Real Estate Due Diligence

In the range of issues covered. A standard pre-purchase property check covers rights, encumbrances and grounds for a subsequent challenge.

Legal due diligence of a commercial property adds to this the land use regime of the plot, town-planning restrictions, the lawfulness of construction and reconstruction, existing leases with tenants, the available capacity of utility networks and the corporate history of the rights holder.

The documents do not reveal the actual condition of the property, reconstruction that has not been legalized, use of premises other than for their designated purpose, occupation of part of the property by third parties, or discrepancies between the plot boundaries and the register data.

Such circumstances are identified by comparing the documents with the property itself: this requires access to the property and its technical documentation, and in some cases technical specialists are engaged. Any circumstances that remain unverified are expressly stated in the report, together with an assessment of the associated risk.

A full review of a property takes, as a rule, from 5 to 15 business days. The timing depends on the number of properties, the depth of the history of title transfers, the completeness of the documents provided and whether information has to be obtained through requests.

Some information is obtained from public sources and registers without the rights holder's involvement: a basic review is possible even without its cooperation. At the same time, a number of circumstances are established from the documents of the company and the property, and their absence limits the scope of the review.

A refusal to provide documents is taken into account as a circumstance in its own right: it often points to information that the rights holder prefers not to disclose.

An acquisition is inadvisable where the seller's title may be challenged and the property would have to be returned, where the property was built in breach of the rules and cannot be legalized, where the land use regime of the plot does not permit the intended purpose and cannot be changed, and where the property is being acquired from a person at high risk of insolvency.

Other circumstances can, as a rule, be remedied before signing or are taken into account in setting the price and in the terms of the agreement.

The report serves as the basis for adjusting the price, extending the seller's representations, including an indemnity mechanism in the agreement and changing the payment arrangements.

Certain matters are made conditions precedent: payment is completed once the seller has remedied them. This approach makes it possible to acquire a property that had remediable defects at the time of the review.

Legal due diligence establishes whether the property matches its documents and whether its use is permissible. The condition of the structures and building services and the scope of necessary repairs are determined by a technical survey and are not part of the legal review.

For properties that have undergone reconstruction, a technical report is often needed for legal purposes as well: without it, the prospects of legalization cannot be assessed.

An hourly rate, a fixed fee or a combined model is used; in some cases part of the fee depends on the outcome achieved. The fee is determined by the time actually spent, the complexity of the matter and the overall timeframe of the project, and is agreed before work begins.