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The Importance Of Conducting A Due Diligence On Property

Funso Muhammed Bakare - June 6, 2020 - 0 comments

Real estate investment, as juicy and profitable as it is, has however been made to become a very complicated investment. These complexities are induced by fraudulent practices of some real estate players such as Estate agents, Real estate companies and particularly the land grabbers popularly known as “omo onile”.

This problem is not peculiar to Nigeria as it has become a global scourge in the Real Estate industry.  As a prospective investor, it is however instructive to engage a real estate expert whose main role is to investigate ownership of land and conduct due diligence on the status of the property in order to unravel and unfurl the originality or otherwise of the property.

What is due diligence?

This is an investigation or exercise of care that a reasonable business or person is expected to take before entering into an agreement or contract with another party. 

The above definition appears so explicit but in relation to real estate, it is an act of verifying that the owner of a property is the authentic owner and the land does not suffer any form of defect or encumbrance in law. The next question to ask as a prospective buyer is “what are the steps to be taken in order to carry out a due diligence on property?

Physical Inspection

You may be wondering why this is coming first and why a reasonable buyer will not deem it fit to inspect a property he/she intend to invest in. Well, experience has shown that some buyers are too busy to engage in this exercise, instead, they resort to requesting for pictorial evidence of the property or engage inexperience family members or friends to conduct such exercise on their behalf. This is very wrong and could lead to loss of your precious money to cheap scam. 

Before carrying out a physical inspection, arrange for a licensed surveyor who would assist you in verifying and ascertaining the boundary (such beacons) as contained in the survey plan provided by the owner. During physical inspection of property, there is a possibility that your presence on the land is challenged or questioned by adjoining land owner who could also be useful to you through questions on ownership.

Another benefit is that, rival claimant (in case there is ownership dispute on the land) may also question your presence and that would inform you that the land you are about to purchase is a subject of litigation or you may find an inscription or a notice from government agency written that the land is under investigation.

Verification of Land Documents

Every land owner parade one or more title documents over their property to prove their ownership. The most common ones are Deed of Assignment, Governor’s consent, Certificate of Occupancy (C of O), Survey Plan, Court Judgment, and Government Gazette among others.

In Lagos state, most of the Real Estate companies parades a very annoying title document in order to desperately sell their estate schemes to innocent buyers, they call it “Excision in progress” and will therefore provide for file number. It is not advisable to buy any property which has its title as excision in progress. In my next article, I will exclusively discuss the term and origin in details.

Our advice to investors generally is that they should not be carried away with the neighborhood attraction of a property and therefore ignore carrying out a proper investigation. If a land owner provides any of the above listed title documents as evidence of ownership, it is your duty as a buyer to thoroughly investigate the document or engage an expert to do same. Investigation of land documents can be carried out in different ways:

    • Conducting a search at the land registry: The purpose of this is to know whether or not such document exists or whether the details contained in the document match the information in the custody of the registry. It also provides information on whether the land is under government compulsory acquisition, or government designated areas or whether the land has the proper boundary as described on the title document.
    • Conducting a search at the court registry:  The purpose of this type of search is to unravel any issues relating to whether or not the land or property you are about to purchase is a subject of litigation or put simply, whether there is a pending suit over the land in a court of competent jurisdiction. Some issues which could make a land or property a subject of litigation are; dispute over ownership of land, dispute over boundaries, dispute over wrongful sale of land by a section of family, dispute over illegal government acquisition and others. So, if a buyer subscribes to a land suffering one of the above defects without approaching the Court Registry for verification, it’s like throwing your hard-earned money into the lagoon.
    • Conducting a search at the Probate registry: When the history of land or property reveal that the owner acquired title through a will or through a letter of administration (in case the original or previous owner died intestate), it then becomes necessary to verify this position at the probate registry.

The above represent some important tips to be observed when carrying out a transaction on land and should also serve as guides to prospective real estate investors. It takes nothing to engage the services of real estate experts to investigate or verify a property before conclusion of sales.

Conducting due diligence is however a pre-requisite to purchasing a property. There are real estate professionals whose main job is to conduct land verification and ascertain the veracity and genuineness of a property.

Funso Bakare Esq.

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