Technical Due Diligence is the process of investigating the physical and technical condition of a property so that a purchaser, investor or occupier can properly understand the building before becoming committed to the transaction.
For many acquisitions, a detailed Commercial Building Survey forms an important part of that process.
Why Is Technical Due Diligence Important?
Commercial properties can carry significant liabilities.
A building may represent a substantial investment, but that does not mean it is free from defects or future expenditure.
The roof may require replacement. External elevations could need major repair. Water ingress may be present. Mechanical equipment could be approaching the end of its serviceable life.
Technical Due Diligence aims to identify those issues before the transaction completes.
What Does the Building Surveyor Do?
The first stage should be to understand the client’s objectives.
A purchaser buying an investment property can have different priorities from a business taking premises for its own occupation.
Once the scope has been established, the Building Surveyor will ordinarily review the information available and undertake a detailed inspection.
The assessment is likely to consider:
- Structure
- Roofs
- External elevations
- Windows and doors
- Internal construction
- Dampness and water ingress
- Cracking and movement
- Maintenance requirements
- Significant visible defects
Technical Due Diligence Is More Than Finding Defects
A significant part of the process involves understanding risk.
A defect may be relatively straightforward to repair but expensive.
Another issue may not require immediate work but could create considerable expenditure in several years.
The purchaser needs to understand both.
This is why a strong commercial survey should consider not only present condition but foreseeable maintenance and repair liabilities.
What About the Documents?
Technical Due Diligence can also involve reviewing relevant property information alongside the physical inspection.
The surveyor may consider drawings, previous reports, maintenance information and other technical documents made available during the transaction.
This information can then be compared with what is actually observed at the property.
The purchaser’s solicitor will ordinarily deal with the legal due diligence, while the surveyor considers the physical and technical condition of the building.
The most effective transactions tend to involve the wider professional team sharing relevant information.
What About Future Expenditure?
Future costs are an important consideration.
A roof does not need to fail tomorrow to be relevant to a purchaser.
If substantial roof replacement is likely within the next few years, that is information the purchaser may reasonably want before deciding whether to proceed.
Technical considerations can therefore feed into the wider Purchase & Acquisition process.
Technical Due Diligence vs Commercial Building Survey
The terminology can overlap.
For many straightforward commercial acquisitions, a comprehensive Commercial Building Survey may provide the principal technical assessment required.
For larger or more complex investment transactions, Technical Due Diligence can become a broader exercise involving specialist consultants, detailed document review, capital expenditure considerations and further investigation.
The correct approach therefore depends upon the property and the transaction.
What About a Commercial Lease?
Where the transaction involves taking a lease rather than acquiring the freehold, a Schedule of Condition may also be appropriate to accurately record the premises before the tenancy commences.
This can be considered alongside the survey and the tenant’s proposed repairing obligations.
Stokemont’s Approach to Commercial Due Diligence
At Stokemont, we believe commercial surveying reports should be technically detailed without becoming unnecessarily complicated.
Our aim is to identify the issue, explain its significance and provide practical advice on what should happen next.
We undertake Commercial Building Surveys and property due diligence across London for purchasers, investors, landlords and occupiers.
If you are considering purchasing or leasing commercial premises, request a Commercial Building Survey quotation and we can confirm our fee, anticipated timescale and proposed approach.
