Before entering into an agreement to acquire rights over land in Cambodia (whether by lease, purchase or concession), it is important to perform background due diligence to confirm that it is safe to proceed with the transaction to acquire the desired rights over the property.
- Pre-Transfer Due Diligence
Before making a commercial decision, a prospective purchaser needs to be absolutely clear that the person claiming ownership is the legal owner of the property fully recognized by relevant authorities, either through title ownership or possessory rights under the land law. The property should be free and clear of encumbrances which includes liens, mortgages, hypothecs, leases, pledge. Also, it is also equally important to investigate whether the property is pending dispute in courts or any unresolved inheritance problems or is situated in a restricted zoning area.
Land due diligence requires a very thorough examination of all aspects of the property as the due diligence report will often influence the decision of the buyer on that particular transaction.
- Post-transfer Due Diligence
Following the transfer of title, it is prudent to perform a check to ensure that the property has been properly transferred according to the law and to the intended purchaser of the land. The buyer of the property generally undertake this verification before making the final payment to the sellers. This final title due diligence involves an inquiry with the local, cadastral, and tax authorities who are involved in the transfer process.
Type of Land Title
Different types of property ownership require different focus during the due diligence investigation. Examples of different types of land title include:
- Land without properly registered title;
- Land with property registered title;
- Flat/apartment; and
- Co-owned building (condominium).
Regardless of the type of title, there are similar steps to be taken in the due diligence process:
- Collection and review of title ownership and related documents; and
- Inquiring with the relevant cadastral and local authorities, and, in some cases, with local residents as well (field investigation).
Review of Documents:
a. Soft Title
- Sale-purchase agreement;
- Transfer of occupation;
b. Hard Title
- Systematic land title; and
- Sporadic land title
Whether a soft or hard title, the following information needs to be verified:
- Validity of the title, signatures (maybe initials) and the stamps affixed thereon;
- Whether the copy of the title that we have in hand reflects the current status of title;
- Classification of land (relevant to know whether conversion is possible);
- Encumbrance on the title (long-term lease, mortgage, servitude);
- “Remarks” section of the title: continuation from previous deed, record of M&A of company owner, remark of any corrections made to the inscription on the title;
- Any zoning or other restrictions in the area which could block any application for a construction permit or a transfer of title.
Making in-person inquiries is an essential part of the land due diligence process. It allows one to confirm the information stipulated in the document as true and up-to-date, to investigate any inconsistencies, and to fill in some missing information that has not been previously provided. Inquiry is made through conducting interviews with local and cadastral authorities.
It is important to first determine the official in charge in order to properly evaluate information that has been supplied to you.
- Adjacent land owners
Although adjacent landowners do not have any official capacity to determine the status of the target property, interviews with neighbors are important because they might have an overlapping interest over the property which might give rise to a future dispute. Neighboring land-owners may be able to provide important historical background of the property.
- Village Chief
The Village Chief generally does not have any official decision making authority with respect to the property. However, they will often have essential historical knowledge of the property. Equally important, they will often know if the owner of the property has family-related issues, disputes, or unregistered encumbrances that could prevent the sale or transfer of the property. It was common that land sale transactions (especially of property with soft title) were conducted only between private parties without going through the formal transfer procedure and which only the Village Chief will know about.
- Sangkat/Commune Chief
Soft titles are mostly issued at the commune and district levels. A Sangkat chief, who signs the soft title document, is the primary source of verification if the soft title has been issued or transferred from the previous owner, and whether the named owner is the true and current owner. The title owner information needs to be confirmed with Sangkat chief who actually signs the title soft document.
- District Cadastral Authority
Many soft titles are registered only at the district level. For hard title registration, this also must be processed at the local district level. It is common for some parties to process the title transfer only at the district level to minimize their costs, including application of the transfer tax. Therefore, visiting the district authority will provide updated information on the current ownership of the property if different from what is stated on the title document. There are properties with encumbrances which are recorded only at the district level.
- Municipal/Provincial Cadastral Authority
Hard title, long-term lease, and mortgage are registered at the national level with the municipal and provincial cadastral authorities. To verify whether the title deed has been properly registered, was previously validly transferred, or is currently registered with any current encumbrance, the Municipal/Provincial Cadastral Authority is crucial.