvent)
  • Whether the buyer or the seller have been placed under guardianship
  • Whether all permissions and cooperation have been obtained from third parties and whether they are valid
  • Whether any claim has been made under the Municipalities Preferential Rights Act
  • The validity of the passports of both the buyer and the seller.

After executing the transfer deed, the Dutch civil law notary submits a true copy of the deed to the Land Registry, which registration is the actual moment of delivery and transfer of the real estate.

Monetary transactions

A Dutch civil law notary generally arranges the financial completion of a property transaction.

Because the Dutch civil law notary is at the heart of the financial arrangements, he will not execute any deed before he is certain that the entire purchase price (plus other costs and taxes payable) has been transferred to the notarial trust account. The purchase price (and other amounts to be paid to the seller or the seller’s bank) is not paid to the seller until the Dutch civil law notary has confirmed that the property is not encumbered with any mortgages or enforcement, other than those that were disclosed when the transfer deed was signed.

It is common in larger transactions to agree in a separate 'notary letter' amongst seller, purchaser, lender and notary on the flow of funds.

Nigeria

Nigeria

Upon a satisfactory due diligence by the parties and consensus on the transaction costs, completion of the real estate transaction includes preparing and execution of the relevant documents which depend on the nature of the transfer transaction. The usual documents are Sale and Purchase Agreement, Deed of Assignment or Deed of Lease or Sublease and Power of Attorney (optional).

The application form for Consent of the Governor (or Minister for Federal Government owned titles) signed by the seller or lessor is a mandatory requirement.

Upon execution of the relevant documents and transfer of possession of the property to the purchaser or lessee, the process for obtaining consent of the Governor (or Minister for Federal Government land interests) and registration of the transfer of interests should commence subject to payment of the applicable taxes and fees.

Norway

Norway

A real estate transaction normally involves a due diligence process, the negotiation and drafting of the contract, the signing of the contract and the final transfer of ownership.

Contracts for the sale and purchase of commercial real estate are normally drawn up by one of the parties' lawyers based on the bid from the buyer and the acceptance letter from the seller. 

Poland

Poland

The normal steps involved in a real estate transaction in Poland are as follows:

  • Real estate due diligence (normally covering a review of the entries in the land and mortgage register kept for the property, entries in the Land and Building Register and the local zoning and development plans)
  • Concluding the transaction in the form of a notarial deed, and
  • Registration of the acquired right in the land and mortgage register (księgi wieczyste)
Portugal

Portugal

Structuring a real estate transaction commonly requires several steps. Including:

  • Due diligence
  • Promissory agreement (with or without registration)
  • Transfer agreement
  • Payment of taxes due prior to the public deed such as stamp duty and municipal property transfer tax (IMT)
  • Public deed or authenticated private document
  • Final registration
Romania

Romania

Real estate transactions are structured either as direct acquisition of the real estate (an “asset purchase”) or as an acquisition of the company holding title to the property (a “share purchase”). The choice between these structures is mostly tax driven. A transfer of shares as opposed to real estate assets allows payment of registration and authentication taxes (which amount to approximately 1 percent of the purchase price) to be avoided.

In addition, transactions are mostly structured to consist of two phases: the signing of a preliminary agreement followed by the due diligence period and the execution of a final transfer agreement, subject to the fulfilment of various conditions precedent.

Slovak Republic

Slovak Republic

Generally, real estate transactions involve due diligence, the conclusion of the transfer agreement and the registration of title with the relevant Cadastral Registry.

Spain

Spain

Deals are structured either as a direct acquisition of the real estate (asset deal) or an acquisition of the company holding title to the property (share deal). The choice between these is mostly tax-driven. The parties normally agree to enter into a preliminary sale and purchase agreement specifying certain conditions which must be fulfilled prior to completion.

The buyer also usually pays a deposit of between 5 percent and 20 percent of the purchase price.

Once the conditions specified in the sale agreement are met, the parties execute the notarial deed and the buyer pays the remaining part of the purchase price.

Sweden

Sweden

Investments in commercial real estate in Sweden are made either as direct investments/asset deals or as indirect investments/share deals, where the real estate is the asset of a limited liability company, or a trading or limited partnership. Due to Swedish tax regulations, most sellers prefer to sell shares in limited liability companies. The buyer generally carries out due diligence before the acquisition, typically after signing a letter of intent or similar agreement providing them with a period of exclusivity. Bidding contests are also frequent, with several potential buyers carrying out limited investigations of the company or of the real estate before submitting their bids. Both the buyer and seller are normally assisted by professional legal, financial, commercial and technical advisors.

The conclusion of the share purchase agreement (or the sale and purchase agreement) is often subject to the outcome of the buyer's due diligence. The extent of the due diligence depends on the buyer and the real estate in question. However, technical and legal due diligence is normally conducted in relation to title, building permits, leases and other contracts relating to the real estate.

