RICS Europe Best Practice & Guidance Note for Technical Due Diligence

Increasing client protection and encouraging tighter scrutiny procedures in real estate markets across Europe - these are the aims of RICS Europe’s first Technical Due Diligence* (TDD) Guidance Note.

With increasing commercial pressure on achieving more for less, some investors and developers have been eager to seize new opportunities. When the pressure is on, some might even feel pushed to cut corners in order to secure deals. It’s at times like this that a due diligence process can be less of a priority. With a continuing financial crisis, these conditions could pose risks to both owners and banks.

At the same time, renewed uncertainty also triggers stronger demand for transparency and higher professional standards in real estate transactions from both international and domestic investors. This is why RICS Europe has identified the need for pan-European guidance for due diligence reports for commercial, industrial and residential properties.

Critical to the decision-making process in real estate transactions, Technical Due Diligence (TDD) reports have a considerable impact on the value and desirability of a property, as they enable clients to understand the condition and design of the building. They also establish the suitability of the property for its intended use, identify the needs for further costs and other liabilities and offer a level of protection for institutional investors. As such, due diligence provides a solid foundation for price negotiation and the allocation of risk.

Due diligence reports do also cover green issues, an area of growing importance in the property sector.

Luca Licciardello MRICS, Managing Director at Reag, Spain, comments: "Today, the real estate market is increasingly oriented towards sustainability and energy efficient buildings. In this sense, RICS Europe’s Technical Due Diligence guidance note provides the basis to analyse the operating costs of a property in terms of the energy it uses. It also offers recommendations on the best course of actions needed to optimise these costs, both from a return-on-investment and an environmental perspective."

The RICS TDD guidance note aims to protect clients and supports best practice across the European property industry. As Europe is not just one single market but rather a conglomerate of different markets, the guidance details a range of services rather than providing a standard survey report. This ensures that a wide range of components of any particular report should be discussed between clients and their adviser at the time of defining the instruction. It also enables the parties to clarify which components may be required by law or are particularly relevant in a particular market. Most importantly, the document provides a standard benchmark on which clients can compare and contrast reports across European countries in which they are active.

Preparing guidance for use across Continental Europe is a major challenge, given the many different national property markets, practices and standards. RICS tackled this issue by including representatives from nine European countries in its working group, giving it sufficient breadth and depth of knowledge to agree on a common European ground. Extensive consultation with RICS Europe’s 18 national groups also ensured the guidance is applicable at national level.

Iain Leyden FRICS, Director of Project Management at Colliers International, Poland, welcomes the guidance note: "RICS Europe’s guidance for Technical Due Diligence helps us take a consistent approach through each step of the due diligence process, from taking instructions and agreeing on the content of the report with our clients to carrying out the inspection itself."

He concludes: "When it comes to due diligence, the RICS guidance note covers all scenarios, from commercial, retail or industrial assets to sites under construction. It provides property professionals with a common standard on a truly pan-European perspective. In the end, it is not just about reducing investor risk, but also about creating a much more transparent picture of the European property market."