Challenges in conducting due diligence for real estate acquisition in India

• Incomplete or inaccurate information

  : One of the common challenges of due diligence is obtaining complete and accurate information about the property and its ownership, encumbrances, approvals, financial aspects, and legal status. The seller or lessor may not have proper records or may be reluctant to share certain information that may affect the transaction. The buyer or lessee may have to rely on third-party sources or experts to verify the information and fill the gaps.

• Time and cost constraints

  : Another challenge of due diligence is completing the process within the stipulated time and budget. The due diligence period may vary depending on the type and complexity of the transaction, but it is usually limited by the terms of the LOI or agreement. The buyer or lessee may have to conduct multiple site visits, inspections, searches, audits, and reviews within a short span of time. The due diligence process may also involve significant costs such as fees for lawyers, consultants, appraisers, surveyors, etc.

• Legal and regulatory hurdles

  : A major challenge of due diligence is complying with the legal and regulatory requirements applicable to the property and the transaction. The real estate laws and regulations in India vary from state to state and are often complex and ambiguous. The buyer or lessee may have to obtain various approvals, permissions, licenses, and certificates from different government authorities for the development, construction, use, and occupation of the property. The buyer or lessee may also have to pay various taxes, duties, fees, and charges for the transfer or lease of the property. The legal and regulatory hurdles may cause delays, disputes, or penalties in the transaction.

• Risk assessment and mitigation

  : A crucial challenge of due diligence is assessing and mitigating the risks involved in the transaction. The buyer or lessee may discover various issues or defects in the property such as title disputes, encumbrances, violations, illegal constructions, environmental hazards, structural damages, etc. The buyer or lessee may have to negotiate with the seller or lessor to resolve these issues or seek indemnification or compensation for them. The buyer or lessee may also have to obtain adequate insurance coverage or security for the property. The risk assessment and mitigation may affect the feasibility and profitability of the transaction.

As each transaction may have its own unique circumstances and issues. However, some of the general steps that you can take to overcome these challenges or difficulties are:

• Prepare a due diligence checklist

  : A due diligence checklist is a document that lists all the information and documents that you need to obtain and verify for the property and the transaction. A due diligence checklist can help you organize and streamline your due diligence process and ensure that you do not miss out on any important aspect. You can prepare a due diligence checklist based on the type and nature of the property and the transaction, and customize it according to your specific needs and objectives .

• Engage experts and professionals

  : Engaging experts and professionals such as lawyers, consultants, appraisers, surveyors, etc. can help you conduct a thorough and efficient due diligence process. Experts and professionals can provide you with their specialized knowledge, skills, and experience in dealing with various aspects of the property and the transaction. They can also help you access reliable sources of information, verify the accuracy and validity of the information, identify and resolve any issues or disputes, negotiate and draft the agreements, and comply with the legal and regulatory requirements .

• Conduct site visits and inspections

  : Conducting site visits and inspections can help you verify the physical condition and location of the property and check for any defects, damages, encroachments, violations, or illegal constructions on the property. Site visits and inspections can also help you assess the availability and quality of basic amenities such as water, electricity, sewage, roads, etc. You should conduct site visits and inspections at different times of the day and in different weather conditions to get a comprehensive view of the property .

• Negotiate and document the terms and conditions

  : Negotiating and documenting the terms and conditions of the transaction can help you overcome any challenges or difficulties that may arise during or after the transaction. You should negotiate with the seller or lessor to resolve any issues or defects in the property or seek indemnification or compensation for them. You should also document all the essential terms and conditions of the transaction such as property description, consideration amount, mode of payment, possession date, transfer formalities, indemnity clause, dispute resolution mechanism, etc. in legally valid and enforceable agreements. You should also ensure that the agreements are duly stamped and registered with the competent authority as per the applicable laws .