Due Diligence – Survey Review

In a previous post in this series on “Due Diligence” I explained, generally, the types of physical investigations a buyer of commercial real estate should undertake to learn more about the property he or she is buying. In another, I explained the format and content of a typical title insurance commitment and the basic process of the legal investigation of the legal status of the property, otherwise know as “title review.” An important component of due diligence that combines both an investigation of the physical properties of a site and its legal status is the “survey review.”  I hope that after reading this post you will understand how important the survey review is to the due diligence process.

If I can teach you nothing else about surveys, please learn that you need to GET ONE!

People ask me all the time, “do I need a survey?” In almost every situtation, residential or commercial, the answer is “YES!” If you are buying real estate, get a survey. It’s the only way to know what piece of land you are actually buying. Surveys are usually not all that expensive, relative to the other transaction costs, they’re usually not difficult to obtain, they convey a great deal of information very quickly (remember, a picture is worth a thousand words) and … from a legal perspective … they give you another party to hold accountable (the surveyor) if down the road you find that the property was described incorrectly or some other error occurred. So, just plan on getting a survey and get it early in the due diligence process, please! It will make all our jobs easier.

“Isn’t the description of the property already on the property appraiser’s website?” “Can’t I just use that appraiser’s parcel number or something?”

These are common follow-up questions I hear. “Well, it might be there,” I say, “at least some description will be there, but you can’t rely on it.” The property descriptions found on county property appraisers’ websites are often abbreviated versions of the full legal description of the property and they are notoriously incomplete, indecipherable or just plain wrong. They are a shorthand description of the property as made up by the staff person responsible for inputting that information on the appraisers’ website. The parcel identification number of a property is merely a reference number tying it to the tax information in the appraiser’s and tax collector’s database, including that potentially incorrect legal description, nothing more! It is just not appropriate to rely on that information as the basis for the conveyance of real property. So, no, you can’t just use that description or that ID number. Get a survey.

When the survey is ordered, or as soon thereafter as possible, you or your commercial real estate attorney should give the surveyor as much information as possible about the property and very clear instructions as to what is required for your transaction, including any specific requirements the lender may have. If available, the surveyor should be provided with the legal description of the property, a copy of the title commitment and copies of all title exception instruments, a copy of a prior survey, if one is available, and the names of all parties to whom the survey should be certified. The surveyor should be instructed to show all title exceptions (such as easements) that can be plotted on the drawing or, if they aren’t plottable, to explain why. The surveyor should also be instructed to provide a preliminary copy of the survey so it can be reviewed prior to the surveyor signing and sealing the final version. The more information that is provided early on and the clearer the survey instructions, the more time (and, potentially, money) that is saved by all parties involved. An experienced attorney should be well-versed in communicating with your surveyor so the process is as efficient as possible.

OK, I’ve got my survey (finally!) – What’s it telling me and how do I read this thing?

A typical survey contains several important categories of information, including (1) the legal description of the property, (2) the surveyor’s notes and survey legend, (3) the surveyor’s certifications and (4) the actual drawing of the land. These are also the primary areas to focus on when reviewing a survey so we’ll go through them one at a time, as we did earlier when we discussed the various sections of a title commitment.

(1) Legal Description

When I review a survey, I generally start by reviewing the written legal description of the property. The legal description might be very short or very long, simple or complicated. If a property consists of a platted lot, for example, the description might be as simple as “Lot 6, Riverview Acres, according to the Plat thereof …” and then cite the plat book and page where the plat was recorded. At the other end of the spectrum, the description could be paragraph after paragraph of confusing metes and bounds measurements and angles and distances and degrees and minutes and seconds and directions and weird language like “thence proceed … ” and “from the point of commencement” and what-not. No matter what, a careful review of the legal description is critical. Ideally, the survey legal description will be identical to both the description found in the prior deed by which the seller took title to the property and the legal description shown in the title commitment. And when I say “identical” I mean “identical.” As in, “identical,” down to every last degree, minute, second, measurement, comma, semi-colon, and so on. If those three descriptions are not identical, it is important to ask why and do further investigation to make sure you are getting the property you think you are getting. Primarily, though, the legal description should be reviewed for accuracy and consistency. All errors or typos must be corrected.

