No one, including a business, wants to buy a pig in a poke. Moving offices or taking on more space to gain extra manufacturing or warehouse capacity is enough of an upheaval in itself, without finding out after you have signed the paperwork that your site comes with liabilities that mean you paid well over the odds.
That’s where due diligence (DD) comes in. DD involves investigating the full scope and state of an asset before buying it.
DD is usually undertaken by legal, accountancy, surveying and engineering professionals, often working separately to provide the various specialist reports that help assure the purchaser the property is sound.
As well as covering legal issues of the ownership and title of the property, tax and financial analysis, the process typically involves checks on a building’s physical condition and any land that comes with it, for problems such as soil contamination.
DD helps the buyer:
establish whether the property is a reasonable investment
identify and mitigate (where possible) the risks in the purchase
meet their legal requirements as an owner when they move in.
Due diligence docs
Useful documents to help you build a picture of hazards in a new purchase include:
CDM health and safety files
environmental surveys, for example highlighting the presence of dusts, lead or harmful chemicals
fire risk assessment
fire strategy for the building
lease agreements or any other information on responsibility for shared or common areas
mechanical and engineering surveys
insurance claim histories
records of incidents such as fires at the property
water hygiene surveys and risk assessments and associated service records (for hot and cold water tanks)
radon postcode check
reports for lifts
heating system inspection and servicing certificates
electrical installation condition report
service history for any specialist fixed equipment (such as permanent mobile window cleaning platforms on large buildings, roller doors on warehouses).
The DD team will gather a lot of paperwork. It will need structural, site, mechanical and electrical and environmental surveys, often commissioned from specialists.
The reports identify potential or known technical deficiencies, compliance issues and risks covering areas such as the fabric, external areas, mechanical, electrical and life safety systems such as those for fire detection, alarm, and smoke control, and building and perimeter security.
Assessment of any materials in the property that may cause harm or damage is particularly important. The obvious examples are legacy asbestos in pipe lagging, fire doors, partition walls, ceilings and floors and lead – most commonly found in old paint. Checking water systems for the potential to harbour Legionella is another priority.
A report on how the site complies with Part M of the Building Regulations may be needed, advising on how accessible the building is to its users. This is especially important if the organisation is considered a service provider under the Equality Act 2010 – a business providing goods, facilities or services to the public or a section of it, free or paid for.
Service providers must make sure customers are not unlawfully discriminated against in getting into the premises and make reasonable adjustments for disabled people. The law requires a proactive approach; service providers can’t wait until a disabled person wants to use the services, and must think about what people with a range of impairments might reasonably need.
The Construction (Design and Management) (CDM) Regulations require a client disposing of their interest in a building to provide the health and safety file to the person who acquires the premises and to ensure that person is aware of its nature and purpose. The file can be an important source of information describing how a building can be managed safely, including any residual hazards from construction or refurbishment a designer was unable to avoid. But many files are handed over incomplete or are badly neglected after project completion, reducing their usefulness.
Using specialists to deliver the different reports for each of the separate DD elements has its advantages in ensuring the best quality advice. But often there is no one with the knowledge, skills and experience to draw together the health and safety elements of these reports, to make a qualified assessment of the risks inherent in property purchase, what it will take to bring the premises up to habitable spec; and how the building will be used and managed safely without more expensive retrofitting after it is occupied.
This is where safety and health practitioners can add value to the DD process. Their early involvement can flag up where more information is needed on workplace hazards and whether the organisation should be looking for further guarantees, or even a swift renegotiation with the vendor.
Unfortunately, getting hold of the right documents can be a struggle, even when there is a team appointed to coordinate the purchase
The health and safety professional also has a vested interest in being involved with the DD process. As the property changes hands the risks in it change hands too, and forewarned is forearmed.
But in a process largely undertaken by external consultants it can be difficult to make your voice heard.
The key is to engage with whoever is driving the purchase and commissioning the consultants. In larger organisations the board is likely to have overall charge, but facilities or real estate functions may have operational responsibility.
In smaller organisations it’s easier to gain direct access to whoever is coordinating the DD and they may welcome any offer of help. If they don’t, make it clear you are not trying to add work and highlight the benefits of your involvement, both the financial and operational benefits gained from knowing about what the organisation is buying up front.
Take the tour
Your main task is to gather and review the reports and surveys. The main documents you need to get an overall picture of hazards and liabilities at the new site are listed in the box above.
Unfortunately, getting hold of the right documents can be a struggle, even when there is a team appointed to coordinate the purchase.
For bigger transactions your organisation may have created a “data room” – a secure website where all the documents on the property sale are stored – that holds most of the information you need.
When we took possession of the building we found the previous occupier had left an internal water feature full of rather fierce terrapins
Otherwise the documents may be written and held by a range of individuals involved directly or indirectly with the transaction. In an ideal world, the advisers representing your organisation in the transaction will relay your requests to the vendor. If they don’t or no such arrangement exists you can try asking:
your internal property or finance teams, or senior managers involved in the purchase
surveyors or other external technical specialists
(as a last resort) the vendor
If there’s nothing on the subject in the documentation it’s also a good idea to carry out a simple postcode check for high levels of radon gas (www.ukradon.org/information/radonsearches), which can accumulate in buildings in some parts of the UK.
Experience teaches us never to rely too much on documentation, though the state and age of technical paperwork such as asbestos surveys commissioned by the previous owners should give you an idea of how much you can rely on them.
Ideally you want to gain access to the premises and to “kick the tyres”. You won’t be able to check the level of biocide dosing in the air-conditioning system but there will be plenty of things you can assess by eye, such as whether the fire precautions are as they should be.
On a tour, you can also start building a smaller snagging list of items that might not derail the purchase but will eventually fall into your lap, such as uneven floor surfaces or poor vehicle segregation in a yard.
To end on a personal experience, years ago I was involved in the transfer of a former educational establishment between local authority departments. I don’t remember any DD taking place, I suppose it was unlikely given it was an internal transfer. When we took over the building we found the previous occupier had left an internal water feature full of rather fierce terrapins we had great difficulty capturing and rehoming.
I’m not suggesting a DD exercise would have flagged the terrapins as a key risk but, if we missed them, who knows what else might have lurked below the surface in that building.