In case of a direct transfer of real estate (asset deal), no notarization or similar requirements are necessary under Swedish law to complete the transfer. The buyer becomes the recognized owner according to civil law once the terms and conditions of the transaction set out in the sale and purchase agreement are met, although the buyer must also apply to the Land Survey Authority to register legal title to the real estate. This triggers a transfer tax of 4.25 percent (for legal entities) of the transfer price or tax assessment value of the real estate, whichever is higher. In the case of the transfer of shares in a corporate entity no new registration is necessary and therefore no transfer tax is payable.

Thailand

Thailand

Following the investigation of the land title deed and ownership of the land or real estate, the parties will enter into a sale and purchase agreement and register the land or real estate transfer of ownership at the relevant land office in which the land is situated.

United Arab Emirates - Abu Dhabi

United Arab Emirates - Abu Dhabi

Pre-contractual documents may take the form of a memorandum of understanding, a letter of intent or heads of terms. Due to the emphasis local and public sector parties place on relationships, there is a tendency to consider such documents as the contract (since a good relationship between the parties will resolve all other issues that are not provided for in the document itself). This view is changing and parties are advised to treat such documents as pre-contractual only.

Following the investigation of title, the parties will enter into a contract for the sale and purchase of the property. There may be an interval between the date of the contract and the date when the transfer takes place.

In addition to the above, in relation to transactions with the Abu Dhabi Global Market free zone, agreements to create conveyances are also recognised and must be registered on the ADGM Land Register.

Once the sale and purchase agreement has been entered into, a binding contract has been made. For properties located within Abu Dhabi (excluding the ADGM), it is not possible for a purchaser to lodge a priority notice at the LRD to ensure that the property is not transferred to another party before the completion date agreed between the seller and purchaser. By requiring completion to take place by personal attendance at the LRD (or a trustee office), the risks associated with this are mitigated to a certain extent. In contrast to the rest of Abu Dhabi, it is possible to lodge a priority notice at the ADGM Land Register in relation to property within its jurisdiction.

United Arab Emirates - Dubai

United Arab Emirates - Dubai

This depends on the nature of the transaction. Commonly, the parties will enter into a very basic 'memorandum of understanding', 'letter of intent' or 'heads of terms', which document will set out key information such as the names of the parties, a description of the property and the purchase price. Quite often, the parties will then treat this document as the 'contract' and pay the monies, attend to transfer formalities etc pursuant to it.

Increasingly, this is changing and whilst parties are still likely to enter into such a document, it is less likely to be considered by the parties as being legally binding, and is used as a starting point for the drafting of a detailed sale and purchase agreement.

When the sale and purchase agreement is signed and dated by both parties, the parties then arrange to visit the Dubai Land Department to attend to the transfer formalities. This may be either on the same day as completion or at a later date. However, transfer of title does not take legal effect until registration of the transfer has been completed.

UK - England and Wales UK - England and Wales

UK - England and Wales

Following the investigation of title, the parties will enter into a contract for the sale and purchase of the property. There will usually be an interval between the date of the contract and the date when the transfer takes place.

The contract sets out the documents that must be entered into at completion, including the formal transfer and any indemnities required at completion.

UK - Scotland

UK - Scotland

Before the conclusion of the sale and purchase contract, due diligence is carried out by the buyer. The contract is then concluded and there is normally an interval before completion of the sale, at which time title to the land is transferred. The disposition is then registered in the Land Register by the buyer's lawyers.

During the course of the due diligence investigations the buyer's lawyers and the seller's lawyers will negotiate the contract for the sale and purchase. Sometimes the parties enter into a contract which is made conditional on the results of the due diligence investigations. There will usually be an interval between the conclusion of the contract and the date when the land is transferred. The contract sets out the documents that are required for completion, including the disposition (the document transferring title).

Ukraine

Ukraine

Generally, the transaction will include the following stages:

  • Conclusion of a confidentiality agreement/preliminary agreement/letter of intent
  • Legal due diligence, as well as financial, environmental and technical due diligence where appropriate
  • Negotiation of the contract
  • Obtaining approval from the Anti-Monopoly Committee of Ukraine (if required under Ukrainian legislation)
  • Signing and notarization of the contract
  • Fulfilment of any conditions precedent to completion
  • Completion of the contract, and
  • Registration of the buyer's title to the real estate/land
United States

United States

After reaching agreement on the purchase price and other fundamental terms of the transaction (which are sometimes but not necessarily summarized in a term sheet), the parties negotiate a sale and purchase contract reflecting those agreed points and providing further detail regarding the transaction. There will usually be two intervals in the contract: (i) an interval between the date of the contract and an agreed upon date, during which the buyer will  carry out its due diligence and (ii) an interval between the end of the due diligence period  and the date when the title transfer takes place, called closing.

Zimbabwe

Zimbabwe

A draft deed is prepared together with a special power of attorney to pass transfer and the declarations for signing by buyer and seller. The seller applies for a rates clearance certificate to the local authority under whose jurisdiction the property falls. The seller must also apply for a capital gains tax clearance certificate from the Zimbabwe Revenue Authority (ZIMRA). After an assessment is completed by ZIMRA, the seller is required to make payment for capital gains tax and obtains a CGT certificate. The transfer documents are then lodged for registration of title at the Registrar of Deeds Office.