1. Legal Due Diligence in Commercial Real Estate Transactions Dr. Martin Foerster, LL.M. (London) ERES Conference 2013 – Vienna, Austria 6th July 2013 Welcome

2. Dr. Martin Foerster, LL.M.  Lecturer for Civil Law Vienna University of Applied Sciences, Department of Real Estate Economics  Attorney at law, partner Graf & Pitkowitz Rechtsanwälte GmbH Vienna, Austria  Main areas of focus  Real estate transactions  Development projects 1

3. Overview Legal Due Diligence 1. What is “Due Diligence” 2. Goal/Purpose 3. Key legal issues 4. Addressing these legal issues in the acquisition process 2

4. What is “Due Diligence”  Origin: US Securities Act 1933 (Section 11) As long as broker-dealers exercised "due diligence" in their investigation into the company whose equity they were selling, and disclosed to the investor what they found, they would not be held liable for non-disclosure of information that was not discovered in the process of that investigation. 3

5. What is “Due Diligence”  Due diligence in commercial real estate transactions  Review the target with regard to:  legal  technical  environmental  tax  financial  other issues 4

6. Overview Legal Due Diligence 1. What is “Due Diligence” 2. Goal/Purpose 3. Key legal issues 4. Addressing these legal issues in the acquisition process 5

7. Goals of the Due Diligence  Buyer’s goals: 1. Verification of the information provided by the seller 2. Identifying risks of the acquisition  Seller’s goals: 1. Reducing liability 6

8. Goals of the Due Diligence  Identify types of risks: 1. Deal breakers / Show stoppers 2. Issues to be resolved prior to entering into an agreement 3. Issues to be dealt with in the sale and purchase agreement 4. Risks that need to be accepted 7

9. Goals of the Due Diligence  Other reasons for carrying out a due diligence:  Caveat emptor; 'let the buyer beware' principle: no liability for apparent defects (absent to an agreement to the contrary or fraud)  bonafide acquisition of right to land: acquisition in good faith from a person having a defective title  bonafide acquisition of property free from encumbrances 8

10. Overview Legal Due Diligence 1. What is “Due Diligence” 2. Goal/Purpose 3. Key legal issues 4. Addressing these legal issues in the acquisition process 9

11. Key Legal Issues  Ownership in the land: land register (Grundbuch)  Generally, a right in rem (e.g. ownership, mortgage, right of passage) comes into existence only by way of registration in the land register  Exceptions: acquisitive prescription (30/40 years) bona fide construction others In these (rare) cases the land register does not reflect the true owner of a property. 10

12. Key Legal Issues  Ownership in the land: land register (continued)  In cases where the land register does not show the true owner, the buyer is protected by the principle of the protection of legitimate expectations:  The buyer can rely on the accuracy of the information in the land register (i.e.: the person wrongfully registered as owner is deemed to be the owner of the land) the completeness of the land register (i.e.: if an encumbrance such as a right of way is not registered in the land register, then it is deemed not to exist) unless the buyer is aware or could have been aware that the information in the land register is incorrect. 11

13. Key Legal Issues  Ownership in the building  Generally ownership in the building follows ownership in the land.  Exceptions: Building rights (Baurecht / Erbbaurecht): These are registered with the land register. Superstructures (Überbauten / Superädifikate): These are not always registered with the land register. 12

14. Key Legal Issues  Public permits  Identify key permits: Building permit Plant permit (Betriebsanlagengenehmigung) Other (e.g. Water Act)  Intersection of technical and legal due diligence: Legal: Is the permit issued by the competent body, binding and in force? Legal: Does the permit automatically transfer to the buyer or will it need to be reissued? Technical: Does the building comply to the permit? Are all conditions of the permit adhered to? 13

15. Key Legal Issues  Environmental liability  Polluter pays principle  Exceptions: 1. The owner of the land can be held liable, if the polluter is not available; and the owner was aware of the polluting activities and did not take reasonable counter-actions. 2. The buyer of the land can be held liable, if he was aware of the environmental hazard he should have been aware of the environmental hazard. Buyer must consult public registers (register of contaminated sites and register of sites suspicious of contamination). 14

16. Key Legal Issues  Contracts  In an asset deal, property related contracts are not automatically transferred to the buyer.  Three party agreement required, except: Lease agreements Insurance agreements Employment contracts Certain rights in rem (registered rights)  Ensure key agreements are in place Facility management agreements, service agreements IP rights (architect, software, websites) 15

17. Key Legal Issues  Pending litigation  Seller remains party to the law suit  Judgment enforceable against buyer 16

18. Overview Legal Due Diligence 1. What is “Due Diligence” 2. Goal/Purpose 3. Key legal issues 4. Addressing these legal issues in the acquisition process 17

19. Addressing Legal Issues  Types of risks: 1. Deal breakers / Show stoppers Abort transaction 18

20. Addressing Legal Issues  Types of risks: 2. Issues to be resolved prior to entering into an agreement Condition precedent 19

21. Addressing Legal Issues  Types of risks: 3. Issues to be addressed in the sale and purchase agreement Adjust structure of the deal Representations and warranties 20

22. Addressing Legal Issues  Types of risks: 4. Risks that need to be accepted Reduce price 21

23. Thank you Thank you for your attention. Dr. Martin Foerster Graf & Pitkowitz Rechtsanwälte GmbH Stadiongasse 2, 1010 Vienna, Austria Marburger Kai 47, 8010 Graz E: foerster@gpp.at T: +43.1.401 17 www.gpp.at 22