Conducting Legal Due Diligence

Organisational issues of the LDD

Obtain advance information (essential in bidding process)

  • Information about the property or portfolio
    • Extract from the companies register
    • Extracts from the land register
    • Planning permission files
    • External inspections of tenant structure and vacancy rate
    • Time saving
    • Pre-structuring of the audit / preparation of the checklists.

Requesting or offering Confirmatory Legal Due Diligence (CLDD) is advisable or indispensable if several weeks or even months have lapsed since the LDD and contract negotiations.

Factual issues of the LDD

The analysis is based on the:

1. Land register situation

  • Rights in rem
    • Ownership (sole ownership or total ownership in the wider sense) / property description
    • Subjective rights in rem: sole ownership or joint ownership
    • Limited rights in rem
      • Easements
        • Personal easements
          • Right to build
          • Usufruct
          • Right of habitation
        • Real servitudes
  • Servitudes
  • Liens
  • Annotations
  • Priority notices

2. Relationships under public law that have not been entered in the land register

  • Public building and planning law
    • All buildings have legally binding approval
    • Development
    • Parking spaces / traffic control agreements with environmental protection organisations
    • Utilisation transfers?
    • Utilisation reserves?
    •  Situations with regard to building in the vicinity and on the boundaries?
    • Licences / duration / costs?
    • Special usufructuary rights on public land?
    • Are there any other types of regulations in existence?
    • Ownership restrictions under public law that have not been entered in the land register
    • Air pollution control and residential pollution » Environmantal Due Diligence
  • Private planning and building law governing works contracts to be assumed or concluded
    • Acceptance of works contract(s)
    • Acceptance of building work under public law
    • Elimination of defects, current status of defects
    • Settlement of claims
    • Warranty claims (building warranties under SIA Norm 118 Article 181 ff.)
    • Statute of limitations
    • Winding-up the company / advance payment bonds and performance bonds

3. Leases, management and other service agreements to be assumed or concluded and the rights and obligations contained therein, reasonableness and attractiveness of the conditions for (prospective) tenants, all in coordination with the FDD auditors, in particular

  • Leases / rent index
    • Rental property / agreed intended use
    • Rent, rent increase clause / indexation / rent deposit
    • Length of lease, renewal options, termination rights
    • Obligations to pay share of the running costs
    • Renovation / maintenance obligations / remediation obligations of tenants
    • Right to sublet
    • Requirement of written form / submission of letters of confirmation from tenants
  • Contracting agreements
  •  Facility management agreements
  • Management agreements, centre management agreements
  • Supply and waste disposal agreements
  • Advertising agreements connected to the property
  • Insurance agreements

4. Transfer of Employment Relationships (CO 333 / Property as Business)?

  • Continuation of the employment relationships (employee has right to terminate the employment relationship with the vendor)
  • Responsibility for wages and wage components not yet paid
  • Plans by key employees to give notice

5. Information on All Types of Litigation

For share deals: information

  • on status issues (HR, partners, shareholder commitment contracts, complete proof of all changes of partners, details of the directors during the last 3 financial years, subsequent subscription payment obligations etc.)
  • on the internal decision-making status (last meeting of the board of directors, last general meeting / minutes from the last 3 financial years)
  • on accepted and rejected annual financial statements
  • Acceptance of subsidies / repayment obligations / unregistered restrictions on the right of disposal
  • the ordinary dividends and bonus dividends that are scheduled for distribution shortly before or after
  • tax rulings and pending tax rulings > Tax DD

6. Total Charges

In order to ascertain and assess the total charges, the

  • up-to-date extract from the land register
  • copies of agreements
  • management reports
  • copies, extracts and confirmations

must be obtained.