Technical and legal due diligence for properties
Deciding to purchase a real estate asset is always an important step. Every feature of the property in question needs to be well ascertained, because the prospective buyer needs to be well aware of all that concerns the property’s history and legal status, as well as of its functional and technical characteristics.
Plus, to be fair, the vendor should have the chance to present the property for sale adequately too.
Whether you’re in to buy your dream farmhouse in Val d’Orcia or investing in an apartment in downtown Milan, the only way to gain full comprehensive insight on every single feature of the asset in question is to have an exhaustive expert analysis drawn up.
In legal terms, the formal document that asses a property’s physical and legal status is called a “technical and legal due diligence report”.
This report is drafted by real estate lawyers, in charge of researching the property’s legal status, together with a team of surveyors or engineers, who provide a careful analysis of the asset’s technical features.
In Italy, it is not mandatory by law to have a property due diligence carried out. Yet, some Italian regions’ notary associations have agreed to always requesting a legal and technical due diligence to be presented prior to finalizing the final deed, hence in these same regions the report turns out to be indispensable for the purchase and transfer of real estate assets. Also, this document is often requested by banks, in case of a mortgage request on the property.
Standard due diligence reports comprise various different chapters, each drafted to provide full detailed information of each of the property’s specific characteristics. All the chapters together allow for comprehensive understanding of the property and its features.
Technical and legal due diligence reports typically start with a short presentation. Aimed at providing the potential buyer with an overview on the property, more than supplying actual technical data and legal aspects, this introduction will usually include general data – such as location and accessibility, information on the surroundings – and a concise description of the property itself, including layout, total area measurements, and relevant history.
However enticing the introductory part may be the primary elements of the report are the technical and legal parts, both of which must be extensively examined to offer thorough and far-reaching understanding of the property’s conditions and status.
Drafted by experts, the report allows a prospective buyer to be fully aware of possible future implementations to be carried out, and to reap the benefits of having savvy advice from experiences professionals.
Technical due diligence
The aim of the technical part of the report is to verify and demonstrate the property’s functional characteristics and status, and provide the potential purchaser with well-grounded information as to further steps that may have to be carried out. To draft the technical report the expert surveyors or architects or engineers in charge visit the property, evaluating its conditions and maintenance, and carefully review the documents implied to establish the details on urban planning and land registry status of the building.
As concerns the property’s state of maintenance, the report will typically comprise a full description of the buildings’ elements, and details on their condition. Specifically, the report will include comprehensive information on the framework, facade, roof, interiors etc. in addition to the building’s electrical system, heating (and AC when applicable) and hot water provision. As concerns the electrical system, Italian law maintains that an energy performance certificate be issued by a surveyor or an engineer prior to commencement of sales transactions.
The property’s urban planning and land registry status are the other two key aspects that technical experts must evaluate. To ascertain the urban planning status of the real estate asset in question, the surveyor or engineer in charge will examine the building permit and habitability documents, both of which are mandatory in case of property sales, and assess the presence of building restrictions, if any.
The professionals involved will then proceed to verify the data provided from the Land registry, and inspect all documents pertaining to the property.
Legal due diligence
The aim of the legal due diligence of a real estate asset is to determine whether the property complies with current law and regulations, and ascertain if it actually is available for sale, and if there are any pending legal encumbrances. In a nutshell: carrying out the legal due diligence allows a buyer to assess if there are any risks connected with the property he/she is planning to purchase.
To provide the buyer with the “full picture” of the asset, the legal due diligence report examines the vendor’s ownership title to ensure he or she is, actually, entitled to sell. Hence, this analysis encompasses the property’s history, i.e. previous owners, deeds, and burdens, and close examination of all related documents.
If the real estate asset in question is owned by a company, corporation or other legal entity, the legal due diligence report will also have to assess the vendor’s solvency status, so as not to risk revocation actions, or claims issued by creditors, both of which can, potentially, jeopardize the sale. Thus, the report will comprise a full analysis of the company’s solvency, assets, liabilities, shareholders’ rights, and a review of its balance sheets.
To understand how important it is to conduct a comprehensive legal due diligence, buyers should always bear in mind that, notwithstanding legal ownership, a property may still carry legal encumbrances and/or be subject to rights held by third parties.
A good example of a legal burden is a property that has been pledged as collateral, in compliance with standing legislation or by contract. This often happens when there is a mortgage on the asset, for instance. As concerns rights on the asset held by third parties, easements in legal terms, these may comprise a right to passage, to park, or even the right to benefit of a view. These kinds of rights clearly do not expose the ownership title to the property, but by allowing others to profit from the asset’s premises in some way or another, they do put the future owner’s exclusive use at risk. Hence, it is vital for the prospective new proprietor to have a full research of the registries and documents completed by a savvy legal expert.
Finally, the legal due diligence may also, upon the prospective buyer’s request, comprise specific legal advice as regards taxes to be applied to the transaction. In fact, Italian law and current fiscal regulations maintain that taxes due depend on the vendor’s fiscal status, i.e. if the selling party is VAT registered, if the property is listed as a “first home” for fiscal purposes, or if, for instance, the asset has undergone construction or renovation works.
Purchasing property in Italy is not necessarily a straightforward operation, especially for a foreign non-resident potential buyer. The complexity of the local legal and bureaucratic system, together with the language barrier and difficulty to source competent local advisors, may in fact hinder and delay proceedings. Having a full, exhaustive technical and legal due diligence report on the property one intends to buy is crucial.
But, as explained above, there are a lot of different professionals involved, and foreign investors might have a hard time finding, and then liaising with them all. The solution? Referring to one company only, an effective firm that provides all the know-how, the assistance and the consultancy services one needs to successfully buy real estate in Italy!
Thanks to extensive expertise and a wide network of exclusive contacts, our skilled crew of real estate agents, accountants, lawyers specialized in property legislation, architects and surveyors helps non-resident buyers get through the entire process of purchasing property in Italy effortlessly, time-effectively and flawlessly.
We facilitate our foreign clients in their search for the right real estate agent and, ultimately, the perfect property by sharing our contacts and insight, we help by examining the preliminary documents – land register plans, energy rating certificates, certificates of habitability etc. – providing our clients with full information on their contents and having them translated, if needed.
Savvy in property law, our proficient lawyers carefully inspect the vendor’s rights and solvency, while our expert surveyors carry out site visits, and scrutinize the floor plans. We are also able to assist drawing up evaluations, drafting full technical and legal due diligence report and finally negotiating on our clients’ behalf, to guarantee smooth proceedings and the closing of a successful deal.