What is a due diligence clause?

What it covers

Where a finance condition or a builder's report condition points at one specific thing, due diligence points at everything. The buyer may use the period to look at the title, the LIM, consents and code compliance, the zoning, insurance, body corporate records, surveys, or anything else they decide matters.

Like every condition, it has a date. It must be satisfied or waived by that date, in writing, or the agreement does not become unconditional.

Sole discretion, and what that means for you

Most due diligence clauses are written so the buyer decides, in their own discretion, whether they are satisfied. In that form the buyer does not have to show you what they found, and does not have to prove anything went wrong. They can simply choose not to proceed.

So a due diligence period is a period where the property is committed to one buyer and the decision sits entirely with them. That is the trade you are making when you accept it.

What to look at before you accept one

• Length. The shorter the period, the less time your house spends off the market on someone else's decision.
• Scope. Whether the clause is genuinely open, or written to cover named investigations only.
• Whether narrower conditions would do. A buyer who really needs a builder's report and a LIM can have a builder's report condition and a LIM condition, each with its own date.
• What else the offer carries. A strong price attached to a long open ended condition is worth less than it looks.

What you can still do

Unless your agreement says otherwise, you can keep marketing the property, and you can take a backup offer signed so that it only takes effect if the first agreement does not proceed. Check the wording with your lawyer before you do either. You cannot bind yourself to two unconditional contracts for the same property at once.

You can also counter. A counter offer with a shorter or narrower condition is a new offer the buyer can accept or decline, and buyers frequently accept a tighter timeframe when they are serious.

The wording of a due diligence clause decides how much freedom the buyer actually has, and it varies from offer to offer. Have your lawyer read it before you sign.