Technical Due Diligence is the process of systematic review, analysis and discovery in which a prospective purchaser, occupier or financier of property gathers information about the physical characteristics of the property in order to enable them to make an informed assessment of the risks associated with the transaction. Most physical improvements have defects or deficiencies which could impact on their short, medium, or long term performance.
The defects may include the need for repairs arising from a lack of planned preventative maintenance, neglect or misuse, insufficient capacity and code non-compliances of building services.
The benefits of Technical Due Diligence include:
(a) gaining an understanding of the condition and design of the property;
(b) establishing the suitability of the property for its intended use;
(c) understanding the need for and quantifying future costs and other liabilities;
(d) providing a level of protection for institutional investors; and
(e) providing a solid foundation for price
negotiations and allocation of risk. The majority of large property “owners” are institutional investors who manage a portfolio of property assets on behalf of their beneficial owners. They may be held in the form of listed or unlisted property trusts, property companies or syndicates. The managers of these investment vehicles have a fiduciary responsibility to the ultimate owners in making acquisitions, to ensure that all reasonable risks and liabilities are understood.