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?

Standard legal due diligence of a real-estate transaction includes:

  • corporate matters;
  • material agreements including actual leases, loans and other agreements involving the property;
  • real estate matters;
  • tax matters;
  • environmental matters; and
  • disputes and litigation.

Such due diligence procedures usually involve corporate and merger and acquisition lawyers, tax specialists, financial advisers and environmental specialists. Such advisers are usually brought in the early stages of the negotiation when due diligence is conducted.


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?

Most of the information regarding lien, litigation and bankruptcy is publicly available with the corresponding authorities and public registries.

Regarding legal ownership and liens of a real-estate property to be acquired, the search is conducted at the Public Registry of Property and Commerce, which is managed by the local government authority and is in charge of the registry of the real-estate ownership, transfers of real estate, liens and encumbrances, and other relevant notes on the title of the property, among others.

Regarding bankruptcy, the search is also conducted at the Public Registry of Property and Commerce by obtaining the mercantile folio of the company; therein the judicial authorities order to register the companies that file bankruptcy procedures.

Regarding tax matters, it is advisable to require seller to provide a certificate of compliance of tax obligations, which shall determine if the company is in compliance with its tax obligations.

Protections of bad title are commonly included as default clauses within the corresponding agreements, establishing penalties for misrepresentations of sellers. Depending on the amount and structure of the transaction it is also common for sellers to grant collateral securities to guarantee that there will not be misrepresentations regarding liens and title of the real-estate property or the acquired company (such securities can be made through guarantee trusts, escrows, etc).

Representation and warranty insurance

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

Typical R&Ws to cover post-closing liability included that the seller agrees to be liable for:

  • hidden defects of the real estate that existed before the closing;
  • eviction, which implies that if the seller did not have the right to sell or there was a third party with a better title to such property the seller shall indemnify from any loss or damaged suffered as a result of the eviction; and
  • indemnities for false representations and information.

Less common are R&W insurance policies that are offered by some insurance companies to cover post-closing liabilities regarding to false information, inconsistencies in closing deliverables, false or incorrect representations, etc.

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?

Primary agreements to be reviewed are the ones that involve the use and disposition of the real estate (eg, commodatum, subleases, leases, brokerage agreements the purpose of which is to sell the property, etc).

The scope of review does vary depending on the structure of the transaction. If the transmission derives from an asset-purchase agreement, it is customary for buyer to terminate the leases to use the properties. If it derives from a stock-purchase agreement, buyer may decide to maintain the leases with tenants as they agreed with seller. Therefore, documentation to be reviewed and prepared in each case may vary.