Purchaser due diligence and enquiries

Subject to mandatory vendor disclosure obligations (see Overview — Vendor disclosures), any implied warranties or warranties included in contracts of sale, and the law relating to misrepresentations or misleading or deceptive conduct (and similar vitiating factors), purchasers still typically acquire property on a caveat emptor, or buyer beware, basis. Even in those jurisdictions that have mandatory vendor disclosures or implied or standard vendor warranties, those do not cover all potential matters of importance to a purchaser.

Authored by Dr Stephen Pallavicini, Lead Property Lawyer, Marie Boustani, Property Lawyer, Woolworths Group Ltd and Sara Hatcher, Consulting Principal, Keypoint Law (NSW); Lisa Gaddie, Partner, Lander & Rogers (Vic); Luckbir Singh, Partner, MacDonnells Law, Despina Priala, Priala Legal and Simon LaBlack, Director, LaBlack Lawyers (Qld); Gary Thomas, Special Counsel and Anthony Davis, Director, McWilliams Lawyers (WA); Philip Page, Retired Partner, Mellor Olsson and Constantine Costi, Principal, Costi & Co Commercial Lawyers (SA); Tim Tierney, Principal and Sebastian Thomas-Wilson, Principal, Tierney Law (Tas); Tony Morgan, Partner and Andrew Giles, Senior Associate, HWL Ebsworth; Lyn Bennett, Consultant, Minter Ellison and Leon Loganathan, Managing Partner, Ward Keller (NT); Christine Murray, Managing Partner and Stephanie Lynch, Partner, Meyer Vandenberg Lawyers and Duncan Webber, Partner, Moray & Agnew (ACT). Updated by the LexisNexis Legal Writer team.

Purpose of due diligence

Subject to mandatory vendor disclosure obligations (see Overview — Vendor disclosures), any implied warranties or warranties included in contracts of sale, and the law relating to misrepresentations or misleading or deceptive conduct (and similar vitiating factors), purchasers still typically acquire property on a caveat emptor, or buyer beware, basis. Even in those jurisdictions that have mandatory vendor disclosures or implied or standard vendor warranties, those do not cover all potential matters of importance to a purchaser.

Purchaser due diligence is therefore important to:

• check if there are any issues with the vendor’s title to the property;
• identify if there are any problems with the property;
• consider if the property is suitable for the purchaser; and
• enable any identified issues to be addressed.

Timing for undertaking due diligence

Due diligence can be time consuming and costly (depending on the scope), meaning purchasers may want to delay it until they have substantially progressed negotiations or already exchanged contracts. However, late due diligence may mean the purchaser has limited options if an issue is identified.

Conducting due diligence prior to exchange

The main benefit of conducting due diligence at the beginning is the early identification of issues, enabling the parties to address them before they become a problem. Early identification can help:

• the purchaser determine if the property is suitable;
• with drafting the contract of sale, so that the issues are dealt with appropriately in the contract; and
• with negotiating commercial terms, such as price, settlement terms and obligations for any parties to perform before or after signing or settlement.