Property Due Diligence in Georgia

Overview of Real Estate Due Diligence

Property due diligence in Georgia is the legal and operational process through which a prospective buyer verifies the legal status, ownership structure, encumbrances, and physical viability of a property before signing binding contracts. While Georgia offers an efficient, digital public registration system, conducting thorough due diligence is vital to mitigate financial and legal risks.

Key Components of Property Due Diligence

1. Title and Encumbrance Search (NAPR Audit)

• Obtaining an up-to-date Extract from the National Agency of Public Registry (NAPR) using the property's unique cadastral code.
• Verifying the legal owner, marital status implications, co-ownership structures, and third-party rights.
• Checking for active mortgages, tax liens registered by the Revenue Service, court seizures (daqvadamshlikhi), easements (servitude), or ongoing judicial disputes.

2. Developer & Off-Plan Construction Audits

• Verifying municipal construction permits, approved architectural plans (Phases I–III), and land-use parameters (K1, K2, K3 development coefficients).
• Auditing developer corporate records, solvency history, track record, and escrow/installment structures.
• Confirming that advertised prices for new-build commercial or residential developments accurately incorporate the mandatory 18% Value Added Tax (VAT), which by Georgian law must be included in developer advertised prices.

3. Agricultural vs. Non-Agricultural Status

• Verifying land designation. Under Georgian constitutional law, foreign individuals and foreign-domiciled entities cannot directly own agricultural land.
• Confirming that land intended for real estate development or direct foreign ownership is formally classified as non-agricultural (arasaqorqno).

4. Tax Compliance and Financial Due Diligence

• Auditing seller tax accounts via the Revenue Service (RS.ge) to ensure no historical tax debts attach to the asset.
• Analyzing applicable transaction taxes, such as capital gains tax rules (5% on residential resale within two years of acquisition) or rental income tax election options (5% gross income tax vs. 20% net income tax).

Practical Due Diligence Workflow

The process begins with obtaining the cadastral code and performing an initial NAPR search. Legal counsel then cross-checks records against municipal planning databases and Revenue Service registries. Finally, bespoke legal protections—such as clear penalty clauses, completion milestone definitions, and bank release undertakings—are integrated into the final Sale and Purchase Agreement (SPA).

An international investor plans to purchase an off-plan apartment in Tbilisi for $160,000 USD. During due diligence, the buyer's attorney pulls the NAPR extract and discovers the developer has registered a corporate mortgage over the master land parcel. The attorney drafts a tri-partite preliminary agreement requiring the developer's bank to issue a formal obligation letter. This letter guarantees that upon receipt of final payment, the bank will automatically lift the lien from the buyer's individual cadastral unit, granting clear, unencumbered title.