Conducting due diligence is an essential part of any property purchase.
Your commercial property solicitor will conduct the legal due diligence, including investigating the property's title, submitting and reviewing appropriate searches and raising enquiries with the seller's solicitor.
There are a few additional checks and considerations that your solicitor will look out for when they are acting on the purchase of a site for development.
Title investigation involves reviewing the title register and any documents referred to in the register.
Your solicitor will check what rights the property has the benefit of, the reservations the property is subject to, and whether any restrictive covenants bind the property.
If the land is unregistered, your solicitor will review the title deeds sent to them by the seller's solicitor. Your solicitor will be looking out for any title issues that might affect or restrict your development and the intended use of the property.
For example, it may cause an issue if the property is subject to a right of way across part of the site or a restrictive covenant stating that it can't be used for anything other than agricultural purposes.
It is not always the case that all rights a property is subject to will be registered on the title register. Sometimes rights can be acquired by prescription (i.e. long user), and they may not be noted on the title.
It is useful for your solicitor to look at the property on Google Earth to see if there are signs of anything that looks out of the ordinary.
For example, Google Earth could reveal a track running through the site. If no corresponding right of way is noted on the title, it could mean that someone has acquired a right of way by long user, and further investigation is required.
You or a surveyor must also attend the property and report anything unusual to your solicitor.
Your solicitor will advise you on which searches are appropriate. Some of the searches are especially important where site development will be carried out.
A subterranean utilities search is usually recommended, as this will reveal whether there are any cables, pipes etc., running through the site.
This search is one of the more expensive, but it is important to know where the services are before starting any development.
A highways search is also important to ensure the intended access point abuts the adopted highway, so there won't be any issues with ransom strips or gaps between the boundary and the highway.
It will also reveal if there are any public rights of way registered over the property.
An environmental search is usually submitted for any property purchase, but where your solicitor knows you intend to develop the site, they will usually submit an environmental search tailored to land for development.
This is because the environmental risks are different for properties which will be developed compared to properties where the existing use will continue.
This search will reveal whether there are any historical contaminative uses and if there is any risk of contamination at the site.
The environmental search is a desktop survey, so it is still important for you to conduct a Phase 1 environmental audit and a Phase 2 investigation if necessary.
Some environmental searches also include a combined flood risk search (or you can obtain a separate flood search).
You will need to understand the likelihood of flooding at the site, as this may impact your planning application and could increase the costs of your development.
This is particularly important given the effects of climate change and the increased flooding risk in many areas across England and Wales.
Community Infrastructure Levy
As part of the local search, your solicitor will be able to establish whether a Community Infrastructure Levy (CIL) is in place for the area in which the development site is located.
A CIL is a charge set by the local authority on developments to fund infrastructure across the local area and is payable by the developer. This additional development cost would need to be considered if it applies to the property.
There is also an optional "common land and town or village green" enquiry which your solicitor should submit with the local search.
This will reveal whether there are common rights registered against the property (for example, rights to graze animals or rights to dig turf) or whether the property is registered as a town or village green (for the exercise of lawful sports and pastimes).
If either of these is revealed, this will, of course, significantly impact whether the development is viable.
The seller will provide replies to Commercial Property Standard Enquiries, which is a standard set of enquiries.
Your solicitor will raise follow-up enquiries after reviewing these and will also raise enquiries on any points that are brought to light in the title investigation or review of the searches.
Your solicitor will keep you updated on any significant issues throughout the transaction.
They will also prepare a title report for you, including the results of their due diligence and any points they want to draw your attention to.
You must take the time to consider the title report and raise any queries with your solicitor before contracts are exchanged.
Published 11 April 2023
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.