Due diligence in the real estate industry

Today on the blog, a few words about due diligence, that is, the legal audit of a property that protects the investor's interests. What are the principles of this process and what does it provide for the parties? Enjoy the read!

Due diligence is, put simply, an examination of the potential legal risks of a property, most often one of significant value. Thanks to it the investor gains the necessary body of knowledge to prepare for the mechanics of the transaction. A legal audit of a property is justified especially given the investment nature of the property in question. In this way the counterparty can work out a certain negotiating strategy regarding the offer and find a way to minimise the risk identified earlier.

I would also like to draw attention to the broad scope of a due diligence examination, which covers both a legal analysis, including an assessment of the state of administrative obligations, concluded contracts and permits, and an analysis of the property in terms of its technical condition and legal status. In addition, it is possible to carry out a financial analysis, an analysis of tax liabilities or of the organisation; nevertheless, in the case of an examination in the real estate industry, a legal-technical-financial audit is sufficient.

The legal status of a property is determined on the basis of a thorough review of the land and mortgage register (księga wieczysta) and an analysis of the extract from the land register, the spatial development plan, the building permit, and also the zoning decision (WZ).

Due diligence falls within the competence of statutory auditors, lawyers, property valuers or tax advisers. It is definitely worth making the effort and carrying out an audit of the property, which will allow the effective legal acquisition of the property and the delivery of the intended investment.

What do you think – is due diligence worthwhile? Do you have any experience of it?

Best regards, Marta Kulawik