Transactions
Due diligence: the ten findings that cost you money
Observations from our transaction practice: it is frequently the same gaps — and many of them can be closed in advance.
Price reductions in due diligence rarely come from spectacular findings. They come from uncertainty. A buyer who cannot get a conclusive answer prices the question — conservatively.
The following points appear so regularly in processes we accompany that we ask for them before going to market. Not every finding is avoidable; many, however, can be identified and contextualised early.
Note: the following provides a general overview of possible transaction structures and related questions. It does not constitute legal or tax advice. The specific legal and tax consequences should be reviewed for each transaction by the relevant professional advisers.
Recurring topics in the legal review
Incomplete lease documentation: addenda, agreements on rent adjustments, handover protocols. If an annex is missing, the whole lease is treated as uncertain in the valuation.
For commercial leases in Germany, the applicable statutory form requirements and the complete documentation of material agreements and addenda are relevant review points. Following the amendment to Section 578 of the German Civil Code, long-term commercial leases are subject to the statutory text form. Whether specific contract documentation meets the statutory requirements, and what consequences any formal defects may have, should be reviewed by the legal advisers as part of the legal due diligence.
Building encumbrances, easements and use rights that were never evaluated. Use rights, easements and public-law building encumbrances are not necessarily recorded in the land register. The encumbrance register is often available, but no one has assessed what an old entry means for the intended use.
- Complete lease files, including all addenda and annexes
- Have form requirements and documentation of long-term commercial leases reviewed legally
- Building encumbrance register with an assessment, not just a copy
- Shareholder resolutions and commercial register status up to date
Recurring topics in the technical review
Missing building files and incomplete documentation on fire safety and structural engineering. In older standing assets this is more the rule than the exception — and it shows, because buyers provision for it.
Add to that deferred maintenance not reflected in the operating budget, and energy performance certificates close to expiry. Both are small items with a disproportionate effect on the negotiation.
What we do beforehand
During the transaction process we identify topics that may require legal, tax or technical review and coordinate the involvement of the relevant advisers. Known and disclosed points behave differently in negotiation than issues the buyer discovers alone.
The lead time required depends on the asset, the quality of documentation and the scope of pre-review. Even a structured pre-review of core documents can help make open points visible before buyer due diligence begins.
In short
Buyers price uncertainty, not just defects. Ordering the documents before going to market and naming open points changes the negotiating position.
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Legal and tax notice
The information on this website is provided for general information on real estate, financing and corporate transactions only. It does not constitute legal, tax or other individual professional advice and cannot replace case-specific advice from suitably qualified lawyers, tax advisers or other professionals.
The legal and tax consequences of a transaction depend in particular on its specific structure, the parties involved, existing contracts and the applicable legal and tax framework. Such questions should therefore be reviewed individually by the relevant professional advisers before any decision is taken.
Within the content presented on this website, Fox Capital does not provide legal or tax advice.