REAL ESTATE DUE DILIGENCE
Before purchasing real estate property, it is of the utmost importance for the purchaser to undertake a thorough investigation over the property prior to being fully committed to purchase. This is commonly known as a “due diligence” and this can be conducted over a single property or pursuant to a whole portfolio.
If you do not conduct a due diligence to determine exactly what you are buying, you may purchase a property that does not serve your best interests or requirements. Without such an assessment, the purchaser may even end up acquiring a high-risk or flawed property. And all too often, seeking liability from the seller is possible only to a very limited extent.
Apart from the above, it´s undeniable that conducting a proper due diligence is the greatest weapon for negotiating the Head of Terms. A purchaser significantly increases his negotiation power if he is aware of the defects and risks over the property early on. The seller would no doubt prefer to renegotiate the sale price so as to prevent – in worst scenario – breaking off negotiations if material contingencies are uncovered late in the commencing process.
Regardless of the needs of the specific case and of the depth of due diligence to be undertaken, at Fitzwilliam and we conduct the revisions and investigations of the following sorts:
This can be as extensive and complex as the case itself determines. A Legal Due Diligence involves identifying any tax contingencies, permitted use of the property from a planning and a complete review of the title and any leases. The latter should reveal the rights benefiting and affecting the property along with any covenants or restrictions to which the property is subject. Consideration should be given to whether the purchase agreement should be made conditional on any identified contingency or any intended change of use or extension.
If the transaction involves the acquisition of a business such as a restaurant or shop, as well as the property considerations, it is also important for advice to be sought in respect of the business element. For example, the existence of any operating licences and the requirements for their transfer should be clear from the outset.
When the purchase is subject to financing, our specialist team provides advice on whether the property is truly eligible for the lender´s point of view. This obviously includes taking a careful look at predictable cash flows – in case of commercial assets- or a true valuation of residential property to be contraposed with prospective real estate market dynamics.
The above allow us to advise on how to structure financing to provide maximum security for the lender and maximum certainty for the borrower. We work with major banks and other leading direct lending funds.
Although the old English doctrine of caveat emptor is not such applicable in Spain in its entirety, it´s still extremely advisable for the purchaser to conduct both a professional valuation of the property and a complete internal survey of the same.
The results of the valuation lead to the fair market value of the property at the specific time. When this is analysed together with the legal and financial due diligence will allow to precisely determine the true value of the property.