Technical Due Diligence: A Health Check for Your Commercial Property

November 19, 2018

Committing to a commercial property lease or purchase is one of the biggest decisions your business might make. We talk to Prendos Chartered Building Surveyor Geoff Matthews about choosing the right property, and how Technical Due Diligence can help you avoid some of the pitfalls in the process.

If you’re looking at leasing or purchasing a new business premises, chances are you’ve done your homework. Where you want to be based, how much space you need, what transport and parking options are available… and you’ll certainly have a lawyer and an agent on board.

But, the reality is, lawyers and agents can only go so far in protecting your business interests. That’s why, before you sign on the dotted line, it’s important to ensure you fully understand the condition of the property you’re dealing with by going through the Technical Due Diligence (TDD) process.

“Conducting Technical Due Diligence on a commercial property is a bit like giving it a ‘health check’,” explains Geoff. “Essentially, it’s the inspection of a building prior to purchase, or of specific parts within a building, led by a qualified Building Surveyor. It’s not only essential for owner/ operators but for investors too. You need to do your homework.”

Many people think getting a builders’ report on a property will suffice. However, commercial buildings can have a multitude of issues that are often overlooked and simply wouldn’t be picked up by a standard builders’ report. These can prove immensely costly to resolve. Things like whether a property is earthquake prone or doesn’t meet fire safety regulations, or whether it might be contaminated with hazardous materials like lead or asbestos. Equally important is whether the building is actually suitable for your intended use without requiring major modifications.

So what does the TDD process involve and what’s the best way to go about it? As Geoff explains, it looks at all aspects of a building – delving far deeper than any builders’ report.

“Firstly, we look at basic information like the building’s construction plans and consents, environmental reports, size or net lettable area, and details of significant modifications or future development restrictions. After this desktop analysis, we do a thorough building survey to assess the current condition of all core building elements. For this we work with our own in-house specialists, as well as external professionals, to check mechanical, electrical, fire and other building services.”

The survey will identify any significant defects to the structure, fabric, finishes and grounds. Findings are compiled in an easy-to-read report, identifying any defects and key considerations, along with appropriate guidance on maintenance and remedial works where required. The surveyor will also review the statutory requirements around property ownership and occupation; which may include asbestos risks, building code compliance, accessibility and energy efficiency.

“The TDD report can be very informative for potential purchasers, identifying key risks prior to acquisition. The level of technical information it contains can be used to calculate potential capital and maintenance costs, and when these costs are likely to occur.”

“So, while it might cost slightly more up front, it saves you money in the long run – giving you leverage to negotiate the lease or purchase price, or make an informed decision about whether to go ahead at all.”

Buying Off the Plans

If you’re looking to buy or lease premises that haven’t been built yet, you may be concerned about the risks. After all, there’s nothing physical to look at and interpreting plans, even for the initiated, can be complicated.

In this instance, Technical Due Diligence will assess the building design against your requirements and identify any design, construction or procurement risks before you sign on the dotted line. And, as Geoff says, it’s something particularly suited to the skill set of Building Surveyors.

“As Building Surveyors it’s our job to have a technical understanding of how buildings work (and fail!), how they are maintained and the cost of doing so. By understanding your current and future needs, as well as your proposed lease obligations, we can assess the suitability of the building and whether it will fit the specific requirements of your business, so you avoid any nasty surprises.”

“At the end of the day, smart would-be tenants and investors do their homework. It’s better to spend a little initially and know what your risks are, than have them unexpectedly derail your business plan in five years’ time.”

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