Legal Due Diligence of Property Before Purchase

Why property due diligence is required

Legal due diligence is a review of an apartment or other real-estate asset before purchase to identify legal risks affecting the transaction or the buyer's future ownership. It applies to both new-build property and the secondary market.

Potential risks include third-party claims, previous owners or relatives, fraudulent sale, encumbrances, arrests, mortgages, litigation or enforcement proceedings, unpaid property-related liabilities and problems with the developer's title or construction documentation.

New-build due diligence

• review the developer and related companies, including their registration history;

• check arrests, mortgages, court and enforcement proceedings relating to the developer, related companies and the construction project;

• review the construction licence and other permit documentation;

• review rights to the land, its designated use and the term of land-use rights;

• review technical conditions for utilities and the stated construction timetable;

• analyse the proposed investment or purchase structure for compliance with the legal framework;

• review investment agreements, preliminary agreements, agreements for purchase of property rights, forward contracts, joint-activity agreements or assignment arrangements;

• propose or negotiate amendments to the contract where required.

Secondary-market due diligence

• verify the seller's title document and the legal history of ownership;

• check encumbrances, arrests, mortgages, court disputes and enforcement proceedings affecting the property or seller;

• assess possible claims by a spouse, children, previous owners or other third parties;

• review the sale structure, preliminary and final sale agreement, deposit and payment terms;

• check the seller's documents and available public-register information.

Documents required

The source requests copies of the seller's available title documents, technical passport and other property documents, together with seller and family information relevant to third-party risks and a description of the agreed transaction terms. Documents may be provided electronically.

The source separately gives a commercial turnaround period for analysis of the seller and property; that service period is omitted from the operative process.

Legal Support for Real Estate Transactions

Purpose of legal transaction support

A real-estate lawyer is a specialist whose role is to protect the buyer or seller by reviewing the legal status of the property, the counterparty, the sale structure and the contract before money and property rights are transferred.

It distinguishes this role from the broker and notary. The broker's primary task is to bring the parties together and agree commercial terms, while the notary's task is to authenticate and correctly formalise the transaction. Neither role necessarily includes a complete risk review of the property and seller from the buyer's perspective.

Risks

• missing, incomplete or defective construction permit documentation;

• lack of proper rights to the land or inconsistency of the land's designated use;

• complex sale structures depending on an intermediary that may fail to perform;

• one-sided developer contracts allowing delay, postponement of commissioning or withdrawal with limited consequences;

• third-party claims by relatives, spouses, previous owners, creditors or other persons;

• fraudulent sellers or persons without authority to transfer the property;

• arrests, mortgages, enforcement proceedings or court disputes;

• property-related tax or mandatory-payment debts;

• inconsistencies between the agreed commercial terms and the contract presented for signature.

New-build property

For a new-build purchase, the source lists review of the developer and companies involved in the project, their registration documents and history, the legality of construction, rights to the land, permits, technical conditions for utilities and available construction documentation.

It also includes searches for arrests, mortgages, court and enforcement proceedings affecting the developer, related companies or the project itself.

The lawyer reviews the sale structure proposed by the developer and the contracts between developer and buyer. The source lists investment agreements, preliminary sale agreements, agreements for purchase of property rights, forward contracts, joint-activity agreements and assignment arrangements among possible structures. Where required, amendments may be negotiated and inserted into the contract.

Secondary-market property

The source includes verification of the seller's ownership, the legal basis on which the seller acquired the property, the history of previous transfers and potential claims by third parties.

It also includes checks for encumbrances, arrests, mortgages, litigation and enforcement proceedings against both the property and the seller, together with review of debtor and other relevant registers.

The preliminary and final sale contracts, deposit and payment terms and other agreed conditions are reviewed and, where necessary, amended or redrafted.

Participation at signing

At the notarial or developer signing, the lawyer may check the authority of the parties, read the final contract against the agreed terms and provide advice on questions arising during execution.

Common new-build purchase structures

• preliminary sale and purchase agreement;

• agreement for purchase of property rights;

• participation in a housing construction cooperative;

• participation in a construction financing fund.

Other purchase, sale and lease work

• support for purchase of an apartment, house, garage or parking space;

• review of a developer and residential complex;

• review of secondary-market housing;

• analysis and drafting of sale and purchase agreements;

• legal support for leases and subleases;

• preparation of lease and sublease agreements;

• review of a tenant's credit history where relevant.

Registers, property documents and related matters

The source also lists extracts from the State Register of Rights and State Land Cadastre, expert or brokerage valuation of property, property management, registration of ownership, removal of arrests, privatisation, conversion between residential and non-residential use, utility-contract matters, restoration of lost property documents and protection of investors and owners.

service sequence

Transaction support can be divided intoagreeing the scope and client's requirements, obtaining documents, checking the seller or developer and property history, reviewing the sale structure and contracts, agreeing final terms with the interested parties and participating when the transaction is completed. Commercial turnaround periods and promotional claims about numbers of completed transactions are omitted.