On Solid Ground: Property Due Diligence in the Philippines and Why It Matters in Every Real Estate Transaction

Due diligence in real estate transactions in the Philippines is not limited to the purchase of property. It applies with equal force to leases, mortgages, usufructs, easements, and other dealings involving real property rights. Across these transactions, courts have consistently emphasized that parties are expected to exercise prudence and reasonable verification before entering into agreements involving land.

Real estate disputes often arise not from the absence of documents, but from a failure to verify legal status, authority, or existing restrictions — matters that proper due diligence would have revealed.

In contracts, consent as a substantive requirement must be informed, and it is best practice for parties entering into contracts involving real estate to know and verify material facts affecting the subject matter of the agreement. Doing otherwise is simply complacency which has its own consequences.

So, while there are legal doctrines concerning the sufficiency of reliance on the face of the certificate of title, the Supreme Court has repeatedly ruled that persons dealing with real property cannot rely on representations alone and are bound to investigate facts that reasonable inquiry would reveal.

Transactions Where Due Diligence Is Legally Significant

Nuances on the items and procedure for due diligence vary depending on the intended transaction. In sale of property, while the Torrens system protects innocent purchasers for value, due diligence before the transaction would have been the more approach. For example, in Spouses Cruz v. Bancom Development Corporation (G.R. No. 147788, 10 January 2003), the Supreme Court ruled that reliance on the face of the title alone is insufficient when circumstances exist that should prompt further investigation, such as possession by third parties or irregularities in documents. In lease transactions, due diligence is equally critical because involves delivery of the leased property (See Article 1643, New Civil Code). Thus, if the lessor is not the owner, or has no authority to represent the owner or to deliver the property, the transaction will suffer serious legal infirmities. In mortgage transactions, the Supreme Court cautions in Lloyd’s Enterprises v. Sps. Ferdinand (G.R. No. 171373, 18 June 2008), that persons engaged in the business of extending credit are expected to exercise due diligence in dealing with properties offered as security.

In the subsequent articles in this series, we shall be taking a deep dive on these specific nuances.

Core Due Diligence Checks

Regardless of the nuances per transaction, a few items are foundational and common to many transactions. If the property is titled, verification of the certificate of title with the Registry of Deeds is crucial. In Spouses Manase v. The Estate of Narciso (G.R. No. 254046, 25 November 2024), the Court noted that the examination of the records of the Registry of Deeds is an “ordinary precaution” of honest persons in doing business. Also regardless of the nature of transaction, if it involves real property, the physical condition and possession of the property must be inspected. Thus, while jurisprudence tells us that prospective buyers can rely on the certificate of title if certain conditions concur (such as the seller being the registered owner and the possessor as seen in the case of Heirs of Cudal, Sr. v. Sps. Saguitan, G.R. No. 244405, 27 August 2020), the same doctrine reinforces the need for due diligence concerning the physical condition and possession of the property.

In the subsequent articles in this series, we shall be taking a deep dive on both the foundational and special items that must be subject to inquiry during due diligence stage.

Conclusion

Due diligence is not only a legal doctrine. It is a legal and practical necessity in all real estate transactions in the Philippines if the goal is to facilitate seamless transactions and transfer and avoid or minimize disputes. Law and jurisprudence consistently requires exercise of due diligence, and practical considerations make it a necessity.

Disclaimer: This article is provided for general informational purposes only and does not constitute legal advice. Laws and jurisprudence may apply differently depending on specific facts and circumstances. Readers with questions relating to particular real estate transactions are encouraged to seek appropriate legal guidance; inquiries may be sent through the firm’s Contact page.