Due Diligence Before a Joint Development Agreement: What the Landowner and Developer Must Check

A landowner can own a valuable development site and still be the wrong JDA counterparty.

A developer can have an impressive brand and still be the wrong developer for that particular project.

That is why due diligence before a joint development agreement has to run in both directions.

The developer needs to know whether the land and the landowner can deliver the rights the project depends on. The landowner needs to know whether the developer has the financial capacity, organisation and track record to carry a multi-year development rather than merely negotiate an attractive entitlement.

The purpose is not to eliminate every risk. It is to identify the risks early enough to decide whether they should become a condition precedent, warranty, security requirement, commercial adjustment or reason not to proceed.

JDA due diligence is different from buying the land

A developer under a JDA may never acquire legal title to the site. That does not reduce the importance of land due diligence.

The opposite is often true. The developer may spend years and substantial money on approvals, consultants, construction and financing while depending on land it does not own.

A title problem that might delay an ordinary acquisition can therefore disable the developer's entire JDA model while its sunk project cost continues to grow.

The developer should investigate the rights it needs over the full development period, not merely ask whether the landowner's name appears on the title.

Confirm the registered proprietor and the title position

Start with the basic land record.

The developer should verify the registered proprietor, title particulars and the matters recorded or discoverable through the appropriate land searches and title documents.

Current JKPTG guidance illustrates why this matters: restrictions in interest, caveats, charges and leases can affect a proprietor's ability to deal with land and can bring third-party or State Authority consent into a transaction.

For a JDA, the question is not simply whether the land can be transferred. It is whether existing interests or restrictions interfere with the access, approvals, financing, security or development rights the JDA expects the landowner to provide.

For a more acquisition-focused title review, see our guide to land title due diligence in Malaysia.

Do not treat a charge or caveat as a footnote

A charged development site can still be commercially viable, but the existing financier may matter to the project structure.

The JDA should not promise financing rights, security, title dealings or releases that the landowner cannot deliver without the chargee's involvement.

A caveat also requires investigation rather than assumption. The developer needs to understand who lodged it, what interest is claimed and whether that claim could obstruct the project or a later dealing.

The same discipline applies to leases, easements and other rights affecting possession, access or development.

An adverse title item is not necessarily a deal-breaker. It may instead become a condition that must be resolved before the developer makes a large payment or moves into the next project phase. Our separate guide covers what happens if a JDA developer later delays, defaults or becomes insolvent — a risk that starts, in many cases, with the counterparty issues this diligence exercise is meant to surface.

Check possession, access and the physical reality of the site

A clean title does not mean the site is ready for development.

The land may have occupiers, tenants, informal users, existing structures or access constraints. Boundaries may need confirmation. Utility, drainage, topography, contamination, geotechnical and other physical matters may require specialist investigation depending on the project.

The legal due-diligence process should identify the rights and known issues; technical consultants should test the physical development assumptions.

The JDA then needs to say who is responsible for clearing possession, obtaining access rights or addressing a landowner-controlled site problem before the developer is required to perform the corresponding milestone.

Planning feasibility is not the same as the landowner's development idea

A landowner may present a concept based on what neighbouring land has achieved or what a previous proposal assumed.

The developer needs its own planning and technical feasibility assessment.

That includes checking the applicable planning framework, existing land-use position, access and infrastructure assumptions, and whether the proposed development yield is realistic enough to support the JDA economics.

This does not require final KM before the parties can sign every JDA. It does require clarity about which planning assumptions are still untested and how the agreement responds if the approved project is materially different. Our dedicated guide covers Kebenaran Merancang risk allocation inside a JDA in full.

Search for existing commitments over the land

Not every project conflict appears neatly on the title.

The landowner should disclose existing development arrangements, options, sale negotiations, tenancies, financing covenants, rights granted to consultants or contractors, and material disputes affecting the site.

The developer should also ask whether anyone else has been promised exclusivity or a future right over the land.

If the JDA is intended to give the developer an exclusive development position, the landowner should be able to warrant that it has not already granted a competing right that makes that promise false.

The landowner should diligence the developer just as seriously

A landowner's principal risk is often not title. It is execution.

The JDA may tie up the site for years while the developer obtains approvals and financing. A developer that cannot fund or deliver the project can therefore destroy opportunity value even if it never acquires the land.

The landowner should investigate the entity that will actually sign the JDA and the group standing behind it.

Start with the developer's corporate identity and registered information

Current SSM company-information products provide useful baseline information, including company status, registered details, directors and officers, shareholders, share capital, registered charges and financial information.

That is a starting point, not a complete credit assessment.

The landowner should establish:

• which company will be the JDA counterparty;

• whether it is an established operating developer or a newly incorporated project SPV;

• who owns and controls it;

• whether material registered charges exist;

• what financial information is available; and

• whether the proposed group support matches the entity that is actually taking the obligations.

A famous parent company does not automatically guarantee the obligations of a thin project subsidiary.

Test track record rather than relying on the developer's project list

The landowner should look at projects comparable in scale and complexity, not only the developer's best marketing material.

Questions can include:

• Has the developer completed projects of this type and size?

• Who are the key people expected to run this project?

• How dependent is delivery on one individual?

• Have comparable projects experienced material delay or abandonment?

