Who Pays Due Diligence Costs in the Acquisition and Real Estate Process? – Welcome to SIEMA KONSULTAN! If you are considering acquisition processes or property transactions across Indonesia, this article is tailored for you. We invite clients from Sabang to Merauke to continue reading and gain valuable insights about the costs associated with due diligence in business and property transactions. As an experienced consulting firm, SIEMA KONSULTAN is here to help you conduct safe, transparent, and legally compliant transactions.

In today’s digital and competitive economy, conducting due diligence is a crucial step before completing an acquisition or property purchase. But have you ever wondered, who is actually responsible for paying the due diligence costs? Should this expense be borne by the buyer, the seller, or someone else?

In this article, we will thoroughly explore who should bear the costs of due diligence in acquisition and real estate processes, and why understanding this upfront can prevent conflicts later on. Let’s start with a basic understanding of what due diligence entails.

What is Due Diligence?

Due diligence is an in-depth investigation and review process of an asset, company, or property that is about to be acquired or purchased. Its purpose is to verify that the information provided by the seller is accurate, assess potential risks, and ensure that the transaction complies with legal standards.

In the context of real estate, due diligence includes examining legal documents, land status, building permits, environmental licenses, and other related aspects concerning ownership rights and obligations. Meanwhile, in company acquisitions, due diligence covers financial, legal, operational, and strategic evaluations.

Why is Due Diligence Important?

Performing due diligence is a preventive measure to avoid financial, legal, or reputational losses in the future. By understanding the actual condition of the asset being acquired, the buyer can make informed decisions and reduce potential conflicts or claims down the line.

Additionally, many financial institutions and investors require due diligence as part of their loan or investment conditions. Therefore, the expenses incurred for due diligence can be categorized as an investment to protect your assets and business interests.

Who Pays for Due Diligence?

The main question that often arises is: who should bear the cost of due diligence? The answer largely depends on the agreement between the involved parties.

1. In Real Estate Transactions

Generally, in property transactions, the due diligence costs are borne by the buyer. This is because the process is conducted to ensure that the property’s details match the information provided and that no hidden legal or technical risks exist.

However, in some cases, sellers may agree to cover part or all of the due diligence costs as a strategy to make the sale more attractive and transparent. This can serve as a value addition for the seller, demonstrating good faith and transparency in the transaction.

2. In Company Acquisitions

In corporate acquisitions, the costs of due diligence are also typically the responsibility of the buyer. This is because the process is aimed at assessing the financial health, legal standing, and strategic aspects of the company being acquired.

Nonetheless, in certain situations—especially if the seller wants to expedite the sale and reduce obstacles—they might agree to pay part or all of the due diligence expenses. Such arrangements should be clearly documented in the sale agreement or term sheet.

3. Based on Agreements and Negotiations

Ultimately, who bears the due diligence costs should be explicitly stated and agreed upon in the initial transaction agreement. These costs are usually included in the transaction expenses and can be negotiated during the negotiation process.

Factors Influencing Who Pays for Due Diligence

Apart from direct negotiations, several factors can influence who is responsible for paying due diligence costs, including:

• Negotiation Power: The party with stronger bargaining leverage often negotiates to shift the burden.
• Transaction Complexity: If the process is highly complex and time-consuming, the party benefiting most may end up paying.
• Company Policies: Some companies have internal policies regarding who bears due diligence costs, depending on their strategic priorities and budgets.

The cost of due diligence in acquisition and real estate transactions is often a topic of discussion. Generally, the responsibility for paying this fee lies with the buyer, but it can be negotiated based on circumstances and mutual agreement. Most importantly, all terms regarding these costs should be clearly documented in the transaction agreement to prevent disputes later.

As business operators or property investors across Indonesia, ensure you conduct professional and comprehensive due diligence to make transactions safe, legal, and profitable. And to obtain the best and most reliable due diligence services, SIEMA KONSULTAN is your trusted partner.

SIEMA KONSULTAN – Your trusted solution for due diligence services in Indonesia.
Address: Sampoerna Strategic Square South Tower, Level 30, Jl. Jend. Sudirman Kav. 45, Jakarta 12930, Indonesia.
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