If you are planning to purchase a property, then surely you are browsing various thematic forums for information on how to prepare for the purchase? One of the pieces of advice given there, is to carry out due diligence. What is this property due diligence? Should it also be carried out if you are buying a house or flat? These questions are answered in today's article.
The term due diligence originated in the 1930s. The term refers to the examination of a company in terms of its financial, commercial, legal, tax and even technological situation. This allows an investor to assess a company's strengths and weaknesses and whether it is worth investing in.
Let us now return to our real estate market. In this case, property due diligence will be a comprehensive legal and technical audit.
The investor commissions it to find out whether the purchase is risky because the property has significant legal or technical defects.
With this information, he can cancel the purchase in time or minimize the losses he will face after the purchase. For example, if a technical audit reveals defects in the installation, he can claim a reduction in the price by the amount needed to repair it.
Depending on the type of property (empty plot, house, flat), due diligence can vary in scope. However, the land registry is always examined as a first step.
It is the most important document that regulates the legal status of a property. It contains information on the location and area of the property, its owners, perpetual usufruct or third-party rights and claims.
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Here you will also find information on whether the property is mortgaged.
Checking the legal status of the property also involves checking the extract and extract of the land register. This allows you to check whether the area of the plot of land is consistent with the data in the land register. The register also contains information on the location, area, type and classes of land.
Another element to be checked during due diligence on a property is the LSDP. This is particularly important if we are buying a plot of land for development. This allows us to find out whether we will be able to obtain planning conditions in the future and the plot is zoned for residential development?
By checking the LSDP, you can also find out whether there will be any onerous developments in the immediate vicinity of the property you are buying in the near future, for example a Xpressway, an abattoir or a cemetery. And also which restrictions on construction you will have to consider, such as building lines.
When visiting the Municipality or Town Hall, you can also find out the rates of taxes and fees to which you will be subject after the purchase.
When we plan to buy a developed property (house, commercial premises), due diligence should include checking its technical condition. In this way, we can find out whether the condition of the building is good or whether it requires significant financial outlays that will affect the profitability of the investment.
During the technical analysis, not only is the condition of the individual installations (heating, electricity, etc.) checked, but also the condition of the walls, floors and ceilings, roof sheathing or window joinery.
Due to the complexity, property due diligence should be carried out by people who know the market and the regulations. They should be proficient in researching information, reading maps/plans and be able to draw conclusions.
Thus, for the audit of the legal part, it should be a lawyer or solicitor. The technical audit part of the property, on the other hand, should be carried out by a structural engineer or a person with a building licence.
Property due diligence can take several days. This period consists of a technical audit, which, depending on the size of the building, can take a few hours or a few days. In the case of a legal analysis, this time is longer. The auditor has to 'pull' the relevant documents from the institution and then analyse all the information they contain.
It is worth remembering, however, that the more detailed the due diligence on a property is carried out, the better for us.
Property due diligence is a comprehensive check of a property's legal and technical condition. It allows us to check whether the purchase of the property we are interested in is profitable and safe. If the examination reveals legal or technical defects, we can withdraw from the transaction in time.
If you are looking for a proven company to perform full due diligence on your property in Poland, then you can use the services of Pewny Lokal. Our lawyers will check in detail the legal status and surroundings of the property for you. They will analyse the purchase agreement and propose favourable solutions.
Meanwhile, with their knowledge of current building standards and regulations, our engineers will check the condition of the building for you. You will receive a full report documenting all defects found.
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