FRELA provides support in real estate law for acquirers: we conduct a legal audit of your target property.
Are you planning to purchase a luxury real estate property?
The legal audit of your target property is a key component in your strategic decision-making process.
FRELA’s representative attorneys are here to assist you in optimizing and securing your acquisitions. In the initial phase, we will listen to you in order to understand your project and needs. Subsequently, we will conduct a thorough legal audit of your target property, safeguarding your interests as our top priority.
Why do you need a legal audit when purchasing real estate in France or internationally?
When procuring real estate in France or abroad, it is important to conduct a legal audit to ensure a seamless transaction. This type of audit is usually conducted by a team of lawyers, complemented by tax experts and other real estate professionals (property expert, notaries, architects, technical inspectors, etc.). This audit helps identify any potential legal issues that may arise during the purchase, such as disputes over property titles or problems pertaining to the property itself. Therefore, it is strategic to conduct a legal audit before proceeding with any real estate purchase.
In France, a legal (and fiscal) audit is recommended prior to any real estate acquisition.
This audit is regulated by a strict set of rules and laws to ensure a smooth and secure transaction. The legal audit provides various assurances regarding the proper conduct and compliance of the real estate acquisition process. The primary aim of the audit is to verify the documentation of a property, highlight any anomalies or non-conformities with prevailing laws and regulations, and provide an expert opinion. The auditor also collects the necessary documents for the smooth progress of the transaction, such as urban planning certificates and titles. When the representative lawyer conducts the legal audit, they may perform additional checks, such as analyzing the information provided by the seller. The audit is often conducted in conjunction with the notary.
Objective of the audit:
The main objective of the audit is to ensure compliance and protection for both the buyer and seller. The stipulations outlined in each contract are subject to real estate law and regulations. This implies that the benefits and obligations of each party to the agreement must be clearly and specifically documented, explained, and recognized. The legal audit is a critical milestone to ensure that the transaction is conducted in accordance with the rules and in compliance with the relevant laws. The audit also ensures that the acquirer is aware of all the risks inherent in the purchase of the real estate, especially in the case of ownership issues such as liens or mortgages.
Compiling the audit report:
The audit report is meticulously crafted to be succinct and comprehensive. It encompasses descriptive details and pertinent clauses, encompassing the characterization of the properties in question, the provenance of ownership, and the delineation of legal and tax risks uncovered. Moreover, the report may offer recommendations for necessary rectifications, along with a potential timeline to facilitate the seamless progression of the transaction process.
In general, the audit focuses on a comprehensive investigation into the historical records of a real estate property. To have an indisputable title of ownership, the successive transfers of the property must be traced over an uninterrupted 30-year period, with each seller in this chain of titles having obtained a valid title from the preceding seller.
By conducting this search, it is necessary to ensure that the seller is the true owner of the property, ultimately enabling the provision of an unencumbered title of ownership to the buyer.
Additionally, the law requires the seller to provide the buyer with environmental and technical information. The absence of this information can result in the nullification of the sale.
Our methodology for legal audit to guide acquirers in their evaluation
We assist you in conducting a legal audit for your real estate investment. Initially, we will compile a list of strengths and weaknesses based on the internal and external analysis of your target property.
As a representative lawyer specializing in real estate in France and internationally, the legal audit is a crucial step to assess the risks and opportunities associated with the acquisition of specific, institutional, or corporate real estate properties. Here is an illustrative instance of our 12-point methodology for conducting a legal audit to guide buyers in their evaluation:
- Information Collection: The first step consist of gathering all available information about the real estate property or the business to be acquired, such as contracts, permits, plans, authorizations, notarized deeds, tax declarations, and administrative documents.
- Stakeholder Identification: Identify the owners, tenants, suppliers, customers, employees, administrative authorities, and third parties involved in previous transactions.
- Documentation Review: Review the documents to verify their validity, authenticity, and consistency with the parties’ statements.
- Ownership Rights Analysis: Verify the ownership rights to ensure that the seller has the right to sell and that the titles are clear and free from encumbrances and mortgages.
- Urban Planning Document Examination: Review the urban planning documents to ensure that the real estate property complies with local urban planning rules and has the necessary permits for construction, renovation, or expansion.
- Permit and Authorization Verification: Verify that all necessary permits have been obtained for construction works, extensions, modifications, or changes in the property’s use.
- Environmental Risk Assessment: Review potential environmental risks, such as soil or groundwater pollution, watercourse pollution, as well as risks related to noise or odor nuisances.
- Contract Analysis: Verify lease agreements, employment contracts, supplier contracts, sales contracts, maintenance contracts, or subcontracting agreements to ensure compliance with applicable regulations and absence of restrictive clauses.
- Tax Risk Evaluation: Review potential tax risks related to the property acquisition, such as VAT, registration duties, property tax, business tax, and residence tax.
- Warranty Examination: Verify warranties provided by the seller, such as eviction warranties, warranties against hidden defects, compliance warranties, and warranties for proper functioning.
- Insurance Verification: Check mandatory insurances, whether they have been taken out for the property, such as liability insurance, construction insurance, multi-risk home insurance, and ten-year liability insurance.
- Legal Audit Report: Prepare a comprehensive report that summarizes the findings of the legal audit, including identified risks, potential issues, and recommendations for further actions or mitigations.
Legal audit is a crucial step in the acquisition of real estate properties or real estate businesses in France. Legal risks can significantly impact the value of the property or business, as well as the profitability and viability of the investment. Therefore, it is important to conduct a thorough assessment of legal risks with the assistance of a representative lawyer specializing in real estate transactions before finalizing a transaction.
Contact us to obtain our comprehensive guide: “Legal audit in Real Estate Transactions.”
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