Last week we stressed the importance of a thorough due diligence clause, the week prior we showed you what Pre-Purchase due diligence checks you should undertake, this week we show you what this clause can look like.
In any property transaction, conducting thorough due diligence is crucial to ensuring that the investment aligns with the buyer's expectations and financial goals. A well-defined Due Diligence Clause is a key component of the agreement, providing the buyer with a safety net to assess various aspects of the property before finalising the purchase. A clause, such as this allows you to sign an Agreement for Sale and Purchase, knowing you have the option to cancel, if you choose. In this blog, we will explore the intricacies of the Due Diligence Clause, outlining what it entails and why it is essential for any prospective purchaser.
Remember - Solicitor's Approval or Finance Clause WILL NOT SAVE YOU if you just change your mind - that's why a Due Diligence Clause is a MUST!
Due Diligence Clause – An Example
This agreement is conditional upon the Purchaser being entirely satisfied with the property as a suitable property investment at the agreed purchase price following the Purchaser carrying out a due diligence investigation of the property, and obtaining legal advice on, including (but not limited to) an investigation of the following:
· Purchaser's solicitor's advice on the terms of the Agreement for Sale and Purchase;
· The Purchaser or its solicitor being satisfied with the Record of Title to the property (or subdivision consent information if title not issued as at the date of the agreement);
· Proposed easements and other encumbrances or interests affecting the property;
· Review of Body Corporate rules (if applicable);
· Building and future maintenance issues and structural integrity of the property or plans and specifications if not yet constructed;
· The financial suitability of the Purchaser's proposed investment in the property (including a valuation if required by the Purchaser's financier);
· Review of LIM report and other local body issues.(if applicable)
The satisfaction of this condition shall be at the sole and absolute discretion of the Purchaser and if the condition is not fulfilled due to the Purchaser not being satisfied with any aspect of the property, the Purchaser shall not be obliged to state reasons for the Purchaser's lack of satisfaction.
This condition is inserted for the sole benefit of the Purchaser.
The date for satisfaction of the condition in clause shall be the date being 10 working days from the date of this agreement.
If the record of title to the Property has not issued for the Property as at the date of this agreement, the Vendor or its solicitor shall provide to the Purchaser or their solicitor all information in their possession within 3 working days of the date of this Agreement relating to the proposed Record of Title including subdivision plans, resource consent, proposed building plan and specifications. If the Vendor or its solicitor fails to provide such information within the requisite period, then the date for satisfaction of the due diligence condition will be extended by three working days from the date that the Vendor or its solicitor provides the information specified here into the Purchaser or its solicitor.
A Due Diligence Clause is a crucial safeguard for buyers, enabling them to make informed choices about their property purchase. By grasping the details and conditions of this clause, purchasers can confidently navigate the complexities of real estate transactions. It is essential to consult legal professionals to protect your interests and fully understand the implications of the terms in your agreement. Happy buying!
If you're considering a property purchase, we encourage you to consult your mortgage adviser to explore your lending options. Additionally, feel free to reach out to our team at Equiti; we’re here to help you find properties that meet your purchasing criteria. Financial advisers, we encourage you to share this article with your clients to help them make informed decisions regarding their property purchase!