Real estate audit

Before concluding a purchase agreement, it is necessary to verify the legal status of the property. A legal audit should be carried out both when purchasing for business purposes, as well as when purchasing for residential purposes.

When is it necessary to check the legal status of a property?
  • The legal status of a property should be verified before concluding any contract (preliminary agreement, purchase agreement etc.).
  • A real estate legal audit should be carried out both in the case of purchase of real estate for business purposes as well as in the case of purchase of premises for rent or for housing purposes.

What is the purpose of analyzing the legal status of a plot, building or premises?

  • Verification of the real estate legal status reduces the risks associated with the transaction. Furthermore, the identified legal risks can be eliminated before signing the documents.
  • The legal status of the real estate should be verified not only when the transaction appears to be questionable. There are many complicated legal problems that may be identified only by a professional lawyer after detailed analysis.

How to verify legal status of a property?

 

The scope of the audit should be adjusted to the specific transaction. I do not conduct theoretical analyses that will not help you make a decision on the purchase of a particular property. I analyze legal status of a property only to the extent necessary to minimize legal risks of a particular transaction. I clarify what are the risks that I have identified and suggest ways to eliminate them in order to complete the transaction.

Below you will find standard audit variants:
Basic report

The basic report includes:

  • Analysis of the land and mortgage register
  • Verification of legal title to a plot of land / building / premises
  • Verification if the property is mortgaged
  • Identification of issues that may constitute an obstacle to completing the transaction and explanation how to avoid them
  • Verification of the agreement and answering the following questions:
    • are there provisions in the contract that are unfavorable to the buyer?
    • is it necessary to change the content of the contract to protect the buyer’s interest?
    • how to change the content of the agreement?
    • how to formulate changes to the contract?
  • Ascertaining whether the buyer will be able to use the property in the intended manner (e.g. for development purposes)
  • Explanation of all proposed changes to documents and advisory regarding further action
Full report

The full report includes:

  • Analysis of the land and mortgage register
  • Verification of legal title to a plot of land / building / premises
  • Verification if the property is mortgaged
  • Identification of issues that may constitute an obstacle to completing the transaction and explanation how to avoid them
  • Verification of the agreement and answering the following questions:
    • are there provisions in the contract that are unfavorable to the buyer?
    • is it necessary to change the content of the contract to protect the buyer’s interest?
    • how to change the content of the agreement?
    • how to formulate changes to the contract?
  • Ascertaining whether the buyer will be able to use the property in the intended manner (e.g. for development purposes)
  • Explanation of all proposed changes to documents and advisory regarding further action
  • Verification of the seller’s credibility
  • Verification of additional documents regarding the real estate obtained from public institutions
  • Verification whether there are any disturbing information about the surrounding area of the property
  • Verification of other legal risks (I adjust the scope of the report depending on a specific property)
Full report and negotiations

The full report and negotiations include:

  • Analysis of the land and mortgage register
  • Verification of legal title to a plot of land / building / premises
  • Verification if the property is mortgaged
  • Identification of issues that may constitute an obstacle to completing the transaction and explanation how to avoid them
  • Verification of the agreement and answering the following questions:
    • are there provisions in the contract that are unfavorable to the buyer?
    • is it necessary to change the content of the contract to protect the buyer’s interest?
    • how to change the content of the agreement?
    • how to formulate changes to the contract?
  • Ascertaining whether the buyer will be able to use the property in the intended manner (e.g. for development purposes)
  • Explanation of all proposed changes to documents and advisory regarding further action
  • Verification of the seller’s credibility
  • Verification of additional documents regarding the real estate obtained from public institutions
  • Verification whether there are any disturbing information about the surrounding area of the property
  • Verification of other legal risks (I adjust the scope of the report depending on a specific property)
  • Negotiating the terms of the sales agreement
Here you can download a sample report:
Download
Frequently asked questions:
1
What is the cost of verifying the legal status of a property?

The cost depends on how complicated the case is.

Before we begin, I review the details of the property and proposed transaction. Then I provide an explanation of the necessary scope of legal analysis of the property, in order to cover all the issues that need to be verified to protect the interests of the buyer. However the audit should not be too extensive when it is not necessary – not every property requires a complex and expensive audit. In such cases I recommend a basic audit.

I provide the exact cost of the audit after reviewing the details of the case.

2
Is the property verification service intended for buyers only?

Most often, a property legal status audit is ordered by a buyer. However, it is becoming common for sellers and real estate agents to ask for a legal status report.

It appears that it is often easier to sell a property having a legal audit, since an offer supported by a legal status report is more credible to potential buyers.

Furthermore, in the course of preparing an audit, it may appear that the legal status of the property needs to be regulated before it can be sold. Selling a property with legal issues is often impossible because potential buyers carefully examine properties before making a purchase decision.

3
Will it be enough to check the property register records before making a purchase decision?

No, the land and mortgage register will not include information regarding the property’s permitted use, conditions of sale, etc.

An audit of the legal status of a property must cover at least the scope specified in the basic report described above.

4
What documents are required to verify the legal status of a property?

The list of documents and information required to verify the legal status of a property is not always identical. After reviewing your case, I will prepare a summary of required information and documents.

The most common audit activities include an analysis of the land and mortgage register in order to determine: who the owner of the property is, whether there are mortgages or any easements on the property, etc.

If you are purchasing an undeveloped plot of land with an intention to build on it, I also verify the local development plan to make sure whether a specific type of construction (e.g. single-family house, production hall, housing complex) can be built on the land.

The above examples are just a small sampling of the steps that need to be taken to properly analyze legal status of a property.

It is impossible to describe how tostep-by-step conduct a legal audit of a property because there are too many possible configurations of documents and circumstances.

For example, a property legal status examination may involve verifying such items as:

  1. what is the legal status of the real estate in the land and mortgage register
  2. is legal status of the real estate in the land and mortgage registers consistent with other documents
  3. does the real estate have access to a public road
  4. is the real estate mortgaged
  5. does any third party (e.g. heirs) have any claim to the property
  6. are there any contracts that relate to the real estate (e.g. lease agreement, rental agreement, etc.)
  7. is there any right of priority / pre-emption
  8. what is the content of the local development plan, in particular what restrictions have been established in it
  9. what is the status of the geodetic division of the plot
  10. are the records in the cadastral register consistent with the content of the land and mortgage register
  11. is the real estate subject to any legal disputes
  12. is the real estate located in a legally protected area (environmental protection, archaeological protection, etc.)
  13. is the real estate included in a special economic zone, etc.
5
What information should be verified (besides its legal status) for a plot of land intended for development investment?

Before purchasing a property for investment purposes, it is recommended to carefully check whether it is possible to conduct the planned investment on a particular plot of land, and what costs would be associated with it.

Verification of the conditions of a property (combined with verification of its legal status) includes, depending on the specific case, such issues as:

  1. what is the current use of the property
  2. what are the condition of access roads to the real estate
  3. what are the current limitations regarding use of the real property – are there any barriers that would create obstacles to the investment
  4. are there any additional restrictions on the use of the property due to the characteristics of the neighboring plots of land
  5. does the plot have access to utilities and what utilities are available
  6. is it possible to connect the property to existing utility networks (what is the distance between the networks, what are their technical parameters, is it possible to expand the network and what will be the cost of such expansion)
6
Does the property legal status analysis report include a plan for further actions?

Yes, since an analysis that only describes the condition of the property but does not explain what to do next cannot be considered a useful tool. The plan of further actions depends on the purpose of the report.

The content of the plan is a step-by-step guide to accomplishing the intended result (e.g. building a production hall, implementing a development project, etc.).

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