The role of due diligence in real estate deals

25 July 2014

Real estate deals come with substantial risks. These risks may result in delays in execution or may even blow the entire transaction off course. So insurance and broader risk management can play a pivotal role in bringing negotiations to a smooth conclusion.

Transaction liability insurance is an effective solution for supporting both buyers and sellers in these circumstances. These policies can provide cover for warranties and indemnities, together with ongoing liabilities such as tax or unresolved legal proceedings. They provide a channel for bridging the gap between parties and helping them come together. In essence the insurance cover enables the seller to make a clean exit, and provides the buyer and its bank with the financial protections required to proceed with the deal. 

For a seller, price is the overriding focus of due diligence. But in an open market transaction, there are other factors to consider, including execution risk, the reputation of the buyer and ongoing liabilities. The focus should always be on minimizing execution risk and then to managing a clean exit with minimum ongoing liability after closing the deal. 

Execution risk for a seller can also be reduced by establishing a clear timetable. Within this it’s vital to ensure that there is ample scope for due diligence, otherwise the deal can founder on time limits. Centralized insurance buying can help to speed up the due-diligence process as it usually results in all insurance documentation being readily available. And once again the project-management of the insurance side of the programme is usually best left to your insurance broker who can liaise more effectively with the other party’s brokers and advise you on the best cause of action.

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For further information, please contact Terence Edwards, Partner, Real Estate on +44(0)20 7528 4237

contact Terence Edwards