Due diligence

Legal due diligence

Describe the legal due diligence required in the context of a real estate business combination and any due diligence specific to a real estate business combination. What specialists are typically involved and at what point in the transaction are the various teams typically brought in?

Due diligence in real estate matters usually includes the following areas:

  • finance and banking - to be performed by attorneys and financial advisers;
  • corporate - to be performed by attorneys;
  • existing contracts - to be performed by attorneys;
  • environmental - to be performed by attorneys and environmental specialists for Phases I and II;
  • tax matters - to be performed by tax advisers;
  • disputes - to be performed by attorneys; and
  • surveys preferable under American Land Title Association standards - to be performed by professional surveyors.
Searches

How are title, lien, bankruptcy, litigation and tax searches typically conducted? On what levels are these searches typically run? What protection from bad title is available to buyers, and does this depend on the nature of the underlying asset?

Encumbrances on the real estate (including liens and some litigation aspects) may be identified through the Public Registry of Property in the area where the real estate is located. A real estate folio will be requested from the above-mentioned registry for this purpose. Liens on the company (such as bankruptcy) may be identified through this registry of the area where the real estate is located. A commercial folio will be requested from the Public Registry of Commerce for this purpose. It is also advisable to request evidence of the payment of real estate taxes and utilities for the past five years. In certain cases, a search must be conducted to determine the possible existence of agrarian problems. Protection of bad title is usually included in the purchase agreement as an indemnity; however, title insurance is available in Mexico.

Representation and warranty insurance

Do sellers of non-public real estate businesses typically purchase representation and warranty insurance to cover post-closing liability?

In Mexico, it is not common to purchase insurance to cover contractual liability as a result of breaches of the seller’s representations and warranties in an acquisition agreement. Typically, the indemnity is backed by an escrow holdback, a price adjustment or a combination of the two.

Review of business contracts

What are some of the primary agreements that the legal teams customarily review in the context of a real estate business combination, and does the scope vary with the structure of the transaction?

The scope varies depending on the structure of the transaction. Assuming the transaction is the direct purchase of a real estate, the minimum review should cover:

  • the sale-purchase agreement that transferred the property of the real estate and the chain of title;
  • any agreement that may affect the property, such as lease and sublease agreements, and commodatum, usufruct and easements;
  • federal zone concessions;
  • credit agreements, if they are guaranteed with a mortgage or any encumbrance on the property;
  • agreements regarding services, maintenance, repair or supply of assets or utilities;
  • franchise agreements;
  • insurance policies; and
  • management, and licence and operation agreements.