There are many legal and commercial issues to consider in acquiring real property, whether for investment or personal use.  As with any acquisition, it will be necessary to conduct of the due diligence of the property being considered for purchase.  In the real estate context, this involves engaging title companies, inspectors and legal counsel.

DUE DILIGENCE

Due diligence is intended to ensure that the property being acquired complies with all state, local and federal environmental and safety regulations and that all risks and potential liabilities are identified.  Environmental and safety regulations may limit the kinds of activities that may be undertaken on a piece of land, while adverse environmental conditions can prohibit all activity on a piece of land.  Property owners, tenants and other parties with an interest in real property may have obligations under environmental laws to remediate hazardous conditions. Such environmental liabilities should be allocated by contract among the parties to a real estate transaction.

LEGAL TITLE

Legal title to real property must be analyzed to ensure that the property is free of third-party interests that could interfere with the economic benefits of ownership. The property should be free of easement rights that would prevent the intended use of the property and private or public liens that could lead to foreclosure and loss of ownership.  Most purchasers of U.S. real property obtain a policy of title insurance from a third-party insurer that guarantees that the quality of title is acceptable.    

MINERALS

Particularly when investing in real property in mineral-rich places like Texas, the prospective purchaser should ensure that the title to the property includes title to the mineral estate.  Ordinarily, title to the minerals below the surface will follow the title to the surface property.  However, it is possible that the mineral estate has been severed from the title to the surface, or the mineral estate may be subject to an existing oil and gas lease in favor of a third party.

REAL ESTATE AGREEMENTS AND RECORDS

An agreement for the sale of real property should allocate legal and economic risks between sellers and the buyer.  A typical sale agreement will cover due diligence periods to investigate the property, the closing date for concluding the sale, the purchase price, adjustments for operating expenses and taxes, representations, warranties and covenants of the seller and the buyer, financing contingencies, condition of the property, casualty and condemnation, allocation of both identified and unidentified liabilities among the seller and the buyer, and a host of other issues that can have important economic consequences for the parties.  Careful consideration must also be given to continued obligations between the seller and the buyer after the transfer of title.

CONTACT US

For more information about our real estate practice, please contact us here, or call 713.650.9700.

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