Legal due diligence
Describe the legal due diligence required in the context of a real estate business combination and any due diligence specific to a real estate business combination. What specialists are typically involved and at what point in the transaction are the various teams typically brought in?
Generally, the legal due-diligence exercise will involve, among others, review of the borrowings, employment contracts and human resources, intellectual property, real-estate assets (including owned or lease properties), regulatory compliance, corporate information, insurance and pending litigations of the target. In carrying out a due-diligence exercise, the structure of the proposed business combination (whether structured as an asset sale, a share sale or a merger of entities) will, to a large extent, determine the nature and extent of the required due diligence.
There are no exceptions when the business combination relates to real-estate combinations – the due-diligence exercise described above will apply. In addition to the legal due diligence, the acquirer may want to conduct financial and tax due diligence to ascertain the accounting and financial system, tax liabilities, creditworthiness, value of assets to be acquired, profitability and current trading position of the target company.
How are title, lien, bankruptcy, litigation and tax searches typically conducted? On what levels are these searches typically run? What protection from bad title is available to buyers, and does this depend on the nature of the underlying asset?
Title searches or verifications are often carried out at the corporate affairs commission, probate registry and land registries created in each state, and at the charting unit within the office of the Surveyor General of the State.
Tax searches are performed by the Federal Inland Revenue Service, Internal Revenue Service or government organisation responsible for regulating the applicable property tax regime in the state where the property is located.
Litigation searches are typically carried out at the local courts in the area where the property is located to confirm any pending legal proceedings against the target.
Representation and warranty insurance
Do sellers of non-public real estate businesses typically purchase representation and warranty insurance to cover post-closing liability?
Sellers of non-public real-estate enterprises in Nigeria are unlikely to buy representation and warranty insurance to protect post-closing liabilities. Instead, the definitive agreement typically contains a phrase that, at most, represents an assurance from the seller to the buyer regarding restitution in the event of a defective title.
Review of business contracts
What are some of the primary agreements that the legal teams customarily review in the context of a real estate business combination, and does the scope vary with the structure of the transaction?
Generally, every material agreement needs to be reviewed – title deeds of the real-estate assets, leases, joint-venture development agreements, and contracts executed by the target company with other entities – to determine the specific rights and liabilities thereunder and any other matter that will affect the transaction (eg, contracts that may be terminated following a change in control of the company). The scope of documents to be reviewed will depend on the structure of the transaction.