Know how to reduce property transaction collapses

With commercial property sales slowing and values dropping to their lowest level in years, there is an ever growing need to change the transaction process to increase its speed and efficiency, minimise costs and reduce the risk of deals collapsing at the last minute.

In the current market conditions, asset disposals are often essential to maintain liquidity, preserve banking covenants or raise capital for business initiatives. In these instances the priority for the astute vendor is to ensure the highest return possible on sales in order to increase capital.

The traditional method of going straight to market, having a host of potential buyers all carry out their own surveys and then negotiating a final price based on their surveyor’s findings has often led to deals falling through and overexposure of the vendors position. Whilst this has always been considered part and parcel of the process, vendors, in particular, are looking at alternative options.

As a result, commercial property owners are increasingly turning to vendor due diligence as a means of discreetly positioning their property for disposal. Our consultations with leading property investors, owners and lawyers has found that the use of vendor surveys in commercial transactions is increasing and that their presence helps speed up the sale process and reduce the number of deals stalling or falling through. By carrying out surveys of the property before it goes to market, owners are able to begin the process with a realistic value being set based on full knowledge of the asset’s condition.

While it was accepted that there is still some scepticism from buyers, many are beginning to accept the facts presented by the vendor as long as it is clear that the surveys have been carried out by a completely independent, expert and reliable source.

It is this independence that appears to be the key to the potential success of vendor led due diligence. Feedback from all but a few of those consulted highlighted the importance for the vendor’s reports to be clear, concise, neutral, objective and factual. For vendor due diligence to be fully effective there needs to be a co-ordinated and programmed input from the client, their lawyers, surveyors and engineers, environmental specialists, measurement surveyors and most importantly the vendor’s agent.

Providing all of the due diligence in advance produces a less adversarial process, confidentiality of the deal is easier preserved and a faster sale is more likely to be achieved.

Landlord and tenant relationships can be injured by the ‘traditional’ due diligence process when each prospective purchaser sends in teams to survey, measure and enquire about the property. The vendor due diligence approach can avoid this, again, provided that the team members are seen to be independent, without conflict, and with sufficient reputation in the market to instil confidence.

Those looking to achieve the greatest success have adopted a two-stage process. This process requires some forethought and planning and is therefore more suited to long term strategies than when a quick sale is needed. However the extra investment in time means that the asset can then go to the market with confidence that it is being presented in the best possible light.

It makes sense that, when planning to dispose of property assets, owners and investors take the initiative to make their properties as saleable as possible in order to achieve maximum value as it is unlikely that buyers are going to be putting their hands in their pockets as casually as. Those that do can be persuaded to dig deep enough to secure an investment with real and immediate potential.

Paul Spaven
Partner at building and property consultants Tuffin Ferraby LLP Tel: 0207 928 7998 or Email: dmann@tftconsultants.com