Two-stage TDD: progress property transactions amid disruption
There is a lot of discussion about the impacts of COVID-19 which we’ll feel in our daily lives even after the immediate disruption is resolved. We’ve adapted our ways of working and daily habits to embrace a ‘new normal’, and to help mitigate disruption for our clients. One of these initiatives is a new approach to technical due diligence (TDD) commercial property surveys.
We believe two-stage TDD not only makes the best use of remote working capabilities today, but also provides greater efficiency to progress sales and acquisitions of built assets in times of future disruption.
Site visits and inspections, which are a key part of TDD work, are now subject to significant restrictions and are not able to proceed without being risk assessed. Where the risks are manageable, and where we can inspect in accordance with current government guidance, these inspections can go ahead.
However, a different process is needed for sites where access restrictions apply and we are unable to prevent COVID-19 exposure risks for our teams and on-site contacts. We’ve found that surveyors can undertake significant remote work to progress transactions, using the sheer wealth of building knowledge available to us as commercial building surveyors today. This requires a different reporting structure than some clients may be used to, but it will ultimately make for a more efficient process at any time.
We have trialled and seen success with a two-stage TDD solution led by a primary desk study, applicable to pre-acquisition and vendor’s surveys. The second stage is an on-site inspection which is closely informed by the desk work to make the best use of time and resources.
A key advantage of this approach is mitigating the risk of time lags should the follow-up process to investigate issues in the building delay the issuing of a report. Building document research and further specialist inspections can add time to the transaction. Those risks are greater at a time of COVD-19 travel restrictions but are also applicable in business as usual circumstances.
In stage one, a commercial building surveyor and building services engineer (as relevant) review the technical documents including statutory consents, as-built drawings, specifications, construction contracts, warranties/TPRs, O&M/H&S files, maintenance records and other relevant items. While there are limitations to some documents, particularly for older buildings, this process is supplemented by interviews with property managers, facility managers and maintenance teams to raise queries relating to property condition and maintenance.
The outcome, a desk study report, would flag notable investment, health and safety, and continuity risks from the available documents and interviews. Further input from our cost consultants would explain the cost/value of known issues such as combustible cladding, or where is it obvious that major refurbishment/plant replacement is necessary.
Coordination with environmental consultants remains an essential aspect of this work, and successful environmental desk studies and flood risk assessments can also be produced with remote working arrangements. However, site-specific requirements may need local authority input such as from the contamination and petroleum officers.
This adjusted model for TDD reporting will help our clients progress with investments and disposals, but we advise that a site survey should follow in any case to establish the condition of the property and identify defects that would not necessarily be captured by existing documentation. This will be achievable once the UK Government lifts travel restrictions and should be a more efficient process as a result of the prior investigation work.
Meanwhile, clients might be able to address the risk with a condition precedent in the sale agreement, such that there are no other notable risk (perhaps defined by a cost threshold and absence of life safety issues) identified in the final Stage Two report. Retentions might also be used (say for the cost of recladding) but a deal commitment prior to a site survey would be high risk and should only be considered on the advice of a solicitor.
When travel restrictions are lifted, conducting TDD surveys in this way has the merit of informing a full-team presence at site visits, directing time spent on key areas and running a more efficient inspection process in terms of man days on site. This would also identify the need for specialist input/laboratory analysis for things like deleterious materials in advance.
We always consider the needs of building surveys on a case by case basis, so talk with us to discuss how we can help you progress your property transactions. To hear more about this, get in touch with: