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What is this week's blog about?
In this week’s blog, we take a look at the RICS Guidance Note Technical Due Diligence of Commercial Property. This is essential reading particularly for RICS APC and AssocRICS Building Surveying candidates, as well as candidates involved with acquisition due diligence for commercial property purchases.
When was the Guidance Note issued?
The Guidance Note took effect from 1 April 2020. It replaced a number of former RICS Guidance Notes, namely Building Surveys and Technical Due Diligence of Commercial Property 4th Edition in the UK.
What is Technical Due Diligence (TDD)?
Technical Due Diligence is defined by RICS as the ‘systematic review, analysis, discovery and gathering of information about the physical characteristics of a property and/or land’.
This covers instructions such as Building Surveys, Condition Inspections, Pre-Acquisition Surveys and Vendor Surveys. The term Structural Survey should not be used.
TDD includes an inspection and assessment of the property, followed by a report including the surveyor’s professional opinion on condition.
What is the aim of TDD?
The aim of a TDD report is to facilitate the client (e.g. prospective purchaser or occupier) in making an informed decision from a technical perspective.
What is the purpose of a TDD report?
A TDD report could be instructed by a client for the following purposes:
Optimising the design of new development or refurbishment
Understanding the condition and design of a property
Establishing suitability for use
Understanding future repair liabilities and associated costs
Understanding risk
Informing price negotiations for an acquisition
Improving health & safety standards
Improving performance and sustainability metrics
What will a TDD report cover?
A TDD report will consider the short, medium and long-term risks relating to the property.
It will also include identification and advice on defects and associated repairs, relating to:
Quality issues in design or construction
Lack of maintenance
Neglect
Misuse
Remaining economic or useful life
Deleterious materials
Non-compliance with statutory requirements, e.g. planning or building control
How is the Guidance Note structured?
The Guidance Note is split into key sections; Types of Inspections, Taking Instructions, The Inspection and The Report.
What types of inspections are there?
The Guidance Note defines four types of inspections, based on various stages in the property lifecycle.
These are:
Acquisition
Occupation and operation
Disposal
Refurbishment or development
Detail on how TDD should be carried out in each stage is discussed at length.
What needs to be considered when taking instructions?
Surveyors need to be mindful of a number of key issues, including (but not limited to):
Checking for conflicts of interest
Carrying out money laundering checks
Agreeing Terms of Engagement, including recording and making the client aware of any practical limitations
Ensuring inspections are carried out safely
Considering the extent of liability
How documents will be reviewed, including potential use of a data room
Establishing the client’s requirements, e.g. tenure, proposed use, report format, coordination and timeframes
The nature of the property to be inspected, e.g. location, size, access and occupation
Requirement for any specialist input from consultants and how they will be appointed
Appendix A provides a helpful checklist for TDD services to be used in conjunction with the RICS Short Form of Consultant’s Appointment for Designated Services.
What needs to be considered when inspecting?
The Guidance Note provides guidance on the general principles of inspection, including note-taking, health & safety, site enquiries, extent of inspection, environmental considerations, deleterious & hazardous materials, sustainability, cultural heritage, title and legal issues.
What should the report cover?
When reporting, the surveyor should cover:
What, if anything, was wrong
The consequences of anything which was wrong
What repairs are recommended and when they should be completed
Who is responsible for any repair costs
Whether further investigations are recommended and when they should be undertaken
The Guidance Note provides further detail on how surveyors’ TDD reports should be laid out and structured. This includes the preference to state clear time frames and risk ratings.
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Stay tuned for our next blog post to help build a better you.
N.b. Nothing in this article constitutes legal, professional or financial advice.