RICS Europe calls for stronger due diligence

RICS Europe has published its first Technical Due Diligence Guidance Note to encourage best practice and stronger due diligence during real estate transactions in Europe.

The Technical Due Diligence Guidance Note will help protect clients and support best practice across the industry, Luciano Capaldo, Chairman of RICS Europe, says in the May edition of PropertyEU Magazine.

'Given the uncertainty in the market created by the global financial crisis, we felt that this guidance note would complement our promotion of RICS Global Valuation Standards (The Red Book). It is not just about reducing investor risk but also about creating a much more transparent picture of the European market. Europe is not just one market but a conglomerate of different markets, each forming part of a whole with its own characteristics.'

During the recent investment boom some investors and developers, particularly in Central and Eastern Europe, were so eager to seize new opportunities that they were willing to cut corners in order to secure deals. Banks were also often eager to boost their books at the expense of a thorough due diligence process. Since the onset of the financial crisis this haphazard approach has delivered increased problems for both owners and banks.

Technical Due Diligence is a much more comprehensive exercise than the traditional building survey report, which often focuses simply on a property's condition. A sale or purchase due diligence exercise now includes investigations into issues such as use permits, maintenance budgets, sustainability and environmental considerations. In the Czech Republic, for example, environmental issues such as contamination and radon risks need to be reviewed as part of the technical due diligence process.