Legal Ownership Documentation

Before tokenizing any asset, issuers must verify legal ownership, historical claims, and potential liabilities. Proper documentation ensures that the tokenized asset is legally transferable, free of disputes, and compliant with property laws.

Failing to conduct due diligence on ownership documentation can lead to legal disputes, financial losses, or regulatory penalties for both issuers and investors.

Key Reasons for Legal Ownership Verification

• Ensures Authentic Ownership – Confirms that the seller has the legal right to tokenize and sell the asset.

• Protects Investors – Prevents fraudulent token offerings based on disputed or encumbered assets.

• Eliminates Legal Risks – Avoids lawsuits, government intervention, and investor claims.

• Ensures Transferability – Confirms that the asset can be legally transferred and tokenized.

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Key Components of Legal Ownership Documentation

The issuer must conduct thorough due diligence on the asset’s legal standing before tokenization.

Proof of Ownership

What to Check?

• Government property records

• Land title deeds

• Legal ownership certificates

• Business registration documents (if applicable)

What Can Go Wrong?

• Seller does not actually own the property – Tokenizing an asset without valid proof of ownership can result in lawsuits and regulatory penalties.

• Title is forged or incomplete – Illegitimate ownership claims can lead to investor losses and legal action.

Example: A commercial real estate owner in London wants to tokenize an office building. Before launching the token sale, the issuer retrieves official property title records from the UK Land Registry to verify ownership.

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Legal History Check

What to Check?

• Ownership disputes or claims

• Past lawsuits related to the asset

• Government or municipal claims

• Family inheritance conflicts (for real estate or private assets)

What Can Go Wrong?

• Multiple parties claim ownership – A property inherited by multiple heirs without a clear legal decision can cause legal conflicts.

• Asset is part of an ongoing lawsuit – Investors may be exposed to financial and legal risks if the asset is under dispute.

Example: A historical hotel in Paris is set to be tokenized. During legal checks, a dispute is found between two former business partners regarding ownership rights, requiring resolution before proceeding with tokenization.

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Liens & Encumbrances

What to Check?

• Outstanding mortgages or unpaid loans

• Tax liens or unpaid government fees

• Legal restrictions preventing asset transfer

• Prior claims from creditors or financial institutions

What Can Go Wrong?

• Asset is used as collateral for a loan – If the owner defaults, investors may lose their stake.

• Unpaid property taxes – The government may seize the asset, voiding token ownership.

• Transfer restrictions – Some assets require government approval before being sold or tokenized.

Example: A logistics warehouse in Germany is set for tokenization. During verification, an outstanding bank loan using the warehouse as collateral is discovered. The issuer clears the loan before proceeding with tokenization.

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Compliance Review

What to Check?

• Whether the asset complies with local real estate, securities, and corporate laws

• Foreign ownership laws that may limit investor participation

• Zoning and land-use regulations

• Regulatory approval requirements for tokenization

What Can Go Wrong?

• Foreign investors cannot legally own the asset – Some jurisdictions impose restrictions on foreign ownership of real estate or securities.

• Zoning laws prohibit asset use – The property may not be legally usable for its intended purpose.

• Securities classification issues – If the asset is tokenized incorrectly, it may violate securities laws.

Example: A luxury residential complex in Dubai is being tokenized. The compliance review reveals that foreign investors cannot directly own freehold property in certain areas, requiring the issuer to structure ownership through an SPV.

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Best Practices for Legal Ownership Verification

• Engage legal professionals – Work with real estate attorneys, corporate lawyers, or regulatory experts to verify asset documentation.

• Obtain official government records – Always use verified land registries, corporate records, and financial institution reports.

• Ensure the asset is free of claims – Confirm that no outstanding loans, taxes, or legal disputes exist.

• Secure investor rights – Draft clear legal agreements detailing tokenized ownership rights and transferability.

• Confirm compliance with asset transfer laws – Ensure that both local and foreign investors can legally purchase and trade the tokenized asset.

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By conducting a comprehensive legal ownership review, issuers safeguard their tokenized asset from legal risks and ensure a secure and compliant investment opportunity for token holders.

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