I have read your series on leasing and licensing office spaces. It is my long-term plan to purchase my own office space. How do I go about due diligence given the many scams in the market?
Dear Collins, below I will set out some factors to consider when doing due diligence for purchasing a property.
Once you have identified a suitable location and are ready to transact then this is where the legal process begins. It begins by identifying suitable premises and doing a site visit to inspect the premises.
Once you have done the site inspection and are satisfied then the next step is to do due diligence.
Request a copy of the title deed and carefully check the title.
It will reveal details such as the tenure of the land. Is the land a freehold or a leasehold?
A leasehold means that the government has granted the owner a long-term lease, which is usually renewable. If leasehold you will need to check the remaining term of the lease. For example, if the title says 99 years from 1924, this means that the lease term has expired.
The owner will, therefore, need to apply for a renewal. A freehold means that the owner has an absolute term over the property. You also need to check the user. The user should read “commercial”.
A user that reads residential, for example, means that the owner can only put up residential buildings unless he applies for a change of user.
After perusing the title, then you would do an official search of the property to determine ownership and any encumbrances on the land.
Encumbrances means if there are any registered third-party interests against the land, for example, a mortgage, caution, rights of easement, rights of way and leases.
These encumbrances will guide you as to whether the property is free for sale or not. Not all encumbrances are fatal.
If the property is mortgaged, then the mortgagor has to consent to the sale. If there are leases, it means you will buy the property with the leases. This means you cannot evict the tenants.
Rights of easement and rights of way mean that the owner has granted to third parties certain rights, for example, access roads.
A caution, for example, means that the land cannot be sold due to various reasons such as dispute as to ownership.
Where the search indicates a caution then it is best to opt out of the purchase unless the caution can be justified.
You can go further with due diligence by getting the survey map to establish the property is not earmarked for infrastructure development.
After doing due diligence on the property, then you will need to do due diligence on the owner. Who owns the property?
If it is a firm then go further and do a company search to establish its shareholding and directorship.
A company search will yield details on ownership including the nationalities and addresses of the shareholders and directors.
If you still want to go deeper in due diligence you can do a simple web-based search of the company and even the shareholders and directors.
It is surprising what the Internet-based search can yield. Web searches have been helpful in unearthing fraudulent schemes and scandals.
If the owner is an individual then you can do a verification of the identification details just to ascertain that the individual you are dealing with is the actual landowner.