RICS draft guidance note - Technical due diligence of commercial property, 5th edition

6 The report

6.1 General guidance

The level of detail of the report should reflect the agreed instruction, and it is recommended that these be restated within the report or the letter confirming instructions appended to the report.

In the final report, the RICS member or RICS regulated firm will be expected to identify:

  • what, if anything, is wrong
  • what are the consequences
  • what repairs are recommended
  • who is responsible for the cost of repair and
  • whether further investigations are recommended and when (e.g. pre- or post-acquisition).

6.1.1 Time frame

The following time periods are generally accepted, although some clients may have their own, and so time frames should be identified to avoid any doubt as to meaning:

  • Immediate: requires attention as soon as practically possible.
  • Short term: within one year.
  • Medium term: between two and five years.
  • Long term: between six and ten years.

6.1.2 Risk ratings

Risk ratings in reports are desirable. The use of a red, amber and green flag (RAG rating) system is commonplace and intuitive, but, if used, a risk rating should be defined clearly in order to avoid any doubt as to meaning and importance.

6.2 Report layout

RICS recognises that RICS members or RICS regulated firms may have their own report templates and formats and it is therefore not the intention to provide detailed specific guidance in this respect. However, reports should be presented in a logical, clear and succinct manner compliant with the client's instructions. A typical report may include the following sections.

6.3 Report contents

6.3.1 Executive summary

The executive summary provides the main findings, including recommendations for further testing, further vendor enquiries required, programming future repairs and any issues pertinent to the client's investment in the property. Reference should be made to reliance upon the main body of the report, and any appended specialist reports, costings and additional analysis yet to be produced.

The summary provides clear, logical, simple and readable advice to the client. The principal considerations should include:

  • the nature of the property, the proposed development for the existing construction, age and design
  • the adequacy of the structure and fabric
  • the adequacy of building services
  • a comparison of the condition of the subject property with others of similar age and style
  • conformity with current requirements, including statute, civil and lease obligations
  • operational performance
  • special client requirements
  • a comparison of the standards and quality of the property with accepted/institutional benchmarks and the apparent suitability to meet the client requirements
  • main areas of concern, deficiency, defect or non-compliance
  • reference to any repairs, upgrades, replacements, further investigations or statutory inspections and
  • estimated costs of remedial works or recommended actions.

The summary should highlight any further tests or inspections to be undertaken and enquiries to be made to the vendor before legal commitment is made by the client.

6.3.2 Introduction

The client's instruction should be repeated in the report, alongside:

  • details of the date of inspection(s)
  • RICS member(s) or RICS regulated firm(s)/specialist(s) involved in the survey
  • weather conditions
  • occupancy at the time of inspection
  • names of persons providing information during the inspection limitations, including copyright and conditions noted in the terms of engagement
  • those parts of the building not accessed during the inspection and recommendations for future access (including the risk of not gaining access) and
  • restrictions caused by finishes, fitted or heavy furniture or occupation, etc.

Where a limited inspection of a building with multiple units was undertaken it should be noted which units were inspected.

All areas of the property or facility need to be clearly identified and illustrated by photographs, plans or grid references, or alphabetical or numerical systems, as applicable. Location and/or lease plans can be included, indicating the extent of the demise. It is also prudent to include the property reference/postal address on each page of the report. Other points that may be included are:

  • What documents were reviewed by the RICS member or RICS regulated firm, either on site or via a data room and whether these will be retained on the RICS member's or RICS regulated firm's files and for how long.
  • Any limitations by the RICS member or RICS regulated firm for the transfer of liability to third parties.
  • Whether any discussions were held with the client, owner(s), tenant(s) or others at the time of the visit and/or immediately afterwards.

6.3.3 Description of the property

A general description of the property should include:

  • type
  • general design
  • principle elements of construction
  • age
  • date of substantial modifications and
  • historical status and current use.

A general description of the building engineering services may also be provided.

Accommodation can be briefly described to include current use of the property, broken down into specific areas as necessary. A list of approximate areas may be included as appropriate and reference made to RICS property measurement, professional statement, 2nd edition.

For leasehold property it is recommended that the tenure be described, including extent of the term and any repairing or significant or onerous obligations under the lease.

The location of the property within the road, shopping centre, industrial, etc. should be noted, including comment on main physical features of the site, outbuildings, topography landscaping and boundaries. The description should include the full address of the property.

6.3.4 Elemental condition

This is the main section of the report and details the condition and significant defects. A description of condition and extent of defects may be supplemented with photographs and sketches. Technical language is used to express the findings clearly. Consider formatting the sections in the same sequence as the inspection previously detailed in section 5.5, i.e.:

  • roofs
  • rainwater goods
  • walls and cladding/facades
  • windows, doors and joinery
  • structural frame
  • substructure/basement
  • floors
  • internal walls, ceilings, partitions and doors
  • finishes
  • internal and externals staircases
  • sanitary fittings and welfare facilities
  • building engineering services installations and
  • external areas, outbuildings and boundaries.

An assessment of the building type may be included, as well as the construction and materials of the property. Materials and building practices specific to the locality of the property should be reported.

The structure may be described in detail, including type of frame (reinforced concrete, steel or timber) as applicable, a description of main supporting members from roof to foundations and how the load is transferred through the building to ground. Comment may include the effect of alterations on the structure, any movement and future risks.

Each element (e.g. floors, walls, doors) is separately discussed, including a description, current condition and explanatory note of the cause of any defect. Legislation, health and safety, fire precautions, energy conservation, fitness for purpose, insurance, security and other pertinent issues may be listed. Questions for the client's legal advisers may be highlighted, for example clarification of demise, construction warranties available and other matters.

6.3.5 Certification/quality assurance

The report should be signed and dated by the RICS member or RICS regulated firm who undertook the survey and completed the report. It is also recommended that a record of third party (internal peer) checking has been undertaken. All appended specialist reports should be signed or certified.

6.3.6 The appendices

The appendices may form a significant part of the report, subject to the client's requirements.

Photographs are generally included, either as an appendix or in the body of the report. The appendices may also comprise other supplementary information, such as:

  • schedule of defects and/or repairs with budget costs
  • reinstatement cost assessment
  • specialist reports, including but not limited to material testing, structural engineer's report and the buildings services report and
  • environmental assessment - Phase 1 as a minimum, Phase 2 if available.

This list is not exhaustive and the content may vary from country to country and between jurisdictions.