Guidance Note No.1 - Due Diligence

IGNITE Building Consultancy is committed to seeing New Zealand business and property owners and occupiers receive the best standard of advice.
This is the first in a number of Guidance Notes that IBC is preparing on aspects of the services that we provide.

Due diligence has become very important recently, as the number of buildings with inherent construction shortcomings has risen, and properties without code compliance are fairly commonplace. Ensuring that a property is in good order before it is acquired ensures that it meets the needs of the occupier, and that is it not going to be difficult to dispose of. We regularly receive due diligence instructions from our national and international clients acquiring or disposing of property. Due diligence processes in New Zealand are developing, with a range of building surveyors appearing on the market. This is great news for the industry, but there are a number of pitfalls that clients need to be careful to avoid:

• Reporting standards – clients are seeking robust clear advice on whether or not they should be purchasing a property. This goes above and beyond statements that building elements ‘appear’ sound. Clients should expect their professional advisors to make clear judgements one way or the other with regard to a defect or shortcoming. If this requires specialist advice, the advisors should know how and where to obtain it and incorporate it within their reports, within a short timeframe.
  
• Timeliness – reporting within tight deadlines – often a matter of days – is always a challenge. The key to success is in your advisors turning away the instruction if they will struggle to meet your deadline to avoid disappointment!
  
• Professionalism – building surveyors come in many guises, and all with their specialisations. Clients are becoming more wary of who they use to complete their due diligence, and their specialist focus – the conclusions that can be drawn from a survey of a large commercial acquisition of a major property are different from those for a small development – it is all about understanding your client and their specific needs.


• Ensure that your advisors have a solutions focus – expect advice on solutions to defects and shortcomings, rather than a simple condition report.


• Inspection detail – ensure that your advisors limitations are reasonable, for example – roofs need to be inspected, wherever possible and code compliance matters checked off against a LIM – many issues arise and deals fall over as a result of insufficient attention to detail when considering the lack of code compliance – a lack does not mean that a property is automatically black balled!


• Limitations of Report and Professional Indemnity Cover - check these carefully! How far is the consultant going in providing advice and recommendations that are 'open' rather than 'limited' and does this relate to the level of their professional indemnity cover? How far is the consultant prepared to back themselves? Ask for a copy of the consultants 'Limitations / Terms and Conditions' and Professional Indemnity cover certificate before you appoint them and check that you are happy with the level of commitment they provide.

For those of you seeking acquisition opportunities, happy hunting!

Independent Representation - beyond project management

Client representation is a core service offered to property occupiers and funding institutions. It's a real test of our skill and experience to be able to anticipate problems and issues before they arise, and implement solutions effectively.

Recently, we've been working on a project with multiple stakeholders – from Health & Safety, to marketing, personnel management, finance and Information Technology - and not a day has passed without some form of exciting debate around conflicting needs. Understanding funding agreements, development agreements, the best way to structure construction contracts and a project team, manage the development of the brief, and ensure a high quality, sustainable design to meet time and cost objectives is not easy. Understanding how things 'get done' and driving project solutions demands a high degree of experience and commitment.

Projects invariably stir up challenging issues and conflicting needs, and it is how these issues are facilitated and managed for the particular client concerned that makes or breaks a project. Recognising the different agendas and objectives of stakeholders is key. Negotiating skills are important, because when conflicting opinions arise they must be carefully worked through to achieve a solution that is acceptable.

Projects are like people – they change. They have to adapt to fit their environment or changing patterns. The secret is ensuring that stakeholders share a very clear vision of what is to be achieved and what the results will ‘look like'. Having someone around who can interpret what is happening as the project takes on shape, quickly and efficiently, and monitor the journey through to completion is what independent representation is all about.

Dealing with Reinstatement and Wants of Repair

The good relationship of landlords and tenants can be maintained by each party complying with their lease obligations. This includes the obligation of reinstatement and wants of repair at the end of a lease term. However, if these lease obligations are not performed and the parties are still on good speaking terms when a lease comes to an end, the settlement for non-performance of reinstatement and wants of repair are usually dealt with in an informal discussion, using building quotations as the basis of costs.

However, the deal is often made with little understanding of, or reference to, the lease obligations, condition of the premises at lease commencement or wear and tear of the premises during occupation. So while an informal agreement may work for smaller claims, problems can arise in larger claims because the obligations of the parties have not been fully understood. This can lead to disputes, a damaged relationship and expensive legal costs.

The market in New Zealand is changing. International investors (particularly from Australia), and property professionals and fund managers returning from Europe tend to have experienced, and seen the benefit of a structured make-good claim. Whereas negotiations may once have been dealt with by a company’s financial directors, professional advice is now being sought on reinstatement liability and the attendant negotiation process.

This structured, transparent approach ensures that the relationship between the parties does not suffer – an important consideration in the New Zealand property market.

If you would like to know what reinstatement and wants of repair liability your company has, particularly useful for budgeting purposes, or if you intend or have been served with a schedule and require professional advice, then please feel free to contact us for specialist advice.

Greetings

Welcome to propertyfile, IGNITE Building Consultancy's online resource for commercial property investors, developers, owners and occupiers.

Designed to complement the advice we offer our clients, propertyfile offers a broader view of aspects of the property and construction industry in New Zealand.

In each issue we'll highlight one or two key topics and examine the implications for your business. Sharing insights from our research and experiences in the field, we'll explore current challenges and new trends; note and promote best practice; examine the impact of changing regulations; and offer a few practical tips for making the most of your commercial property.

We aim to encourage conversation: your queries, comments and contributions are warmly invited.

key people / contributors

Peter Harris (Director)
Peter is a Chartered Building Surveyor with over 15 years experience in building consultancy, project management and management consultancy. Passionate about assisting clients to increase the value of their property assets, Peter regularly leads complex, multi-faceted projects and believes that 'getting it right up-front' is the key to successful project delivery.

Jeremy Whelan (Director)
Jeremy is a director of IBC and the managing director of IGNITE Architects. Jeremy has extensive experience in designing major retail centres throughout Australasia, Asia and the United Arab Emirates as well as master planning of major commercial, industrial and urban projects.