If technical due diligence verifies the physical state of the property, legal due diligence examines its “legal state of health”. This second pillar of pre-purchase verification has become even more crucial after the ruling no. 8230/2019 of the Court of Cassation.
Legal due diligence is an in-depth investigation into the legal situation of the property., aimed at identifying any critical issues that could compromise the full enjoyment of the property or generate future liabilities for the purchaser.
Unlike technical due diligence, which focuses on the material aspects of the property, legal due diligence examines the rights, obligations and constraints that weigh on the property, verifying that the buyer can actually obtain full ownership without surprises.
Key elements of a comprehensive legal due diligence include:
- Ownership Verification: verification that the seller is the actual owner of the property and has full right to dispose of it. This involves analyzing the “ownership history” of the property through twenty-year mortgage searches.
- Mortgage and Lien Control: verification of the existence of mortgages, foreclosures, seizures or other constraints that could limit the free availability of the property or entail financial obligations for the buyer.
- Analysis of urban and environmental constraints: identification of any constraints (landscape, historical, archaeological, hydrogeological) that may limit the use or transformation of the property.
- Verification of existing contracts: examination of any rental, loan for use or other contracts that may affect the enjoyment of the property after purchase.
- Checking the condominium situation: verification of any condominium resolutions that provide for extraordinary expenses, ongoing disputes, or particularly restrictive regulations.
- Tax analysis: evaluation of the tax aspects related to the purchase, including any applicable concessions or risks of assessment.
To carry out a complete legal due diligence, it is necessary to involve qualified professionals such as lawyers specialized in real estate law, notaries and, for tax aspects, accountants. These professionals have the necessary skills to identify critical issues that could escape an inexperienced eye.
Legal due diligence integrates perfectly with technical due diligence: while the latter verifies the conformity of the property with respect to the building permits, the former verifies that such permits are valid and that there are no constraints or limitations that could compromise the value or use of the property.
In light of the Supreme Court ruling no. 8230/2019, which clarified that the validity of transfer deeds is not affected by any urban planning irregularities of the property, legal due diligence takes on an even more important role: if the purchase deed remains valid even in the presence of discrepancies, the buyer must be aware that such discrepancies could still lead to administrative, criminal and civil liabilities.
Content by the Lawyer. Gianmaria Pesce
