Technical Due Diligence

Teknisk Due Diligence (TDD) is a building technical risk assessment associated with the purchase of investment properties or investment projects.

The Technical Due Diligence process provides an overview and basis for negotiation concerning the technical advantages, opportunities, challenges, and risks associated with the transaction of investment properties or investment projects.

EXAMPLES OF AGREEMENT BASES:

  • Company Transactions that involve purchasing or acquiring stakes in a company that owns property. This can include assuming various agreements beyond a simple purchase agreement, such as employment contracts, service agreements, and other corporate obligations.
  • Asset Transactions: Similar to buying a personal residence, this involves entering into a purchase agreement specifically for the property being acquired. The buyer assumes the obligations of the property owner, such as maintenance and regulatory compliance.
  • Portfolios: Involves buying a large quantity of real estate properties, often under different contractual terms. This could include various types of properties such as residential, commercial, or industrial, bundled together as a single transaction.
  • Existing Real Estate purchasing existing properties where the buyer might inherit older contractual terms. These may include lease agreements, easements, or restrictions that continue to apply to the property.
  • Project Development: Entering into agreements that involve development risks, such as construction contracts, zoning and planning approvals, and financing arrangements. The developer assumes responsibility for bringing the project to completion.
  • Joint Venture Agreement: An arrangement where two or more parties collaborate on the development or investment in a property. Each party contributes resources and shares in the risks and rewards according to the terms of the joint venture agreement. This can include both financial and operational responsibilities.

Technical Due Diligence does not cover legal, financial, or commercial aspects of the purchase agreement and should not be considered as legal, commercial, or financial advice.

Therefore, it is crucial to coordinate with the client’s legal, commercial, and financial advisors to fully understand the opportunities and limitations associated with entering into a purchase agreement.

TDD can include:

(Desktop Review):

  • Review of Construction Technical Data Room: This includes examining the documentation related to the transaction, such as contracts, plans, and technical specifications.
  • Review of Construction Technical Easements: Assessing any easements or restrictions that affect the property’s use or development.
  • Compliance with Regulatory Requirements: Checking for adherence to building permits, local zoning laws, and other relevant construction regulations.
  • Construction Contracts and Technical Basis: Evaluating the terms of construction contracts, including warranties, guarantees, and responsibilities of the parties involved.
  • Risk Assessment of First- and Second-Party Impacts: Analyzing potential risks related to stakeholders such as contractors, tenants, or neighboring properties.
  • Current and Future Maintenance: Assessing the current state of maintenance and planning for future operational needs and costs.
  • Construction Economics: Reviewing the financial aspects of the project, including cost estimates, budgets, and economic feasibility.
  • Buyer/Seller Obligations (Purchase Agreement): Understanding the obligations of both the buyer and seller as outlined in the purchase agreement, ensuring all conditions and responsibilities are clearly defined.

Red Flag Reports in Technical Due Diligence (TDD) Input to:

  • Construction Economics: Includes financial planning, cost assessments, guarantees, and budget evaluations for the project.
  • Timeline: Review and analysis of the project schedule, including critical milestones and potential delays.
  • Buyer/Seller Obligations: Examination of the responsibilities and conditions stipulated for both parties in the transaction.
  • Specification Requirements: Focus on optimizing the technical specifications and values in the property transaction to enhance project viability and value.
  • Risk Management: Identification and evaluation of potential risks, and strategies to mitigate them.
  • Review of Construction Technical Easements: Assessing any easements or restrictions that affect the property’s use or development.
  • Compliance with Regulatory Requirements: Checking for adherence to building permits, local zoning laws, and other relevant construction regulations.
  • Project Optimization & Strategy: Recommendations for improving project outcomes, including strategies for efficiency and cost-effectiveness.
  • Project Monitoring in Technical Due Diligence (TDD):

(Project Monitor) Physical Presence:

Inspections and condition assessments of existing property/site.

Project monitoring and handover, including follow-up of:

  • Construction technical inspections / quality assurance
  • Regulatory requirements, including building permits, local planning regulations, and other construction-related legislation.
  • Deliverables specified in the contract documents.
  • Cost management, including oversight and successive cost calculations.
  • Risk management, including independent third-party assessments; for further details on related services, see the corresponding offerings. Risk Management
  • Mediation and conciliation; see also related services. Expert appraisal and valuation
  • Defect registration in accordance with the terms of the construction contract.
  • Handover Procedures
  • Deficiency Identification in Purchase Agreements
  • Follow-up on handover deficiencies and post-closing deliverables.

ENVIRONMENTAL DUE DILLIGENCE (EDD)

Environmental Due Diligence is a process of risk assessment concerning environmental factors associated with the purchase of investment properties or investment projects.

The purpose of Environmental Due Diligence is to provide a comprehensive overview and a negotiation basis regarding the environmental advantages, opportunities, challenges, and risks associated with the transaction of investment properties or projects.

EDD focuses exclusively on environmental issues and does not cover legal, financial, or commercial aspects of the transaction. It is not a substitute for legal, commercial, or financial advice.

Coordination with Other Advisors: It is crucial to coordinate EDD findings with the client’s legal, commercial, and financial advisors to fully understand the implications, opportunities, and constraints associated with entering into a purchase agreement.

EDD can include:

  • Soil and Groundwater:
  • Contamination Assessment: Evaluating soil and groundwater for potential contamination. This includes analyzing historical land use, potential sources of contamination, and current conditions.
  • Environmental, Social, and Governance (ESG) considerations, sustainability, and circular economy practices.

Environmental Due Diligence is typically performed in conjunction with Technical Due Diligence, since multiple aspects need to be coordinated as a whole.

Recommendations:

We recommend initiating TDD and EDD early in the process, as these assessments typically take 2 to 12 weeks, depending on the scope.

When Technical and Environmental Due Diligence are carried out in an early phase, it helps to establish a timely, valid and unambiguous basis for negotiation and contractual arrangements between buyer and seller.

Technical and Environmental Due Diligence can be conducted at various levels and customized to the client’s preferred process; therefore, it is advisable to agree upon focus areas, report format, CapEx risk parameters, scope, and other requirements before initiating the Technical and Environmental Due Diligence.

We can provide reporting in both Danish and English; however, we recommend that Danish remain the primary working language to avoid misunderstandings among the Danish stakeholders involved in project development or in ongoing construction cases that are handed over at completion.

Technical and Environmental Due Diligence should always be carried out in conjunction with the client’s legal, financial, and commercial due diligence.

The list of Technical and Environmental Due Diligence items outlined above is not exhaustive.

Our experience with Technical Due Diligence

We have participated in negotiating, managing, executing, and closing real estate transactions amounting to double-digit billions of Danish kroner.

In our real estate transactions, we have managed residential and commercial properties in various forms and operated within organizations composed of both national and international stakeholders.

We have managed and harmonized specification requirements among multiple stakeholders with differing interests and contractual frameworks, conducting negotiations and reconciliations to ensure that all parties could endorse and resolve any conflicts of interest across the various agreements.

We have experience representing different parties, including:

  • Buyers
  • Sellers
  • Developers
  • Technical Consultants
  • Contractors

Our experience ensures informed and effective due diligence tailored to the specific needs that may arise in the transaction of investment properties or investment projects.