Buyers normally engage local legal counsel to conduct real estate due diligence. The legal counsel will coordinate directly with the seller and, when necessary, the seller's Land Deed Official (Pejabat Pembuat Akta Tanah, or PPAT) to obtain the documents to be reviewed and collect the necessary information on the land and the seller. The due diligence would normally include the following.
Land ownership and land search – to make sure the seller is the legal owner and has the legal right to transfer the land title. The documents that need to be reviewed in this case depend on whether the land is certificated. A land search is conducted to check the legal owner of the land and whether there is any security right or claim over the land.
Licenses – to identify whether the existing licenses associated with the land are relevant for the purchaser. If so, the buyer will also need to check the validity of the relevant licenses. It is also necessary to check whether there are any obligations imposed under the license (eg, reporting obligations, restrictions).
Agreements – the buyer will need to review all relevant agreements pertaining to the land (eg, lease agreement, financing or loan agreement making the land an encumbrance) and check any material provisions in the contract that could impede the contemplated transaction (eg, cross default, negative covenant).
Information on seller – if the seller is an entity, the buyer will need to check the seller's articles of association, authorized representative and other corporate documents or licenses relevant to the transaction. If the seller is an individual, the buyer will need to check the marital status of the seller and validity of any heir (if the obtainment is through inheritance).
Miscellaneous – evidence of tax payment (eg, land and building tax, or PBB, and land acquisition tax and duty), research at the relevant government institution to confirm zoning and spatial layout, and the map of the land. Additionally, in certain cases, a site visit and interview with the relevant parties who know the status of the land and ownership might be necessary.
This first appeared in the Chambers Real Estate 2019 Guide, published by Chambers and Partners. You can find the full chapter here.
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.
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