Technical and legal due diligence for properties and companies

Everyone who has ever bought, or envisioned buying, property has had to deal with the crucial task of drawing up a complete and comprehensive legal and technical due diligence. 

From a legal standpoint, a “technical and legal due diligence report” is a formal document drawn up by lawyers expert in property law, alongside a team of surveyors and/or engineers and/or architects. What the lawyers take care of is examining the real estate asset’s legal status, while the surveyors/engineers are in charge of analyzing and pinpointing the details of the property’s structural conditions and technical characteristics. 

Purchasing real estate is a substantial move and as such must be attentively evaluated. This is true for real estate assets in Italy just like everywhere else: a full, detailed, meticulous technical and legal due diligence report is the only means by which a prospective purchaser can actually become aware of a property’s historical background and lawful standing, as well as of its technical features. 

Basically, a thorough and conscientiously drafted technical and legal due diligence report allows a future proprietor to understand and appreciate a real estate asset’s “nuts and bolts”, hence enabling him/her to evaluate whether the investment is worthwhile. Plus, because the report testifies both to the property’s advantages and to its weaknesses and/or shortcomings, it enables prospective investors to ascertain whether it will require further implementing. If so, the future owner has the chance to estimate what expenses this will imply, with the help of the experts in charge of the report, and advisedly decide what to do.

Hence, a perfectly drafted and exhaustive due diligence report is an essential element of every property purchase, whether the prospective owner is in to secure a sprawling estate in Tuscany, or plans to invest in an elegant townhouse in downtown Rome and turn it into a profitable B&B! Also, a correct in-depth due diligence report offers vendors an opportunity to showcase their asset extensively, underlining its advantages.

Generally, due diligence reports comprise different chapters, each of which serves to enunciate certain aspects of the property in question and commence with an introduction to the property. The aim of this first part is to allow the potential purchaser to get an overview of the property’s features and characteristics prior to “diving” into the legal and technical aspects. 

The preface will habitually comprise data concerning the location, including details about accessibility and the surroundings, a concise description of the building/house,  with details on the size and layout, and a short history of the property and the premises it rises on/within.

However interesting and enlightening the introduction is, the essential parts of the report are its technical and legal chapters, namely the “technical due diligence” and “legal due diligence”. An important aspect to be kept in mind is that in those cases in which the property in question is owned, and thus put up for sale by, a legal entity (for instance, a company) the part of the report that refers to the asset’s legal status is called a “company due diligence”.

 

 

Technical due diligence in Italy

Technical due diligence reports are carried out to ascertain, examine and illustrate the functional features, building characteristics, and structural conditions of the property in question. This allows the potential buyer to have substantiated information on his/her investment, both in terms of budget flow and of the time span needed to bring any amelioration or renovation about. 

In order to produce a careful and exhaustive report, expert surveyors, architects or engineers carry out lengthy and attentive site visits to the premises, checking its conditions and maintenance, and meticulously review its technical documents, so as to assess data as concerns the unit’s urban planning and land registry status.

With respect to maintenance and preservation, technical due diligence reports usually include a summarized portrayal of the building, with details on its specific features and their condition. Particularly, the report will comprise comprehensive data as regards structural elements (i.e. the facade, roof, framework etc.), plus detailed facts on its utility system (i.e.hot water, heating, electrical supply, A/C if any etc.) 

Regarding the electrical system, prospective foreign buyers should be aware that pursuant to current Italian legislation, all properties are required to have a formal energy performance certificate drafted by an engineer or a specialized surveyor prior to any purchase/sale transaction. 

The other two essential issues addressed by the technical chapter of a due diligence report pertain to the real estate asset’s land registry and urban planning status, both of which need to be flawlessly assessed by a surveyor or engineer. To do so, the expert in charge will analyze documents related to the property’s building permits and habitability, ascertaining whether there are any standing restrictions or hindrances, and inspect the documents lodged at the local land registry offices.

 

Legal due diligence in Italy

As concerns the legal due diligence chapter, its aims are: to verify if the asset itself stands in compliance with Italian legislation and rules, if it is, in truth, available to be put up for sale and if there are any legal impediments weighing on it. Basically, a full-scale legal due diligence report enables prospective purchasers to ascertain whether his/her investment carries uncertainty or hazards. 

