Technical due diligence is often instructed late, against a compressed programme and a fee that reflects how little time is left. The report arrives, it is long, and the parts that matter are difficult to find. The buyer reads the summary, the legal team reads the limitations, and the price moves only where something unmistakable has been found.
That is a thin return on work that should be among the more useful inputs to the decision. The job of a technical due diligence report is narrow: to tell a buyer what it is acquiring in technical terms, clearly enough and with enough stated confidence for each material finding to be priced, negotiated, planned or accepted.
Scope follows the decision, not the building
A short hold with an early refurbishment in mind needs a different report from a long hold on a fully let asset. Both differ again where the buyer intends a change of use. The building does not change. The questions do.
Before scope is agreed, a buyer should be able to say what it will do with the answers. Which findings would move the price? Which would affect the programme? Which would stop the transaction? A scope built around those questions produces a shorter and more useful report than one built around a standard contents page.
This also settles the harder question of how much investigation is proportionate. Access, opening up, sampling, testing and specialist input all cost time and money, and some of them are not possible before completion. Deciding which are worth having, and which findings can be accepted as uncertain and dealt with after acquisition, is a commercial judgement. The technical adviser’s job is to set out what each level of investigation would establish, so that the buyer can make that judgement with the position in front of it.
What a useful report establishes
Six things, in this order.
- The building. Construction, age, alteration history and what records exist. A building altered repeatedly, with an incomplete record of those alterations, carries a different risk profile from one with a complete set of as-built information, even where the two look alike on inspection.
- Condition. Element by element, at a level of detail matched to the decision rather than to a standard template.
- Defects. What is wrong, where it is, its likely cause, and whether that cause has been established or is suspected.
- Limits. What could not be established: concealed construction, areas without access, missing records, and information taken from others without being checked.
- Significance. What each material finding means for cost, programme, operation, lettability and the buyer’s intended use.
- Recommendations. Further investigation, works or monitoring, prioritised by urgency and sequenced so that the buyer can see what has to happen first.
Every finding should carry its basis
Two reports can record the same defect and support very different decisions, because the evidence behind the record is different. A finding should always show what kind of evidence it rests on.
Take a single sentence: the roof covering is at the end of its serviceable life. That may have come from a roof-level inspection, from a maintenance record, from a remark by the managing agent, or from the age of the building and an assumption about the original specification. All four are legitimate bases. They do not carry the same weight, and a buyer deciding whether to price a roof replacement into year one needs to know which one it is.
A report that labels its evidence lets the reader make that judgement. A report that does not leaves the reader to assume everything was seen, which is rarely the case.
Cause matters more than condition
Recording and photographing a crack is a record of condition. Whether that crack reflects progressive movement, a historic and now stable event, or the ordinary behaviour of the material, is the question that decides whether anything needs to be done and what it would cost.
Where cause cannot be established within the scope, the report should say so plainly, say what would establish it, and set out the reasonable range of outcomes. “Further investigation is recommended” tells a buyer nothing. “Monitoring over two quarters would establish whether the movement is progressive; if it is, the likely remedial scope is broadly this, and if it is not, the cracking can be made good and kept under review” lets the buyer decide whether to spend the time before completion or take the position on price.
Significance is where the report earns its fee
Findings become commercial only when their significance is stated, and significance has more than one dimension. A defect may be expensive but straightforward to programme around. Another may be inexpensive and impossible to carry out while the building is occupied. A third may be immaterial to a long hold and material to an immediate refurbishment.
Where a cost is given, its basis and its accuracy should be given with it. A figure derived from a rate applied to an estimated quantity is useful. The same figure presented without that basis invites the reader to treat it as a price.
Prioritised and sequenced recommendations
Priority describes urgency, not cost, and the two are regularly confused. A low-cost item can be urgent and a high-cost item can be planned.
Sequence matters as much as priority. Some investigation has to be completed before a remediation approach can be chosen, and committing to works before the cause is established is how the same defect comes to be paid for twice.
Where reports commonly fall short
A few patterns recur.
- Limitations written so widely that the report supports nothing. Limitations should state what the scope did not cover and what that means for reliance, not withdraw the findings.
- Long schedules of observations with no statement of significance, leaving the buyer to work out which of two hundred items matter.
- Costs given without a basis or an accuracy range.
- Assumptions made but not labelled, so that they read as findings.
- No reference to the buyer’s intended use, which is the only reason the report was commissioned.
- A recommendation for a further report, without saying what the further report would establish or which decision it would unlock.
Three questions to ask of any material finding
- What is this based on: was it seen, documented, reported by someone else, or assumed?
- What does it mean for what we intend to do with this building?
- What would it take to be more certain, and is that worth doing before completion?
A report that answers those three questions for every material finding is doing its job, whatever its length.
EMTED acts for buyers, owners and developers on the owner’s side of technical due diligence: scoping it to the decision, appointing an appropriately registered firm, and turning its findings into price, terms and plans.