(2) Surveyor’s Notes and Legend

The surveyor’s notes contain informational and explanatory statements by the surveyor about the property or the drawing. For example, there should be a note stating whether the surveyor was provided with the title commitment and whether the survey depicts all items shown in the commitment. There should be a note about the surveying standard followed by the surveyor and that the survey complies with that standard. There may be a note confirming that all above-ground improvements, utilities and apparent uses of the property are depicted on the survey, and so on. The notes convey information from the surveyor that isn’t readily shown in the drawing itself and help explain and interpret what is drawn. Likewise, the surveyor’s legend is a list of symbols or abbreviations used by the surveyor in the drawing and their definitions or meanings. All of this is valuable information in understanding the content of the survey (both what is included and what is not included) and the manner in which the survey was prepared.

(3) Surveyor’s Certifications

The Surveyor’s Certifications may be contained in the surveyor’s notes or may be stated separately and they are a series of statements by the surveyor regarding the content of the survey and a list of the parties to whom the survey is “certified,” meaning the parties who are entitled to rely on the survey as being an accurate depiction of the property. Typically, the survey should be certified to the purchaser of the property, the purchaser’s lender, if any, the title company issuing the purchaser’s title insurance policy and the title agent. Sometimes the seller will ask to be a certified party, as well. Certified parties have standing to sue the surveyor if they rely on the survey and it is later discovered that it contained errors that caused that party to suffer a loss of some kind, so it’s important to provide the surveyor with a proper list of the parties to whom the survey should be certified. Often, a commercial lender will have a standard form of survey certification that it requires to be on the face of the survey or executed by the surveyor as a separate instrument.

(4) The Drawing

After reviewing the legal description, the notes and the certifications, the survey drawing itself can be reviewed and understood. Following the written legal description of the property, the property boundary as drawm should be traced to make sure the written and drawn descriptions are identical. Any discrepancies should be corrected or explained. This is like math, there’s only one right answer (usually.) It’s either right or it’s not. Your attorney shouldn’t be bashful about telling the surveyor to fix typos or to explain any discrepancies.

All title exceptions listed in the commitment should be shown on the drawing or, if they can’t be plotted, the surveyor should provide an explanation as to why not. Often the surveyor will confirm that certain title exception items do not affect the property at all and those items can then be deleted from the title policy.

The drawing should also be reviewed to confirm that there is legal access to the property (i.e. that there is some connection, either physical or legal, to a public right of way by which the property can be accessed,) that any easements do not adversely affect the proposed use of the property, that any beneficial easements necessary for utilities or any other purpose are in place, and whether any of the improvements located on the property encroach onto adjacent property, or vice versa. At the most basic level, the survey should be reviewed for signs of anything that impacts the title to the property, access to the property or the future use of the property. Your attorney should be experienced at identifying such things and have the ability to work with the surveyor or other affected parties to resolve any issues that are identified.

Signed and Sealed! 

After the preliminary survey has been reviewed and it is confirmed as meeting all of the requirements provided to the surveyor, the surveyor can be instructed to sign it and seal it with his official seal and to provide as many signed and sealed originals as are required by the various parties to the transaction. This final survey is an important instrument that will be valuable to you, as the buyer, likely for the entire period that you own the property. It may serve as the basis for future improvements to the property, future loans that may be secured by a mortgage on the property, the future sale of all or any portion of the property or even to resolve possible boundary disputes, and it will be well worth the time and money invested in it’s preparation and review.

Both the title commitment and survey provide a great deal of information about the property in their own right, but they are most valuable when reviewed and understood together. When reviewed by an experienced commercial real estate attorney, together they provide almost “3D” level of information about the property with respect to both its physical and legal characteristics. Involving your attorney early in the process and obtaining the title commitment and survey as quickly as possible during your due diligence period will greatly improve your knowledge and understanding of the real estate you are buying and will help ensure that your decision to purchase the property is a well-informed one.

As always, thanks for reading.  BH

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