Planning a Real Estate Due Diligence

The usefulnes of a Due Diligence varies depending on the kind of operation involved. As a matter of fact, an operation will not include the same level of difficulty when it consists on buying a dwelling house, However, it will be mostly required to be undertaken when looking to acquire a chemical factory in the centre of an industrial park with its own governing rules and community properties, circumstances which must be also analyzed.

In relation to the  operation, we can differentiate four phases:

• Analyzing the relevance to undertate a Due Diligence

As shown in the example above, it might be a wrong idea to hire a lawyer to decide if your dwelling house comprises with the urbanistic planning of the community where it is located, or if there are pending judicial cases on the asset.

Of course, all this kind of information can be easily found as I already explained in a previous post. However, information relating to its inclusion in a community property, the record of the payments to the community, or the compliance with the urban planning requirements might not be public or obvious to analyze for a non-lawyer.

In order to set the pace of the D.D., and to decide wether or not it is relevant to undertake the legal audit, it is common to write a check list with all the probable encumbrances which could be found regarding the sought operation, and compare if such information can be found easily or if its reserved or hard to analyze.

• Cirumscribing the framework of the D.D. based on the asset's encumbrances and the number of additional information relevant for the operation from the Real Estate point of view.

In addition to what was previously discused here, it must be understood that most of the times the D.D. overtakes the legal status to include negotiation, understanding between parties, investment opportunities along with a business plan, etc. All must be taken into account when producing the final report statement.

• Elaboration on the contract or agreement between the parties where encumbrances are dealt as conditions subsequent or conditions precedent.

In order to defend the interests of the buyer, by the hand of including in the contract conditions we will be forcing the seller to fulfil with the legality and aim to build trust between the parties, and most importantly, with the bank which will be financing the deal.

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Spanish legal overview over renewable energies: overriding investors protection legislation

Approximately 8 years after the "brick crisis" arose       -crisis del ladrillo-, Spain was not able to provide investors with alternative, highly-returning and growing investment opportunities. In a country which mainly depends on the tourist sector, despite ranking third in 2014 just after France and USA in volume of visits, the Spanish struggle to avoid recession caused by the 2008 crisis mainly goes through finding diversification and finding appealing projects to convince investors to come back and keep putting their greens on.

In this context, Spain had the opportunity to look far from bricks and focus on the renewable energy sector, for a number of reasons: firstly, to stop depending on importation of such sources, geopolitically and economically talking; and secondly, to appeal investors by developing a genuine newly regulated market with top prices and without huge competence.

Another disappointment

Spain's first obvious objective was to provide investors with a coherent and protective yet simple and appealing legal framework. Needless to say, that is hardly impossible to achieve in Spain.

Spanish three level administrative political configuration makes it hard for investors to understand to which public bodies they must connect to; yet much harder it is to fulfil with national legislation when the location for the plant is in a autonomous community with a record of numerous confrontative legislation issues with the national law in connection to the  sector of regulation, in this case, renewable energy.

However, investors turned a blind eye when hearing what Spain would provide them with: almost limitless subsidies to start their renewable energy plants, with long returning period of the costs, and with a protected energy cost-production tariff.

Desipite such, the inevitable k.o came after Spanish constitutional court decided to support the national government's knock out to such subsidies on the grounds of economic issues in relation to the recession. If such news left in agonize the sector, the killing strike came after the court ratified to retroactively replace the existing feed-in support for plants in operation with payments, whose form and level were still unclear. 

This means that the Spanish system is currently suspended and no new plants are allowed to enter the scheme. 

This disaster did not only cause international investors to start Arbitration proceedings against Spain claiming their compensation, but further caused the European Comission to formally express in this document the huge mistakes Spain did on the process, stating the fact that this situation could have been easily avoided by following the Comission's guideline published there and finishing by stating a number of sanctions to be expected for Spain.

Probably the worse of all these, and that the Commission points out: "Renewable Energy Sources producers have no certainty regarding remuneration through the support scheme for existing RES power plants", leaving little investors with nothing but a black future with no possibility to claim against Spain since its superior court has ratified the retroactivity of the reforms. 

How can Spain be seen as a country where to invest if legal principles such as international investors protection, rule of law, and constitutional warranties are overridden from one day to another?

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How to make your way through an international firm as a junior

When I started studying Law, I simply had no idea about which kind of careers where there avaialble for a freshly young and highly motivated lawyer, awaiting its opportunity to shine- like the rest of its generation-. However, the bachelor was simply focused on learning different law subjects, from a practical and theoretical point of view; nothing more, nothing else.

