Due Diligence means an investigation of a business, person, property or project before a decision is made to sign a contract or make payment to avoid harm to others or their property.
In real estate, property buyers do due diligence before they buy any property, this is to avoid falling into a scam or acquiring series of liabilities with the asset in question.
WHY DO YOU NEED DUE DILIGENCE
Due diligence is essential to unravel a lot of mysteries and secrets behind a property for sale. Below are a few of them:
1) It will reveal if a property is located in a right place that is void of government acquisition e.g. if a particular area is reserved by the government as an industrial area or agricultural area buying such a land is a disaster. A survey will reveal this.
2) It reveals hidden costs or unpaid fees like accumulated land use charge, tax and so on.
3) It reveals the exact location of the property and the neighbourhood it is located, the social amenities surrounding it and so on.
4) It leads to the discovery of the actual size and topography of the land in question.
5) It helps reveal the possibility of acquiring land close to or under powerline route, oil or gas pipeline route, close to a bridge, highway, filling station, gas station etc.
6) It helps verify the real owner of the property
HOW TO DO A DUE DILIGENCE FOR A LAND
Due diligence on a land is done in five easy steps:
1. REVIEW OWNER’S DOCUMENTS
Before parting with your money politely request for some documents from the seller of the land. Accept the photocopies of the documents and review them. The following documents are essential:
-Certificate of Occupancy (C of O)
-Tax Clearance Certificate
-Deed of Assignment
-Any other necessary document
Get a professional estate surveyor or solicitor to do the job for you. They will take the photocopies to the Ministry of Land and Environment to determine if the documents are genuine. This review can expose a lot of things such as accumulated bills, pending litigation etc that threatens the property.
2. INVESTIGATE TAXES AND OTHER FEES
From the above documents, your investigation can lead to discovery of any accumulated taxes from the tax office. This will save you from buying a land with a huge liability. Check for the payment of land use charge by the owner on the land. Any land with C of O attracts this charge on an annual basis. If the owner refused to pay this charge it will accumulate and would be inherited by the buyer. Finally find out any other charge or fee on the land. Avoid going bankrupt because of a property.
3. PHYSICAL INSPECTION
After verifying the authenticity of the documents request to be taken to the location of the land. Confirm the size of the land to find out if it is the same with what is in the documents. Also confirm the following:
*Proximity to the highway: There is government regulation as to the distance from the road to properties. Confirm to discover these because sometimes in the future road enlargement could mess up your property.
*Power-line route: Check the distance between the land and power-line route because there are specific guidelines as to the how close a property should be to power-lines. Apart from regulations it is dangerous to build under a power line route. It could lead to demolition in future.
*Oil and gas route: Check the proximity of the land to an oil and gas pipeline so as not to contravene the law against closeness to one of these. It is safe to maintain your distance.
*Waterways: ensure the land is not located on or dangerously close to a waterway or major drainage because of governmental regulation and flooding.
*Filling station: be sure your neighbor is not a filling station or someone who wants to build a filling station after purchase.
Check these and many more spot to avert future hazard and contravention of land use acts. Any of these can lead to the loss of your property so do not let the property owner push to pay for the land you will regret in future.
4. VALUE ASSESSMENT AND INVESTIGATION
Assess the land further to discover its price in relation to others in the surrounding. Ask the owner of a similar land near you to discover if it is within the same price range or outrageously above. In real estate, location of a property or land is a determining factor in the price. For example the value of a land in Lekki is different from value of the same size of land in Ikorodu. It is common place for lands in the same zone/neighbourhood to be on the same price range. Furthermore, inquire about the supposed owner of the land from neigbours in that area to be sure they own the property.
5. ZONING / LAND USE CONTROL
Confirm that the land in question is not located in an area assigned to be used as business district or industrial estate if your intention is a residential building. If you contravene this law your property is doomed for demolition.
We hope this has been helpful. Don’t forget to contact us for advice on further steps. Have a great week ahead.