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Real Estate Finance - reliance on existing due diligence

  • United Kingdom
  • Real estate
  • Real estate finance
  • Real estate investment


Since the onset of Covid-19 we have seen an increased number of extensions and amendments to existing facility agreements. The increase in this kind of activity has brought into focus the reliance placed on real estate due diligence in connection with real estate finance transactions. Economic and time pressures have made it increasingly common for lenders and borrowers to ask whether it is possible for the lender to rely on pre-existing real estate due diligence in connection with an extension or amendment or, even in some cases, a new facility.

Existing due diligence may take the form of a CLLS certificate of title or a more bespoke form of report on title. There are a number of factors that need to be considered in determining whether lenders should continue to rely upon that existing certificate or report.

The age of the diligence

Firstly, the age of the diligence should be considered from a legal perspective. The statutory limitation period for bringing a professional indemnity claim against a firm in relation to a failure to report a matter which gives rise to a loss is six years from breach of duty, or three years from date of knowledge of an issue, with a 15 year long stop. The certificate or report is only right or wrong as at the date it is given. It is therefore important to consider the date on which the certificate or report was issued, and in the case of an extension to the term of a facility, the expected redemption date for the loan. Certificates or reports prepared six years or more before the date of any extension or amendment are considered to be historic for real estate purposes and of little value from a reliance perspective - unless the author is prepared (generally in a separate reliance letter) to re-start the clock for the purposes of the Limitation Act 1980.

Secondly the age of the diligence should be considered from a practical perspective. What is the date of the certificate or report and how likely it is that anything material will have changed? Have new lettings been granted? Have material development or re-development works been carried out? Is there reason to believe an updated local authority search might reveal something new? If there have been material changes that may have an impact on value or marketability, then new due diligence may be appropriate.

Limitations on Liability

It is increasingly common for the solicitors preparing a certificate or report to include a financial cap on liability. This might for example be linked to the amount of the facility, or, alternatively, the value of the asset. Any financial cap should be considered carefully to ensure it remains appropriate, particularly where additional facilities are being made available.

The certificate or report may also include a limitation on the period of time for which it can be relied upon which reduces the “life” of the diligence to a period which is less than the statutory six year period. For example the CLLS Certificate of Title (Seventh Edition 2016 Update) includes the following optional clause which the author may choose to include:

“Any legal proceedings arising from or in connection with this Certificate [or any other certificate of title issued by this firm in connection with the Transaction] must be formally commenced within [ ] year from the date when the party bringing the proceedings becomes aware, or ought reasonably to have become aware, of the fact, matter, event or circumstance giving rise to the liability alleged and, in any event, not later than [ ] years after the date of this Certificate [or other certificate].”

Limitations of this type should be carefully considered where the parties are looking to rely on existing diligence for the purposes of an extension or amendment or, a new facility.


Consideration will need to be given to the addressee wording. Is it appropriate for the new transaction? It is important to ensure that the parties referred to are accurate, up to date and reflect any changes in lender structure.


Finally, it is important to consider the purpose for which the certificate or the report was prepared. The definition of “Transaction” must be sufficiently wide to ensure that the author cannot argue that the diligence cannot continue to be relied upon for the purposes of an extension, amendment or, new facility particularly as it is common for a certificate or report to stipulate that the certificate or report “may not be relied on by any other person or used for any other purpose” than the transaction as defined.

If for example the definition of “Transaction” is limited to the “grant of the Charge over the Property as security for the facilities made available on the terms of the Facility Agreement” (in each case as defined in the relevant certificate of report) the author might contest any suggestion that it can be relied upon in connection with a new or additional legal charge or an amended and restated Facility Agreement. If however the definition of Transaction extends to the “grant of the Charge over the Property as security for the facilities made available on the terms of the Facility Agreement (as amended and/or restated from time to time)” this may (depending on what is proposed) be considered to go far enough. The definitions used for the purposes of the original financing are therefore key to determining whether a certificate or report can be relied upon.


There are often good economic and practical reasons for seeking to rely on existing due diligence when amending or extending facilities, or in some cases refinancing existing facilities. There are however a number of risks that need to be carefully considered before a decision is taken to proceed on this basis.

In circumstances where there is any doubt the answer is usually to require the borrower to procure a reliance letter in which the author of the certificate or report:

  • acknowledges and agrees that the period of time for which a claim can be brought in respect of the certificates or report is extended by the reliance letter such that the time limits for claims brought by the addressees will run from the date of the reliance letter;
  • extends reliance as necessary, either by amending the addressee language, and/or acknowledging that the “Transaction” for which the certificate/report was prepared will include the proposed amendment and/or restatement and/or replacement of the facility agreement.

Reliance aside the age of the diligence and the practical value of the certificate or report must still be considered.


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