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Hi everybody - George Sourris, Empire Legal.

Today's topic: Due Diligence for QLD property - is it good or bad? 

Due Diligence - it's a bit of a seesaw. It's a balance between being protected vs submitting a competitive offer. If we're representing a buyer for a property conveyance, our job is to protect the buyer's legal interests.

We have a duty of care to the client to always act in their best interests. We are obliged to educate our clients about the use of a due diligence clause, otherwise we're not doing our job properly.

What is a due diligence clause? Let's start with this. A Due Diligence clause is used to allow a buyer to sign a contract to purchase a property with the ability to conduct inquiries about that property.

There is a time frame, for example 14 or 21 days - this is all negotiated of course, that the buyer has to satisfy themselves as to whether or not they wish to proceed with the purchase. 

If the buyer is NOT satisfied with their due diligence findings, they can terminate the matter and their Deposit is refunded. The matter is then at an end. Keep in mind that it is implied that the buyer must act "reasonably". Please note here, in order to be protected by due diligence, a Special Condition has to be inserted into the contract. We have a clause we draft to protect our buyers. 

Agents - DON'T rely on the free online ones that you can find. They're not always correct. If a buyer is satisfied with due diligence, then of course that condition is ticked off and the contract proceeds. 

Why would I want a due diligence clause?

You want a due diligence clause if you are looking to buy a property for a specific purpose. A few typical examples are: if you wish to develop a block in the future, i.e. maybe subdivide and build two houses, or if the building is in a flood zone, or a heritage building, or maybe you want to buy two neighbouring houses, see if you can demolish them and then build your dream mega-mansion. Or it could be as simple as you want to build a deck at the back or at a pool and you need to speak with your town planner as to whether this would be possible. 

If you sign a contract with just a Building & Pest or a Finance clause, you can ONLY terminate the contract if there are significant building and pest issues, or you cannot obtain finance on terms that are satisfactory to you. If you have a Due Diligence clause, you have time to inquire about whether you can still develop, improve the property, and if not, you can safely terminate the matter.

Alright, Due Diligence sounds great, so Why wouldn't I want one?

Well, put simply, it's not attractive to the seller to put a due diligence clause in every contract. When a real estate agent acting for the seller looks at the offers that come in for a property, it's not always the highest price point that wins.

For example, I'm selling my house at Camp Hill. I don't have a house at Camp Hill, but if I did and I was selling it, say I got an offer for $3 million, subject to a 21 day due diligence clause.  Maybe I get another offer at $2.95 million that has no conditions. For example, no finance or building and pest or due diligence. If I'm looking for a guaranteed quick sale, I may be happy to take the $50,000 cheaper offer to lock in the deal today.

With the due diligence offer, at day 21, the buyer could terminate and my $2.95 million buyer may have already found something else or is no longer interested! 

AGENTS - at Empire Legal, we certainly do educate our clients to understand that whilst we legally must inform them of their options when buying, which include the due diligence special condition, we explain the impact it may have on the attractiveness of their offer. 

Put simply, whilst we represent our client's best interests, we do not force our opinions onto the client. Instead, we put all the cards on the table and educate our clients to help make the best decision for them. Obviously, no two deals are exactly the same.

It's all about looking after the client, whilst balancing the commerciality of keeping the deal afloat. During COVID, we saw many clients missing out simply because the market was so hot that even a finance clause or a building in pest condition likely made the offer unattractive. We barely saw a due diligence condition appear at all.

Usually a great sounding board is the real estate agent on the transaction, as they know what the seller is looking for and can help guide buyers to hopefully get their deal on foot. We work closely with local real estate agents, bankers and brokers to make sure our clients achieve the results they desire.

 So guys, due diligence. It's a bit of a double edged sword. If you're buying for a particular need and haven't done your homework, it may be a good condition to add to make sure you don't end up with a property that doesn't suit your needs, by being too opportunistic.

On the flip side, it may be the condition that makes your offer unattractive, and you miss out.  

Thank you for reading. We will have a new blog ready next week! 

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George Sourris. Empire Legal.

If you have any questions, you can email me: george@empirelegal.com.au. 

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Thanks for reading everybody. See you on the next one.

Ladies and gentlemen, please keep in mind that all advice is general in nature and does not constitute legal advice. This is authorised by George Sourris, Empire Legal, Brisbane, Queensland, Australia.

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Note: all information is general in nature and as each matter is unique please contact our office for tailored advices: the above does not constitute legal advice.