Due Diligence Clause

[fynn]

Hi there,

having started investing into property, I came across all sorts of clauses one can/should put into the purchase agreement to be able to walk away if anything dissatisfying comes up. For example, at my last (and first) purchase I included a finance clause, a builer's report clause and a rental approval clause.
Recently, I have heard of a clause which seems to replace all (?) other clauses called "Due Diligence Clause". The advantage apparently is that you can increase your power of negotiation in the way that you do not have a finance clause (indicating you have sorted out your finance already). If now anything comes up like dissatisfying rental approval, LIM or builder's report or even the failure of arranging finance, you can refer to the due diligence clause and walk away.

It would be great if you could comment an that. Do I only need to include a due diligence clause (wording below) to replace all other clauses? Is this clause robust enough to exit the agreement easily? Is it legal and wise to make multiple offers simultaneously although one can only afford to buy one property? If so, what is a safe way to do that, if not by due diligence clause?

What do you think about the wording of this due diligence clause:

"This agreement is entirely conditional upon the Purchaser in its sole discretion being satisfied that the property is suitable for the Purchaser’s intended uses following the Purchaser carrying out due diligence investigations on the overall viability of the property and including but not limited to searching any and all easements, and of any requirements of the local authority or financier, this clause is for the sole benefit of the Purchaser and the Purchaser shall have until 4pm on 10th working day from the date of this contract to give to the Vendor’s solicitor notice that this clause is satisfied failing which the contract shall be at an end. This clause may be waived by the purchaser prior to the prescribed time at the sole discretion of the purchaser."

Your advice is much appreciated!

Many thanks,
Fynn

[Green Fish]

A standard due diligence clause.

But look at things from the vendor's side: It's a free option, basically.

So your offer goes to the back of the queue - and why shouldn't it?

[ChundaMars]

The advantage apparently is that you can increase your power of negotiation in the way that you do not have a finance clause (indicating you have sorted out your finance already).

This couldn't be further from the truth - a DD clause decreases your "power of negotiation".

As a buyer, only use DD clauses if you definitely need a foolproof "out", otherwise steer clear of them because you could just be shooting yourself in the foot.

[fynn]

That's interesting! I thought the finance clause is a foolproof out. And I'm thinking about a safe way to place an offer without the finance clause in case my mortgage is already pre-approved.

Thanks for further discussion!

[Green Fish]

Check the small-print in the agreement: The buyer has to make all reasonable efforts to satisfy the condition. If the agreement is conditional on finance, then the buyer has to make all reasonable efforts to get the finance.

The proposed due diligence condition is almost a "foolproof out" - which is why the vendor won't like it.

Not so the finance clause.

[ladyagent]

Use specific clauses.Simple as that!

[Roberto9]

may I suggest

if you want to get out,don't get in in the first place, until you are sure of what you are doing.

[Stevegoodey]

if you want to get out,don't get in in the first place, until you are sure of what you are doing.

That's all so well and good but sometimes you don't want to spend costly sums on Due Diligence like valuations and building inspections until you have control of the property.

An accepted offer with an out clause can give you control over the offer for a number of days while you finish doing your investigations.

I agree that you can easily get unstuck if you use a clause for a reason it is not intended for, but if you use a due diligence clause to do your due diligence you should be fine.

If however you use a due diligence clause and then don't do anything you may be open to litigation.
So why not add a clause that states that you want xxx days due diligence to completed professional reports that "May" include a valuation, building inspection....

I have had very little problems with using a DD clause as long as your straight with your intentions with the agent and vendor.
If they have any issues offer them a cash out clause too.


Steve