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Due diligence
When buying a commercial property in Scotland your solicitor will carry out a number of investigations. These investigations are known as “due diligence”. Thorough due diligence is important because in Scotland the legal principle of caveat emptor or “buyer beware” applies. This means that whilst the seller must not knowingly or negligently mislead the buyer, the buyer is ultimately responsible for checking the legal title to the property.
Your primary goal in any purchase is to obtain a “valid and marketable title”. To establish if a title is valid and marketable, your solicitor will carry out due diligence on the property. This involves reviewing and reporting on information that is available about the property. These investigations will reveal if there are any risks involved in purchasing the property, and whether the property comes with any onerous conditions or liabilities. Such information will inform your negotiations with the seller, and determine whether you should consider seeking any of the following from the seller:-
- a price reduction
- title indemnity insurance against any risks
- protections in the contract of sale, e.g. additional warranties.
Your solicitor will normally carry out the following investigations, where relevant to the transaction:
Search of the property registers
A search of the property registers (either the historic Sasine Register or the modern Land Register) is provided in the form of a legal report. Primarily, a legal report will confirm the following:-
- whether the seller is the registered owner of the property
- whether there are outstanding securities affecting the property that will need to be discharged and
- whether there are any relevant deeds registered or undergoing registration which affect the property and require examination.
Search of the personal registers
A search of the personal registers is a search in the register of inhibitions and adjudications. It is a search of persons and personal capacity to grant deeds affecting land. It identifies if there are any legal restrictions that may prevent the seller from disposing or otherwise dealing with their property or would render a transfer of title reversible. For example, a bankrupt owner is prohibited from disposing of their property to the prejudice of their creditors.
Search of the Companies House register
A search of the Companies House register is known as a companies or charges search. It will confirm a company’s registered address, registered number and, most importantly in the context of a purchase, any outstanding securities that may affect the property. It will flag standard securities (which will also show on the legal report) and floating charges, the most common forms of security over land in Scotland.
Search of public authority records
A property enquiry certificate is a search in the relevant local authority’s records of the property. It discloses various information including:
- whether the property is a listed building
- whether there are any current planning applications or building warrant applications affecting the property
- whether there is a public water supply and sewerage pipe near the property
- whether there are any road scheme proposals affecting the property
- the names of any publically adopted roads and paths near the property
whether there are any local authority notices or orders (e.g. repair notices) affecting the property.
A road adoption plan will show the location of publically adopted roads and paths near the property and is essential in identifying any gaps in title between the property and the adopted road network.
Depending on the circumstances, your solicitor may also carry out one or more of the following additional investigations:
Environmental report
A desktop environmental report will identify environmental risks associated with the property. For example, it may confirm whether the property lies within contaminated land, upon structurally unsound ground or within a floodplain.
Coal report
A coal mining report issued by The Coal Authority contains information taken from their mining information database, dating back to the1700s. It will highlight coal mining risks by detailing:-
- past, present and future coal mining
- any mine entries in the vicinity
- coal mining subsidence
- other coal mining related hazards.
It is not required in areas which have never historically been mined for coal.
Rights of way searches/Core Paths maps
It is good practice to order a rights of way search from Scotways, a charity which maintains a National Catalogue of Rights of Way. A Scotways search details known public rights of way across Scotland. Additionally, a search of core paths should be obtained from the local authority to check whether any core paths cross the property. You will need to consider how any public rights of way may affect the development potential of a property.
A search of NatureScot
A search of NatureScot (Scotland’s Nature Agency) via their online SiteLink service shows whether the property lies within the vicinity of a protected area (such as a Site of Special Scientific Interest, a Marine Protected Area or a National Nature Reserve). If part of the property is protected, development may be prohibited.
If you require assistance with a Scottish commercial property transaction, please do not hesitate to contact Raeburn Christie Clark and Wallace’s commercial property team for specialist advice.
