Perform Due Diligence Before Buying Property (All The Steps To Take)
Every contractual transaction is important and must be approached with a reasonable level of caution, more so for land transactions which often involve the transfer of large sums of money. Regardless of whatever assurances a Purchaser receives from a Vendor, it is their duty to perform adequate due diligence before signing any instrument of sale of land. This article highlights some relevant issues to consider when performing your due diligence.
Does the Purchaser Actually Have Interest in the Land?
“Nemo dat quod non habet” is a Latin principle which means a person cannot give what they do not have. Simply, where land is purchased from an individual who does not have title to it, the Purchaser gains nothing. Simple enough, but of utmost importance in sale of land transactions. In order to ensure the Vendor has title in the land purporting to be sold, the Purchaser must do some or all of the following:
1.) Request documents evidencing title to land: Documents which serve as evidence of title to land include certificates of occupancy from the State Government, instruments of transfer from a previous owner, letters of allocation from the State Government, survey plans which may be referenced in the aforementioned documents. Such documents written in the favour of the Purchaser are prima facie evidence of title to land. However, a diligent Purchaser will not stop here.
2.) Inspect the land and inquire about its ownership status from the individuals in the area: While the documents above suggest that the Vendor at some point had title to the land, that may not be the case anymore. It is not uncommon for a “wise” Vendor to attempt to sell the same piece of land to multiple Purchasers. One way to ensure the land being sold is still the property of the Vendor is to inspect it. Development on the land or occupation of the land by a third party to the transaction will hint towards the possibility of an adverse title. In addition, the Purchaser should inquire from the individuals in the area about the ownership status of the land, which may be enlightening.
3.) Conduct a search at the State Land Registry: All State Governments keep a record of registered title holders to land. A title to land registered in favour of the Vendor at the Land Registry should strengthen the confidence of the Purchaser. While it is true that not all title holders register their interest at the Land Registry, the information discovered at the land registry may aid the Purchaser in confirming the Vendor’s root of title, or lack of it, in a situation where the registered holder is not the Vendor.
This is not an exhaustive list of issues to consider, but rather the first steps a prudent Purchaser will take.
Does the Instrument of Transfer Convey a Good Title?
Having confirmed that the Vendor has a good title to the land that they intend to transfer, the Purchaser must ensure that the instrument of transfer conveys a good title. A good title for this purpose is a title that is free from all encumbrances and hindrances that may affect the Purchaser’s enjoyment of the land. These encumbrances include easements (the right of a third party to use a piece of land for a specified purpose e.g. right of way); restrictive covenants (covenants that hinder the activities possible on the land e.g. a covenant to only use the land for residential purposes); mortgages; pending fees and charges on the land.
A prudent Purchaser will specifically inquire about the existence of any and all such encumbrances from the Vendor, which the Vendor must disclose. Where the Vendor avers that no such encumbrance exists, such an assertion must be incorporated as a condition in the instrument of transfer, such that if the Purchaser discovers it to be false after closing the transaction, the Purchaser may apply to the courts to void the instrument of transfer and recover any sum paid to the Vendor. Such a contractual clause will be supported by an indemnity clause which ensures the Purchaser is indemnified by the Vendor for any false representation made prior to concluding the transaction (which is included in the instrument of transfer).
Note: This article only serves to inform the reader of the basic steps to consider when entering into a sale of land transaction.it does not purport to provide all necessary information on such transactions. For the best result, the reader is advised to engage the services of an experienced legal practitioner upon identifying the land they desire to purchase.