The old maxim when buying property caveat emptor (buyer beware) should now be joined by caveat venditor (seller beware), according to one chartered surveyor.

“That’s because plenty of commercial property is being put on the market with inaccurate technical data – relating to building size, mechanical and electrical systems, building fabric and structural reviews – so buyers don’t know exactly what they’re buying and vendors don’t know exactly what they’re selling,” says Tony Grant, head of surveying firm Malcolm Hollis’s outfit in Ireland.

“Detailed due diligence of a building’s technical data is essential and new measured surveys, where a surveyor compiles a detailed ‘vendor’s pack’, should form part of every property sale. The important thing is to make all financing bodies aware that it is vital that they undertake full technical due diligence on real estate assets.”

Fundamental

Accurate data should be fundamental to transacting property. After all, if you think you are buying 200,000sq ft of asset but an accurate area reference report shows that the net usable space is 195,000sq ft, then you have either paid too much or are exposed to an imbalance in rental income/service charge contributions.

Grant says poor technical data has held up a number of property sales he has been involved with. He points to distressed assets, many of which were either built or acquired in great haste during the Celtic Tiger era, now making their way back on the market after being bought in receivership sales.

“Since the crash there has been a huge churn of assets going from one owner to another, with many of these now coming back on the market as investors who snapped up a bargain look to capitalise on improving conditions,” he says.

“In the rush to offload assets [after the crash] there was not necessarily the right level of technical due diligence carried out that you would normally expect in property transactions. We have surveyed a number of former Nama assets for investors and found a lot of the building and geographic measuring on the files is poorly reported and inaccurate.”

Grant, however, is quick to point out that he is not “having a go” at Nama as inaccurate data is “not an uncommon issue when dealing with portfolios that have been sold off urgently”. He says it is now standard practice in Nama sales over the past 18 months to two years that up-to-date vendor packs are supplied.

“It is more than likely that the asset managers/receivers and Nama were not even aware that the data they had was inaccurate. The real risk is not from buying from Nama now, but acquiring an asset from other sources where the vendors have put together [vendor] packs based on historical data.”

A Nama spokesman said: “All major properties subject to portfolio sale are subject to pre-sale due diligence which covers all these items and buyers do extensive due diligence with their own advisers. In the case of sales by receivers and debtors they control the sales process with appropriate sales agents.”

Building survey

Pursuing a property’s statutory compliance information and certification retrospectively can be difficult and time-consuming, especially as many firms which built and designed a building could have gone out of business – as happened to many development companies in the wake of the crash.

“The most common issue of inaccurate data we come across tends to be the measurement reporting, with many assets having next to no data and others having data that has been reported inaccurately,” says Grant. “This could be for everything from the net usable space of a building to the boundaries of a piece of land. Purchasers will very rarely acquire an asset without undertaking a building survey, but will often take measured data that is on file as given. They need to get in the mindset of having a measured survey carried out as well.”

Property investors need to eliminate risk at the time of purchase. They need to know the size of the asset, what condition it is in and if they will have any exposure “down the line” for things such as maintenance backlogs, non-recoverable service charge costs and capital expenditure.

“The day you buy is the day you sell, so any skeletons need to be addressed; otherwise they may impact a [property] disposal in the future when the [investment] cycle starts again,” says Grant.