To offer the potential purchaser a comprehensive overview of the property’s legal status, the legal due diligence entails a close examination of the seller’s ownership title. This includes a careful analysis of the property’s history, including data regarding former owners, as well as deeds or encumbrances if any, and serves to effectively demonstrate the vendor holds the right to sell pursuant to Italian law.

To understand how important it is to conduct a comprehensive legal due diligence, buyers should always bear in mind that, notwithstanding legal ownership, a property may still carry legal encumbrances and/or be subject to rights held by third parties. 

What kind of legal hindrances can affect a property, and why is it so important to check whether any exist? Because a real estate asset that bears legal burdens may endanger one’s investment, both in terms of actual feasibility of the deal in question, and in terms of enjoying the benefits one expects. For instance, properties may have been pledged as a guarantee or weighed down by a mortgage. Or they may, by contract, be tied to third parties’ rights, for example, a right to park, to pass through, or enjoy a view. Inasmuch as ownership can be transferred, third parties’ rights rarely hinder ownership transfer, but they will definitely interfere with the new owner’s exclusive use of the premises.

So, clearly, having exhaustive information on the asset’s legal standing is crucial to the prospective future owner. If and when applicable, and upon the potential buyer’s request, the legal due diligence report may also include fiscal advice, i.e. legal support as concerns taxation to be applied. This because Italian law provides for diverse tax regimes based on the vendor’s fiscal standing, for example, if he/she has a VAT code, if the unit is a “first home” or if it has been recently renovated or rebuilt.

Technical and legal due diligence for properties and companies

Company due diligence in Italy

The issues to be considered for real estate assets owned by companies, corporations, or other juridical entities are at once similar and peculiar. This because in these cases a well-drafted legal due diligence report – called “company due diligence” in this instance – also needs to ascertain the seller’s solvency status, in order to avoid risks that could possibly endanger the transaction, such as revocation actions, or claims carried out by creditors. Hence, the team of lawyers in charge of the company due diligence will meticulously analyze the company’s assets, liability status, and solvency, and examine the details related to the rights of its shareholders, and review the balance sheets. 

With respect to company due diligence, being able to count on a team of expert and savvy real estate lawyers is key, especially for a foreign investor. In fact, Italian law, specifically article 2901 of the Italian Civil Code, maintains that there are certain preestablished cases in which a creditor can issue a revocation action, i.e. a claim presented in court, for deprivation deeds that comprise sales and/or donations of a debtor company’s property, and this can include the sale of company-owned assets. Because revocation actions can be issued via judicial procedures within a time span of five years from the publishment of the deprivation deed, properties become “safe”  after 5 years. Still, proof as regards lacks of payment and exact terms of the agreement is difficult to source, and demonstrate, hence the vital importance of having a comprehensive company due diligence, drafted by proficient lawyers with long-standing experience in local bureaucracy and the ever-changing scenario of Italian law.  

All in all, the above shows how complex it can be for a foreign non-resident to buy property in Italy, especially as regards completion of the ascertainments required to make sure one is embarking on a safe, secure and fruitful investment. The somewhat cryptic Italian legal system, complicated bureaucracy and language barrier are bound to make proceedings lengthy, and tiring. Plus, sourcing the many different professionals one needs – lawyers, surveyors, engineers etc… – and making sure they are all reliable, as well as adept, skilled, and experienced professionals can be hard for someone who lives abroad and does not have extensive contacts in Italy.

 

Our services for producing technical and legal due diligence for properties and companies

Whom to trust for advice and support? The best option is having one single trustworthy team of English-speaking pros to handle it all, from the technical aspects to the legal assessments. 

That’s where our experts come in, assisting, facilitating and expediting all proceedings related to buying real estate in Italy. Extensive know-how, in-depth knowledge of the red tape, legislation and real estate scenario, and a widespread tightly-knit network of partners, enables our proficient lawyers, all with long-standing experience in property law, resourceful architects, engineers and surveyors to fruitfully help foreign purchasers buy real estate in Italy.

Sharing our local insight, far-reaching experience and profound understanding of the law with our clients is part of our job, as per the rest, we take care of the necessary paperwork and ascertainments on their behalf. Thus, we examine the land register plans, energy rating certificates, certificates of habitability, translate them when needed, inspect the vendor’s solvency and rights. Alongside the legal team, our technical pros carefully check the property out, analyzing all details from the structure to the floor plans. 

In a nutshell? We are do the homework for you, ensuring successful deals and profitable investments in Italy.

 

 


 

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