Due Diligence Clause
A condition in the sale and purchase agreement that gives the buyer a set period to investigate the property and withdraw for any reason.
What is a Due Diligence Clause?
A due diligence clause is one of the most flexible conditions a buyer can include in a sale and purchase agreement. Unlike specific conditions (e.g. 'subject to finance' or 'subject to building inspection'), a due diligence clause allows the buyer to investigate the property broadly and withdraw from the agreement for any reason within the specified timeframe — typically 10 to 15 working days.
During the due diligence period, buyers typically order a LIM report, arrange building and property inspections, review the title, check zoning and district plan rules, investigate insurance availability, and assess any other matters relevant to the property.
The due diligence clause is particularly valuable for properties with potential complications — such as cross-lease titles, properties in natural hazard zones, or older homes that may have unconsented work. It gives you a broad right to walk away, whereas specific conditions only protect you in narrow circumstances.
Why It Matters for Due Diligence
Including a due diligence clause is one of the best protections a buyer can have. It allows you to uncover issues that individual conditions might not cover — such as discovering the property is uninsurable, that planned motorway works will affect the area, or that the neighbours have a resource consent for a large development.
Be disciplined about using the due diligence period effectively. Start your investigations immediately after the agreement is signed, as the timeframe is strict. If you need more time, your lawyer can request an extension, but the seller is not obliged to agree.
How to Check
The due diligence clause is added to the sale and purchase agreement, usually as a further term. Your lawyer can draft appropriate wording. During the due diligence period, coordinate your investigations: order the LIM, book a building inspection, review the title with your lawyer, check insurance availability, and research the area.
Frequently Asked Questions
What's the difference between due diligence and other conditions?
Specific conditions (like finance or building inspection) only let you withdraw for that specific reason. A due diligence clause lets you withdraw for any reason at all during the specified period, giving you much broader protection.
Will a seller accept a due diligence clause?
Many sellers and agents prefer specific conditions over due diligence because it gives the buyer broad withdrawal rights. In a competitive market, including due diligence may weaken your offer. Your agent and lawyer can advise on the right approach.
Related Terms
Sale and Purchase Agreement
GlossaryThe legally binding contract between buyer and seller that sets out all the terms and conditions for a property transaction in New Zealand.
Conditional Offer
GlossaryAn offer to buy a property that includes one or more conditions that must be met before the buyer is legally committed to the purchase.
Unconditional
GlossaryThe status of a sale and purchase agreement once all conditions have been satisfied or waived, making both parties legally committed to the transaction.
LIM Report
GlossaryA Land Information Memorandum — an official council report summarising everything the council knows about a property.
Settlement
GlossaryThe day ownership of a property officially transfers from the seller to the buyer and the purchase price is paid in full.
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