The term “technical due diligence” does not normally quicken the pulse. However, in a tight market, an ill-informed decision can cause far-reaching financial and risk-management problems for owners, occupiers and lenders. Full and thorough TDD can be a deal-maker or breaker.
It is important to ensure that any building deficiencies, or the absence of proper technical documentation, are not exploited by potential purchasers. The technical due diligence exercise therefore needs to be rigorous, enabling a potential buyer to reach a judgment quickly on whether to proceed.
New buildings have issues too; for example, certain types of buildings use glazing that can shatter without warning owing to glass impurities. This can have expensive consequences, which contractors’ warranties may not necessarily cover. TDD can identify and quantify risks such as this.
The process varies according to property type and the parties’ needs, but some of what should be included are:
• A review of plans, specification and health and safety files
• Inspection of the building’s structure, fabric, finishes and M&E services
• Assessing potential ground contamination
• Reporting on the condition and outlook, statutory compliance, matters for legal advisers, leasehold considerations, rights of way, easements and warranties.
Simple honesty should be the driving principle behind the process. Overly optimistic vendor reports will not fool a well-advised purchaser, and ultimately will only delay or even jeopardise the transaction. Equally, a purchaser should ensure that negotiation on the back of their reports is well founded and substantive. Hollow, extravagant claims can taint relationships.
James Effingham is a director of building consultancy at CB Richard Ellis, specialising in technical due diligence.
