The Importance of Due Diligence in Property Deals
Introduction
Real estate investment is one of the most lucrative and secure investment options, but it also carries significant risks, especially when due diligence is neglected. Due diligence is the process of thoroughly investigating a property before purchase to verify its authenticity, legality, and overall viability. It is an essential step in ensuring that you do not fall victim to fraud, legal disputes, or financial losses.
In Nigeria, where real estate fraud, land disputes, and multiple sales of the same property are common, proper due diligence is a necessity rather than an option. Many unsuspecting investors have lost money because they failed to verify ownership documents, zoning restrictions, or encumbrances on a property.
This guide explores the importance of due diligence in property transactions, outlining key areas to investigate, potential risks of ignoring due diligence, and steps to properly verify a property before making a purchase.
1. Understanding Due Diligence in Real Estate
Due diligence in real estate is the process of verifying a property’s ownership, title documents, legal status, and physical condition to ensure that there are no hidden issues that could jeopardize your investment. It is an investigative process that helps uncover potential legal, financial, and environmental risks associated with a property.
Failure to conduct due diligence can result in serious consequences, including:
Loss of money due to fraudulent transactions
Buying a property that is under government acquisition
Purchasing land that belongs to multiple claimants
Acquiring land with defective or unregistered titles
Being forced to demolish a property due to zoning violations
Due diligence ensures that the property is legally transferable, free from disputes, and suitable for your intended use.
2. The Key Aspects of Due Diligence in Property Deals
a) Verifying Legal Ownership and Title Documents
One of the most critical aspects of due diligence is confirming that the seller is the legitimate owner of the property. A title search at the relevant Lands Registry will help determine the authenticity of the property’s ownership.
Key Title Documents to Verify:
1. Certificate of Occupancy (C of O) – Confirms that the government has granted the owner the right to use the land for a specified period (usually 99 years).
2. Deed of Assignment – A legal document that transfers ownership from the previous owner to the buyer.
3. Governor’s Consent – Required for any subsequent sale of land that has already been assigned.
4. Survey Plan – A document that shows the exact location, boundaries, and size of the property.
5. Excision & Gazette – Required for lands that were initially under government acquisition but have been officially released.
Red Flags to Watch Out For:
A seller without a verifiable title document
Conflicting ownership claims
Documents that are not registered at the Lands Registry
Suspiciously low prices (which may indicate a fraudulent deal)
Steps to Verify Property Ownership:
Conduct a title search at the State Lands Registry
Request original title documents from the seller
Confirm that the property has no pending legal disputes
b) Checking for Encumbrances and Litigation
An encumbrance is any legal claim or liability attached to a property that could prevent its sale or limit the buyer’s rights. Encumbrances include mortgages, unpaid taxes, litigation, or court injunctions.
To verify that a property is free from encumbrances:
Conduct a search at the Lands Registry to check for outstanding mortgages or legal restrictions.
Check court records to see if the property is involved in any litigation.
Request a tax clearance certificate to confirm that all government levies on the property have been settled.
If a property is found to have encumbrances, it is advisable to avoid the transaction unless the seller provides proof of clearance.
c) Confirming Land Use and Zoning Laws
Zoning laws dictate how a particular piece of land can be used. Buying land without verifying zoning regulations can result in severe consequences, including demolition by the government.
Common zoning categories include:
Residential – For homes and housing estates.
Commercial – For offices, shops, and business centers.
Industrial – For factories and manufacturing businesses.
Agricultural – For farming purposes.
How to Verify Zoning Laws:
Visit the Urban and Regional Planning Authority to confirm permitted land use.
Obtain a zoning approval letter from the government.
Ensure the property complies with local development plans.
Purchasing land that does not comply with zoning regulations can result in denial of building permits or demolition by authorities.
d) Physical Inspection of the Property
Due diligence is not complete without physically inspecting the property. Some investors have been deceived into buying:
Land that is waterlogged or prone to flooding
Property located in high-crime areas
Structures with poor construction quality
Checklist for Property Inspection:
✔ Verify the actual size and dimensions of the land against the survey plan.
✔ Confirm the accessibility of the property (roads, transport links).
✔ Check for environmental hazards (flood-prone areas, erosion).
✔ Inspect existing structures for structural defects.
Engaging a qualified surveyor or real estate professional can help you identify potential issues that may not be immediately visible.
e) Investigating the Reputation of the Seller or Developer
Before purchasing a property, it is crucial to investigate the track record of the seller or real estate company. Some fraudulent developers engage in multiple sales of the same property or fail to deliver promised infrastructure.
How to Investigate a Seller or Developer:
Request references from previous buyers.
Check for negative reviews or complaints.
Verify if the company is registered with the Corporate Affairs Commission (CAC).
Ask for evidence of previous completed projects.
It is advisable to deal only with reputable real estate firms to minimize risk.
3. Consequences of Failing to Conduct Due Diligence
Many investors ignore due diligence and later face serious challenges. Here are some real-life consequences of failing to investigate a property before purchase:
a) Loss of Money Due to Fraud
Many buyers have lost their investments because they unknowingly bought:
Land that was already sold to multiple buyers.
Government-acquired land.
Land owned by “Omo-Onile” (land grabbers) who have no legal right to sell.
b) Legal Disputes and Court Cases
Failure to verify property ownership can result in legal battles, which can take years to resolve. Some investors have been forced to vacate properties after court rulings invalidated their purchase.
c) Demolition or Government Acquisition
If a property violates zoning regulations or is located in an area marked for government projects, it may be seized or demolished without compensation.
d) Financial Liabilities (Unpaid Debts, Taxes, or Mortgages)
If a property has outstanding debts or encumbrances, the new buyer may be forced to settle them.
4. How to Conduct Proper Due Diligence Before Buying Property
To ensure a safe and legally compliant property transaction:
Step 1: Engage a Real Estate Lawyer
A lawyer will conduct legal searches, draft agreements, and ensure compliance with laws.
Step 2: Verify Title Documents
Conduct a title search at the Lands Registry and confirm that the seller has valid ownership.
Step 3: Investigate Encumbrances
Check for pending lawsuits, mortgages, and unpaid taxes on the property.
Step 4: Confirm Zoning Laws
Visit the Town Planning Authority to verify land use restrictions.
Step 5: Physically Inspect the Property
Examine infrastructure, accessibility, environmental risks, and building quality.
Conclusion
Due diligence is the most important step in any real estate transaction. It helps investors avoid fraud, legal disputes, financial losses, and regulatory issues. By carefully verifying ownership, title documents, encumbrances, zoning laws, and the seller’s reputation, you can protect yourself from costly mistakes.
For expert legal assistance with property due diligence, contact Chaman Law Firm today.
📞Phone: 08065553671, 08096888818
✉ Email: chamanlawfirm@gmail.com
📍 Address: 115, Obafemi Awolowo Way, Allen Junction, Ikeja, Lagos, Nigeria