• Does the group typically use its own contractor or related companies?

• What approvals and financing experience does the team have for this type of land?

Adverse history needs context. A delayed project does not automatically disqualify a developer, but it may change the security, milestones or reporting the landowner should require.

Ask how the project is actually going to be funded

"We will obtain project financing" is not a financing plan.

Before the land is tied up for a long period, the landowner should understand the developer's expected equity contribution, lender assumptions, timing of financing and whether funding depends on security the landowner has not agreed to provide.

If the developer expects a parent-company guarantee, shareholder loan or other group support, that assumption should be identified early.

The JDA can then translate financing risk into conditions, milestones and long-stop dates instead of waiting for a lender to redesign the transaction after signing. Our separate guide covers the full three-way landowner, developer and financier financing structure in more depth.

Check litigation, insolvency and other adverse matters proportionately

The appropriate searches depend on the parties and project.

Material litigation, winding-up or insolvency issues, regulatory matters and enforcement history can affect a developer's capacity or reputation. The landowner should also make appropriate enquiries about key entities that are giving guarantees or other support.

No single registry search proves that a counterparty has no problems. Due diligence should combine current public or official information with contractual disclosure and, where appropriate, direct supporting documents.

Test the JDA economics against the diligence findings

Due diligence should not become a report that sits next to an unchanged agreement.

If planning yield is uncertain, the landowner's entitlement may need an adjustment mechanism. If the developer is using a thin SPV, stronger parent support may be required. If title consent is outstanding, a large payment may need to wait until consent is obtained.

If the site is charged, financing clauses need to reflect the existing bank's position. If possession is not clear, site handover should be a defined milestone rather than an assumption. Our guide to structuring landowner entitlement covers how these findings translate into a formula that actually holds up.

The diligence finding is useful only when it changes the transaction where necessary.

Turn each material issue into the right contractual protection

Different findings call for different tools.

• Condition precedent: where the project should not become fully committed until an issue is resolved.

• Warranty or representation: where one party is giving factual assurance about a matter within its knowledge or control.

• Covenant: where a party must take an action after signing.

• Security or guarantee: where the risk is principally non-payment or performance capacity.

• Commercial adjustment: where the project can proceed but the economics change.

• Long-stop date: where an unresolved matter cannot remain open indefinitely.

• Termination or walk-away right: where the issue destroys the commercial basis of the project.

Using a warranty for an issue that actually needs to be fixed before development begins may leave the innocent party with only a later dispute instead of a workable project.

What should be known before exclusivity or non-refundable spend?

The parties do not need to finish every technical study before any preliminary commitment.

They should, however, know enough to avoid locking the site or spending heavily on a project with an obvious structural problem.

Before long exclusivity, significant non-refundable payments or major consultant expenditure, the developer should normally have a credible understanding of title, encumbrances, access and planning feasibility. The landowner should have a credible understanding of the developer entity, funding capability and delivery structure.

More detailed diligence can then run into the JDA conditions and approval programme.

Two-sided JDA due-diligence checklist

• Land ownership: verify the registered proprietor and relevant title particulars.

• Encumbrances: investigate restrictions, charges, caveats, leases and other rights affecting the site.

• Possession/access: identify occupiers, access and known site constraints.

• Planning: test the proposed development assumptions with the appropriate consultants.

• Existing commitments: identify competing rights, options, development arrangements and material disputes.

• Developer entity: verify company status, ownership, directors, charges and available financial information.

• Track record: test comparable delivery experience and key personnel.

• Funding: understand equity, financing and group-support assumptions.

• Adverse matters: make proportionate litigation, insolvency and regulatory enquiries.

• Contract response: convert each material finding into a condition, warranty, covenant, security, commercial adjustment or walk-away right.

Frequently asked questions

What land searches should a developer do before a JDA?

The appropriate searches depend on the site and jurisdiction, but the developer should verify the registered title position and investigate restrictions, charges, caveats and other rights that could affect development, financing or access.

Should the landowner check the developer's finances?

Yes. The landowner is giving the developer a long-term opportunity over the site and should understand the financial capacity and support behind the actual JDA counterparty.

Can a JDA proceed if the land is charged to a bank?

Potentially, but the existing charge and chargee's rights need to be understood. The JDA should not promise rights or security that cannot be granted consistently with the existing financing position.

Does a caveat automatically stop the JDA?

Not every caveat produces the same result. The claimed interest needs to be investigated and its effect on the proposed project assessed before the parties decide whether it must be removed or otherwise dealt with.

Should due diligence be completed before signing the JDA?

Some issues may be investigated before signing while others become conditions precedent or post-signing obligations. The key is that material unknowns are identified and allocated rather than silently assumed away.

What if due diligence finds a serious problem?

The response depends on the issue. It may require correction before the project proceeds, stronger security, an entitlement adjustment, a longer timetable or a right not to proceed.

For the overall transaction framework, see our guide to joint development agreements in Malaysia.

This article is for general information only and does not constitute legal advice. Every transaction and every set of facts is different. Obtain specific advice from a qualified adviser before acting on any part of it.

Legal That Works advises landowners and developers on pre-signing diligence and the drafting of joint development agreements, including title risk, counterparty protections, conditions precedent, security and project exit rights.