Buying a real estate property gives way to a number of questions as concerns the property’s legal status and history, as well as its functional and technical characteristics. The completion of an exhaustive expert analysis provides the buyer with a guarantee as to the features of the property in question and, at the same time, is an opportunity for the seller to present their real estate in a trustworthy manner.  Such an analysis shall be carried out in coordination between real estate lawyers – as it comes to researching the property’s legal status, and surveyors or engineers – studying the technical characteristics of the real estate. 

Structure of the due diligence report

A typical due diligence report is composed of several parts, each of which serve to provide a full-scale understanding of the property and its features. The report usually starts with a short presentation to the property, including:

• property location and reachability;
• characteristics of the surrounding area;
• brief description of the estate unit, including total area and disposition of the spaces;
• history of the property and its building.

This introductory part is aimed at familiarizing the potential buyer with the property and its main characteristics before examining its legality and building in further detail, as well as any documents related thereto. The core of the report are the legal and technical parts, whereby both elements are thoroughly examined in order to establish a comprehensive understanding of the property’s status. The report may summarize the further steps that need to be achieved and the resources – both in time and in money – which this would imply. Finally, recommendation and advice might be provided by the expert in relation to their findings. 

Legal due diligence

The property’s legal due diligence aims to ascertain if the unit complies with all regulations and is available for sale, with or without any burdens on it. That is why this part of the report studies the ownership title of the seller, including the history of the property, its previous owners and the deeds, pursuant to which the titles have been transferred.  It is to determine the right of the seller to sell the property and any complications that might be related to that process. A comprehensive research of all related documents is to be hereby performed. 

In the case of a property owned and offered by a company or other legal entity, further analysis of its solvency, shareholders’ rights, assets and liabilities, as well as study of recent balance sheets, is required. These investigations are used to determine the solvency status of a subject and, furthermore, to avoid any potential revocation actions. A creditor, acting under such actions, may in some specific cases, issue a claim regarding any deeds for deprivation of the assets of the debtor company. Thus, the sale of a real estate unit may be endangered.

The property, even if legally owned and available for sale, may furthermore be subject to burdens and rights of third parties. A burden would be present if, pursuant to the law or as a result of a contract, the real estate as an asset has been provided to guarantee the realization of an obligation of the owner or of another party. Burdens on real estate properties most commonly result in the form of mortgages, subject to registration at the Land registry. The rights of third parties (easements), on the other hand, may include the right of passage, the right of parking, the right of a view, or an easement by law. In summary, these are rights, which do not in any way endanger the ownership title on the property, but do trigger the owner’s exclusive use of the property by granting persons, other than the owner, the right to in some way take use of the unit in question. A research as to the registries and documents concerned shall be completed in order to establish any rights thereto.

Finally, at the client’s request, further legal advice can be provided as to the taxation scheme, applicable for the deal. The due tax may vary, depending on whether the seller is a VAT registered subject, whether the purchase follows under the “first home” regulations, and whether any construction or renovation works have been completed in regards to the unit in a given period of time. This part of the report is to be completed by competent real estate and tax lawyers.

Technical due diligence

The technical part of the report aims to establish the unit’s characteristics and status, as well as to provide the potential buyer an evaluation as to the further steps that might need to be completed to guarantee full functionality of the unit. In particular, these include on-site visits of an expert surveyor/architect/engineer and study of the respective documentation, looking to establish the state, maintenance, urban planning and land registry status of the building.

The part of the report concerning the property’s state of maintenance includes a description of the distinct parts of the buildings and their condition – in particular, that of the structure, roof, facade, interior, exterior and finishes.

Looking at the building’s installations, the report shall establish the electrical, hot water, cooling and heating systems, as well as the presence of an energy performance certificate, issued by a surveyor or an engineer (which is a mandatory document in the case of sale and purchase of property).

The real estate unit’s urban planning status is to be further evaluated. This includes examination of the presence of a building permit and a certificate of habitability – both of which documents are required for the transfer of property. Any building restrictions, which might be present in regards to the property, shall also be inspected.

Last but not least, a verification on the data provided from the Land registry shall be completed. This might include not only documents on the unit’s compliance and titles, but also identification of the unit’s distinct compartments, as well as plans, schemes, drawings, to be analysed by an expert.

Form

In general, the property due diligence is not an obligatory document for closing the deal. In some of Italy’s regions, however, the associations of notaries have reached agreements, according to which a legal and technical due diligence is to be presented upon signing of the final deed. These regions do therefore establish the report as an obligatory document for transfer of property and for finalizing the deal in front of a notary. The document can also be required by banks when looking to file up a mortgage on that property or in any other way use it as a loan guarantee.