Placepoint

Due diligence (DD)

Due diligence is the structured review that a buyer, lender or investor carries out on a property or a property company before a transaction. The purpose is to verify the seller's presentation, uncover hidden risk, and provide a basis for negotiating price, warranties or conditions. In Norwegian commercial property, DD is mandatory in all institutional deals and, as a rule, also when a property fund or an investment company buys.

The practice is traditionally split into three main tracks that run in parallel before closing. Technical DD maps the physical condition of the building: structure, façade, roof, technical installations, energy use and maintenance backlog. The report gives an estimate of remedial costs (CapEx) over the next 5-10 years. Financial DD verifies the rental income, the tenants' creditworthiness, contract length and termination terms, and that yield and internal rate of return are calculated on the right basis. Legal DD checks title, registered encumbrances, statutory liens, zoning, dispensations, leases, neighbour agreements and potential disputes.

Larger deals also include separate DD tracks. Environmental DD looks at contaminated ground, asbestos and PCB, and whether the building meets the requirements in the EU taxonomy. Tax DD verifies the ownership structure, latent tax positions and value added tax on the property. ESG DD has emerged following CSRD reporting and covers climate risk, energy performance certification and whether the building could become a stranded asset under stricter requirements.

The DD process usually follows a standardised data room setup, where the seller collects the underlying documentation and the buyer's advisers work through it over three to six weeks. Findings go into a risk list that is negotiated into the share purchase agreement or the property purchase agreement as warranties, price reductions, escrow or conditions. For private individuals buying a home, the DD is replaced by a statutory condition report under avhendingslova (the Norwegian property sales act), but the principle is the same: material matters that were known or should have been known before the purchase cannot be the basis of a later claim.

In Placepoint you can prepare a DD by gathering matrikkel, title, zoning plan, hazard zones, Grunnboken information and tenant information in the property panel before the data room phase starts. Report: Due diligence works through the tracks one by one and shows where each point is answered today.

How it looks in Placepoint

In Placepoint you find this in Report: Due diligence:

Due diligence (DD) in Placepoint

From Placepoint's glossary: Due diligence (DD)

More information: Norsk Eiendom: the standards, Finanstilsynet.

English: Due diligence. The structured pre-transaction review covering technical, financial, legal, environmental, tax and ESG aspects of a property or property company.

Common questions we come across

What is the difference between technical, financial and legal DD?

Technical DD maps the physical condition of the building and estimates CapEx over 5-10 years. Financial DD verifies the rental income, the tenants' creditworthiness and that yield is calculated on the right basis. Legal DD checks title, registered encumbrances, statutory liens, zoning and leases.

How long does a typical DD process take?

Three to six weeks from the data room opening to a finished risk list, depending on the complexity of the property and the number of advisers. Share purchases take longer than pure property deals, because company matters and tax positions have to be verified.

What is ESG DD and when is it required?

ESG DD covers climate risk, energy performance certification, the EU taxonomy and whether the building could become a stranded asset. It has emerged following CSRD and is now standard in institutional deals above NOK 100 million.

Where in Placepoint do I find the basis for a DD?

Report: Due diligence works through each track in a Norwegian property DD and shows which tab or map layer answers it: title and encumbrances, ownership chain, technical, tenants, plan, environment and tax.

What happens to the findings from the DD?

Material findings are negotiated into the share purchase agreement or the property purchase agreement as warranties, price reductions, escrow or conditions. Smaller risks are logged on a list and followed up after closing.

What is the equivalent of DD when buying a home?

The statutory condition report under avhendingslova replaces the DD process when buying a home. The principle is the same: material matters that were known or should have been known before the purchase cannot be the basis of a later claim.