Due diligence
Due diligence is a risk mitigation measure in that it is an investigation or exercise of care that a reasonable person is normally expected to take before entering an agreement or contract with another person.
It is common in business acquisitions where an investor evaluates a target company. It is also used widely in other business dealings.
Due diligence on properties being sold
It is advisable to carry out a due diligence, also known as verification, on a property which is on sale, which a party is considering for purchase. This is to minimise suffering financial losses in the event of complications in the transaction.
Common challenges with properties being sold
Prospective buyers may experience the following challenges with properties on sale:
Properties with title deeds
Much as the property may have title deeds, the following problems may still be experienced:
The property may be subject of a dispute, for example divorce, dispute over debt.
Fraudulent sale ie forged title deeds, identity documents, forged powers of attorney.
Mortgage bond registered against the property and has not been cancelled.
A caveat might have been registered against the property and has not been lifted.
Legal challenge by judgment debtor (owner) on a property sold through public auction.
A representative not properly authorised to sell a property.
Properties without title deeds
Properties without title deeds are riskier and may expose a purchaser to the following risks:
Double selling by unscrupulous land developers or cession holder.
Land developers not completing development,
Land developers selling land that is not authorised for development
Cession documents may be counterfeit or there may be restrictions to sale or transfer.
What to verify
It is advisable to engage professionals in real estate or conveyancers to carry out due diligence for you before you transact. These professionals will use various ways to check whether it is safe or advisable to transact in the property. Some of the aspects to verify may include:
Inspection of title deed
A copy deed of transfer (title deed) is obtained and searched at the Deeds Registry. Details of registered owner are noted and compared, any registered mortgage bond not cancelled, caveats not lifted noted or any transfer restrictions noted. The registered stand number, diagram and property size and description are checked. Before signing an agreement of sale or making payment, the buyer is advised to request to review the original title deed held by the seller. If the seller or his / her conveyancer fail to produce the original deed of transfer this can be indicative of challenges.
Verification of the seller and estate agent
Request to meet the seller at the conveyancer, check identity documents and sign the agreement of sale at the same time. Check the existence and reputation of the estate agent involved.
Property being auctioned
If a property is being sold through a public auction, it is important to understand the circumstances of the sale, attitude of the seller (most likely judgment debtor), if the sale is being challenged, etc.
Properties without title deed
Great care is needed here. Some of the aspects to check include:
The authenticity of the land development project,
Whether necessary approvals are in place such as subdivision permit, certificate of compliance, etc.
Reputation of the land developer.
Request and inspect land development documents.
If the property is being sold through an estate agent, establish the reputation of the agent.
If a representative is selling the property, review the powers of attorney.
Be careful where seller is insisting on shortcuts. Insist on transacting through lawyers.
Inspect cession documents for authenticity.
This simplified article is for general information purposes only and does not constitute the writer’s professional advice.
Godknows Hofisi is a legal practitioner, chartered accountant, corporate rescue practitioner, and consultant in deal structuring and tax. He writes in his personal capacity. He can be contacted on +263 772 246 900 or gohofisi@gmail.com