By the time I finished the degree, none of my teachers nor classes helped me anyhow to learn how to survive in my first steps of the professional career; even less how to behave and how to act so as to survive in a big law firm. Of course, it is not the same to work for a little firm of 4 or 5 lawyers than in a multinational firm with hundreds of lawyers from across the world, with a permanent evaluation year after year coming from a dedicated human resources team, and with an homogeneous working way across the different areas that you must learn in order to be somehow useful in your first years.

Numerous studies have proven that a junior lawyer does not report any benefit for the first 3 years of its hiring from a firm. In fact, it just costs money to the firm. How to survive these first 3 challenging years?

As for my experience, when working in a big law firm, you will be looking to invest huge amount of time in working hard to learn. But not only to learn how to deal with a concrete legal issue; you need to learn how to be useful and relevant for the corporation, much more importantly, to be of use for the tutor or advisor you have been assigned to.

When you will be seen by your coworkers as unique, methodic, resourceful, always sacrificing free-time to invest more of it in your tasks, reliable and with high motivation to learn and accept critics, you will have already achieved a strong path towards staying in the firm. It is a fact firms invest a huge amount of time and money into training you, and if we take into account lawyers know what we learn in the university is not exactly what we will be doing in a firm, by showing a strong motivation to learn and aspire to reach high in the firm, we will be selling ourselves better than by knowing how to solve every legal case but on the other hand leaving cooperation and good forms away.

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How To Produce A Legal Report ( Regarding Its Structure)

In order to define the Structure of a legal report we need to address the investment the client is seeking to undertake, stating from how the sector of relevance works and its position in the market, alongside with the own market conditions and regulations. 

All of these must be understood from a legal point of view, meaning to understand and study the legal framework surrounding the are of investment: Is it a regulated activity? Are there policy swifts planned to occur within the next 1-5 years that might affect the investment? 

All in all, a lawyer must understand which kind of information included in the legislation is related to different areas of the investment looking to be carried out:

• Compliance issues; 
• Which kind of tasks are required to be undertaken with public bodies.
• Probable sanctions.

Specially, it is of huge relevance to analyze if the investment requires to subscribe a warranty with public bodies, in addition to the study of the time spwan required between starting the administrative requirements to the consecution of the investment plan.

The structure might vary, however the basical approach is to firstly state the kind of investment sought, the legal framework that surrounds it, and the construction of hypothetical obstacles or activities to be undertaken, in the light of such legislation.

Obviously, if the investment depends on the purchase of a company operating in that market, the legal analysis will also address the legal state of such company from different legal views (Due Diligence). I already explained in a previous post about the Real Estate Due Diligence one.

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How to produce a Legal Report ( Regarding its Framework )

In the legal profession, specially in the advisory field, it is a fact most of the times a lawyer will be required to undergo a legal analysis of a concrete operation or a client investment opportunity which can potentially acquire legal relevance should compliance issues confront it.

In such scenario, in my experience as a junior, I have come up with a general understanding on what the legal department seeks to find in these kind of reports, which kindly , but in a rush, end up in your to-do tasks.

As such, I will be dividing this discussion into different blog entries studying the main points to consider when writing a legal report.

Regarding the Framework

• Know the Purpose of the report.

In order to set the aim of the report, it is required to clearly understand what line of argumentation you will legally support. However, as of every legal question, different perspectives to the same case are a fact. In this scenario, you do not want to produce a legal analysis built around opposite interests to your client's needs, you want to state such probable obstacles by stating them while including legal arguments to override such hypothetically happening conclusions. In addition, you must seek for strong legal arguments to support the view of the client, and connect it with the legal trend and legislation, which translates into displaying case law and sustantive law, with the aim to cover feasibly and legally every risk associated to the operation being studied.

• Know the Deadline to produce it.

As obvious as it might seem, deadlines in our profession are crucial. Setting a hierarchy on the tasks you must do will allow you to organize and perform great on an activity like this one which takes a huge investment of time on learning about the topic and how to engage it from a legal point of view. You always want to be a step ahead your client needs, specially if the operation involves two parts, and you are looking to ask for concrete documents to the counter party to complete more proficiently your report.

• Know the Target's report.

Although similar in content, directing the report to a sponsor or to another lawyer from your firm will be radically different in form and style than that directed to the in-house department of the client's company. It is crucial to know in advance to whom the analysis will be sent, and adopt in consequence the correct speech, style, form, and conclusions, even the inclusion of slide presentation alongside the report.

Next post will be dealing with the Structure of the Report.

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