how to do due dilligence

Rule of 3 “D”: Do Due Diligence

It is no secret, Ukraine’s real estate market is currently developing, which is inevitably related to some risks due to the lack of specific information about properties.

Does it mean you need to give up the idea of entering this new market? We don’t think so – it still offers numerous opportunities that provide attractive expected yields. To cover your back and avoid any legal issues, you will need to do thorough due diligence before investing in Kyiv property.

Due diligence for real estate consists of three parts: initial, legal, and technical. As you will need assistance with each section, it will be better to choose the real estate agency with enough resources to arrange all of the steps in-house. Otherwise, you will need to find outsourced third-party specialists to perform the legal and technical due diligence while you are working with the broker.

Due diligence options

The first essential step for any investor is to find a qualified broker who will evaluate the investment potential of the property you are considering. Initial (or investment) due diligence requires a check of the official state register. You need to confirm all the documents provided by the seller match registered owners and make sure there are no liens on the apartment.

After that, you need to do thorough legal due diligence, and it is more secure for agencies to involve lawyers they cooperate with regularly. If your broker doesn’t have a lawyer, you are free to select attorneys to examine all of the judicial documents correlated to the property. For instance, you might need a technical passport to verify that any prior renovation work was registered and done with the proper permissions. At this stage, lawyers usually request additional documents from a trader to go the extra mile with the paperwork on uncovered court cases concerning a property. Such cases are not regularly searchable in online databases, so the lawyer will need to adopt private investigator skills to get valuable information.

For technical due diligence, you can engage an inspector who will check the structural integrity of the building and your apartment. In Kyiv, it is possible to receive a technical report from a provider with reimbursement insurance. The technical part is especially vital if you are considering a purchase in a historical building (Pre-Revolutionary or a Stalinka). The inspections primarily focus on sewage and water systems, apartment and building structural integrity, the load capacity of the electricity, the potential for asbestos exposure, and places to install A/C units. If the building is new, then inspections will focus on the construction and design quality of the apartment.

To summarize, there is a bunch of things you need to check before signing a sales-purchase agreement:

  1. All property documents must be legally valid and genuine;
  2. The Seller owns the sold property as well as the other owners of the property.
  3. For your review,  the Seller should provide all the following documents:
    – Documents to prove the title to the property (a title certificate, purchase agreement and other);
    – Extract from the Property Register to confirm the Seller owns the property and that it has not been pledged or is not under arrest;
    – Passport of the Seller;
    – Personal tax identification number of the Seller;
  4. If you buy from the corporate entity, they must provide evidence that the body validly exists and that its officers are authorized to perform sales transactions;
  5. Technical Passport from Ukraine’s Bureau of Technical Inventory.
  6. Certificate about family membership, registration of other persons at this apartment and the absence of utilities;
  7. Certification from a narcologist and a psychiatrist that the property owner is not under treatment for drugs or alcohol abuse or mental illness;
  8. If minor children are registered as residents in the property, you will need to obtain a decision of the Board of Custody that their rights are not violated before the sale;
  9. Birth certificates for minor children.

In case any of the above mentioned documents are missing or invalid, then your sale transaction could be questioned and considered illegal. You should note that Ukraine’s laws concerning property continue to emerge, and the requirements mentioned above can be changed.

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