Property Due Diligence


Overview

Due diligence of property is the process of verifying the ownership of the property, defect, if any in the chain of ownership and to ascertain if there are any encumbrances/claims against the property. Due diligence is carried out in connection with an action significant enough to make the investigation worthwhile. 

One needs to ascertain some significant factors to avoid any later legal battles before buying or leasing any property. The following factors are to be taken care of –

  • Whether the property belonging to the said person is undisputed? – title Search is important
  • Whether the person from whom the property is to be bought or to be taken on lease has all the original papers of the property?
  • Whether the property in question is mortgaged or disputed?
  • If mortgaged, whether there is any dispute with the bank regarding the same?

The object behind Due diligence is to ensure that investment in a property is safe and secure. After exercising due diligence, the buyer identifies and evaluates all the risks involved in buying/financing the property in question, which is followed by the steps to minimize those risks.

Correct way to Go about It

  • Scrutiny of Title – the inspection of the title or the title search relates to the pursuit of ownership and the rights of the owner to sell the property. There are two kinds of title search reports -
    • Full Search – for a period of the previous 30 years, the title of the property is searched.
    • Limited Search – for a period of fewer than 15 years, the title of a property is searched.
  • Looking for the owner's rights is an essential aspect to note. The owner must have unfettered rights to transfer ownership. It is to be ensured by the buyer that there is no restriction to the power of alienation of the owner. The limitations might include –
    • The owner being minor or unsound.
    • Owner not having an absolute right in the property.
    • The owner is a lessee or a tenant.
    • Sale of property not permitted by statute.
  • Issuance of a certificate by the Sub -Registrar's Office. The buyer must inspect the original title deed in case of any loan against the property as it is deposited with the bank.

Records to Look into

  • Title Deeds-Gift deeds, Will, Lease Deed, Sale Deed
  • Records maintained at the Sub-Registrar's office
  • Records kept with the Tehsildar
  • Records maintained by the Registrar of Companies

Benefits

  • Helps prevent frauds – Due diligence involves verification of documents, title and ownership rights to ascertain the authenticity of the property documents.
  • Risks evaluated identified and minimized – Due diligence is required to safeguard the funds being invested by a person/entity and to minimize risk by taking indemnity from the owner wherever required...
  • Ascertain disputed property - If any court case is pending concerning the property or the owner's rights, it can pose hardships later for the buyer. The buyer is bound by the decision of the court, which may or may not be favorable.
  • Encumbrances affecting the value of a property – The intended property must be free from encumbrances-
    • Mortgage
    • Lien
    • Charges due (utility bills, tax payment or any other statutory payment)
    • Litigation
  • Checking for Easement Rights – the interest of the buyer is affected by the process of acquisition. The buyer must check an easement right covered under the acquisition scheme of the government. It affects the returns from investment.
  • Approvals are granted – the buyer must ensure that all the necessary permissions are granted.

Procedure

Procedure for due diligence

Frequently Asked Questions

What is the standard due diligence period?

The recommended due diligence period is 10 days from the date the seller accepts your offer because of the multiple steps and parties involved when you are in the process of buying a home.

What is legal due diligence?

Legal ---- related to Law; Due ---- proper; Diligence ----- any act done meticulously/ scrupulously

When should I consider property investment due diligence?

Due diligence is advised when you are considering investing in commercial real estate or if you wish to sell your commercial property to a potential buyer.

Why Choose Us

Why Choose us for due diligence

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