In property, the pandemic has brought about a change in which parties are borrowing and lending. Many have withdrawn from the market while many others have entered it to capitalise on opportunities.
Many companies in the sector, which were previously used to contracting with the same parties, subsequently need to take another look at their due diligence processes. Some of these businesses may not understand just how much unfamiliarity they are dealing with and the risks that creates.
Additionally, the days of acquiring land from an individual or a company with two directors and shareholders are gone, and the days of buying agricultural land from a farmer for redevelopment are rare. Property transactions are getting more complex, with sophisticated property structures.
With the make-up of the sector having shifted, and property transactions having increased in their complexity, there are a number of common ‘pinch points’ that property developers need to consider.
Those buying from a company registered offshore will be familiar with a common request for a ‘legal opinion’ on the offshore company’s ability to enter into the transaction. Any property company purchasing from an offshore company should establish whether there are any insolvency or bankruptcy documents filed against the company. Where no entries are revealed, a certificate of good standing (or similar document) should be provided by the relevant company registry to enable completion of the transaction.
In any arrangement governed by a trust deed, property businesses and their advisers must review the underlying deed to ensure a trustee has the necessary powers to enter into the transaction. An incorrectly executed deed may be rectified in some circumstances. In others, it may be deemed invalid – potentially having serious repercussions on the transaction, particularly where there is a linked transaction reliant on completion.
More and more speculative developers are entering the market to secure land under an option and look to enhance its value by obtaining a planning consent. Once a planning consent is granted, an option holder may flip the site to a more mainstream developer and pocket the difference. This leaves the end user with the responsibility of registering the title to both the original purchase by the option holder and the subsequent purchase from the option holder.
An option holder will want to avoid any direct correspondence between the end purchaser and landowner to keep any commercial terms confidential, meaning that an end purchaser is often reliant on the due diligence of the option holder in determining the status of the underlying parties.
Huseyin Huseyin is a partner at law firm Harold Benjamin