Overseas Property Purchases – Avoiding the Pitfalls and what to look out for!

No matter the language or the country, the first thing that a UK purchaser has to do when facing the possibility of entering into a overseas property purchase is to request all the legal documents about the development, via your independent lawyer.This is commonly known as “due diligence”. Title Deeds, planning permission and building permit are essential before entering into a co-operation agreement with an overseas entity. How many times have we found ourselves with agents that simply have no idea of the project’s legal status and properties they were marketing.

Never assume anything is what it seems! There are different procedures in every country and a different system of law. Your independent lawyer would check whether there is a line of bank guarantees available for purchasers, in countries like Spain or Portugal. Obviously, on many occasions, the UK agent does not speak the language of the foreign agent nor does he have the knowledge to understand the documents and therefore it is advisable to employ an independent lawyer with enough knowledge about the laws and language of the country where the project is located.

Factors to consider when buying abroad are the location of the building or land and it is worth looking at the current return on investment rate. Look at what the economic environment is and whether there are liberal investment laws.

Once the lawyer is satisfied with the documents provided by the agent or developer, it is time for an agreement to be drafted in order to fix all the necessary provisions to satisfy both parties. Again, it would be advisable to have the agreement drafted, or at least checked, by the same lawyer who checked the legal documentation of the project. In our experience the majoirty of the contracts are ruled by the overseas law for the simple reason that the project is located there and, to be honest, this is not a bad idea. It would prove to be incredibly complicated to sue a foreign company through the UK courts. On the other hand, should the foreign agent or developer fail to honour the contract, there would be a greater chance of the UK independent lawyer to get compensation through foreign tribunals. This is because, with regard to a developer it would be easier to place a charge on the land; alternatively if we’re talking about an agent, it would be easier to place a charge on the company assets.

Then it is time to draft the agreement and adapt it to the mutual needs of both parties. From the UK independent lawyer’s point of view, any co-operation agreement should have some basic conditions in order to protect it from abusive clauses. First of all it is imperative to clearly identify the objective of the agreement. Full details for the property should be provided in order to clarify what this should be. Clear details for all parties involved in the contract are also necessary. The contract should have the full names and details for those persons who will be signing on behalf of the companies. It should also specify whether they are entitled to sign and enter into a legally binding agreement on behalf of their respective companies. The UK independent lawyer should be aware of overseas agents and developers who are not duly represented by the right person on the co-operation agreement. This could make it void under the laws of the country where the property is located.

It is necessary to determine exactly what are the duties of each party. The Developer has to make sure that it is in possession of all the legal documentation and permits to sell and build the unit of a project and provide the purchaser at the end of the transaction with clean and absolute title. At the same time, it must honour the conditions of the agreement.

In most international transactions the process of buying usually passes through the following stages: Reserving/holding a deposit, the preliminary sale agreement and the final contract, which in most countries is in the form of a Notorial Deed.

Compensation. Compensation. Compensation. Do not be put off by this word. Troubles exist and people get conned. It is necessary to agree compensation in case any of the parties breach the agreement. This could be a straight forward payment, or one based on the damages incured by the affected party.

As lawyers it would be impossible to finish this article without speaking a little bit in defence of our profession but we will be short. Always try to protect your investment and if you are unsure seek expert independent legal advice. It will save you unnecessary headaches and a fortune in antacid tablets!

Stefano Lucatello
Joint Senior Partner & Head of The International Property Law Centre LLP

Hull Office: Suffolk House, 21 Silver Street, Hull, HU1 1JG
Tel: 0844 578 5005
Fax: 0844 578 5001
Mobile: 07802 921339

London Office: 25 Floral Street, Covent Garden, London WC2E 9DS
Tel: 0844 578 4006
Fax: 0844 578 4001
Mobile: 07802 921339

Email: stefanol@iplc.co.uk
Web: www.internationalpropertylaw.com