Overseas Real Estate Blog

Part 3 of Legal Due Diligence...

Top Tip No. 8: Maintenance Contract

If you are buying a property where there are common areas in the building or grounds then you will usually need to see a maintenance contract. This is an important part of the due diligence because quality maintenance enhances your resale value. Neglect can have a negative impact on rental and capital appreciation.

Check for the maintenance fee and what it includes and what it is for and when it must be paid. Specify when payment should start, for example building completion or opening of the facilities? Look out for VAT and future price rises. Are these specified? Are they index linked? Typically maintenance is expressed as an amount or as an amount per m2. Check whether a fund is being established for major repairs or if this will be extra. Check how often external woodwork will be primed/re stained.

Top Tip No. 9: Rental Guarantees

If there is a contractual guarantee you need to check these terms carefully. Check the exact amount is correct as you may have a percentage. How much own use are you allowed and which weeks are you not allowed to use. Check also when monies are actually paid and whether they are net or gross of maintenance charges.

Check who is actually giving the guarantee. Typically the developer but it could be their or another property management company. What is the risk this will be not honoured?

There are times when you are best not taking an offered rental guarantee because local rentals are very strong and you can negotiate a guarantee and/or rental management agreement with a specialist organisation. Some owners in Dubai recently have found they are betting doing this because the rental market is so strong there.

Top Tip No. 10: Listen to your lawyer (but its you who should direct)

Try to become involved in a discussion with your lawyer. Often terms need clarifying and make sure he does this. Sometimes lawyers can aggravate disagreements. Consider carefully which points are really worth arguing over and which are being highlighted for more "point scoring" purposes. Focus on the key points that can make a real difference.

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