The success and profitability of most development sites is established before the site has even been purchased during the due diligence stage. It is here that all the risks, opportunities and options must be considered and it is critical for all developers to complete this stage of the process with care and patience. To help the process, I’ve produced an amazing property development due diligence checklist covering the essentials, which you can download below.
This article will go through some of the most important areas to consider before buying a site and I will draw some examples from the property development due diligence checklist. The main headings and topics to review are:
- Property Development Due Diligence Checklist – Introduction
- Site Legals
- Utilities and Services
- Local Authority and Planning
- Survey Requirements
- Future Construction
Make sure you download the checklist below and lets go through some of the key areas and principles of the property development due diligence checklist.
1. Property Development Due Diligence Checklist – Introduction:
So why are we doing this..!!?
Well… there are a few simple reasons:
- We want to establish whether we can actually build what we want on the site to make the profit we need.
- We need to provide budget allowances for site specific items so our financials are correct.
- Establish any potential programme delays or potential delays so that we can estimate our timescales better
- We need to understand exactly the details of the site we are buying..!
Before buying a site, we need have the mind frame of finding reasons not to buy the site. By doing this we ensure that we flush out as many potential issues up-front to avoid any costly mistakes or delays once we have purchased the site.
This is soo critical…
And it is essential when looking for investment. You need to be the expert on your site and know all the issues upfront and have a strategy in place to tackle each and every issue.
Of course… we will not know everything before we buy the site.
The more we can eliminate and tackle up-front… the better we are managing risk, and that is what property development is all about… Risk..!
By using the property development due diligence checklist you will have an excellent resource for your pre-purchase development site reviews so lets now look into the property development due diligence checklist in a bit more detail…
2. Site Legals:
The site legal checks involve reviewing everything to do with the site which has a legal implication or restriction, which for some sites can be very straight forward and minor, but some sites can be incredibly complex.
The starting point here is always to have your solicitor complete a report on title.
This essentially means the solicitor preparing a report to you which reviews the land registry information relevant to the site. As there are many potentially complex legal issues, it is always recommended that a solicitor completes this for you. They will be able to provide the correct advice and interpret the land registry information correctly.
Your solicitor will be briefed on your intentions with the site, and will provide you with any areas which may restrict this happening. Often it will involve looking into specific areas in more detail and can led to taking out specific insurance policies relating to various issues.
This is one area in the property development due diligence checklist where spending money on a good solicitor will benefit you in the long run
3. Utilities and Services:
This can be split into two sections:
Are the any overhead cables or buried services in your site..?
This can be established by contacting all the relevant utility companies (searches) who have plans, maps and detail about any services running across your site. Knowing this is fundamental as it can severely change or restrict your designs, have a huge implication on cost and (often overlooked) important from a health & safety point of view.
To put this into perspective, I’ve worked on a site in the past where huge Thames Water ring main ran under the middle of the site. We had this moved, but at a cost of £500k to the project. Of course, we had done our DD properly and the extra £500k was included in our numbers before buying the site.
We need to establish whether the site has current or future connections to the main utility requirements and if there are any additional costs or budgets required in our numbers.
This can, of course, be done after buying the site, but why put more risk on you and the project..!?
4. Local Authority & Planning:
As developers we buy sites with a simple intention. That intention is to add value by developing the site.
Therefore, we will always have a development scheme which we will base our site acquisition on. We may have lots of scheme options for the site but all these schemes need to be qualified against the local authority and planning requirements.
In simple form:
“Can we get planning permission for our intended development..?”
So out property development due diligence checklist is simple and provides the majority of planning items we need to consider and review ahead of buying the site.
Unlike the legal reviews, this area is not as clear cut. We as developers always take on planning risk, but the main aim of the property development due diligence checklist is to highlight all the potential planning risk items and to see where on the risk curve we believe those issues to be.
5. Site Survey Requirements:
Every site will have a need for a variety of surveys to be completed, some will have more than others and some surveys will be more critical to have before exchanging on a site purchase.
Similar to above, we are establishing the risks and assessing whether extra time, budget or design is required for our development site. We can only do this armed with the correct information and in many cases, a survey will give us the information required.
The property development due diligence checklist provides a list of the common surveys, however, you should take advice for your specific project in terms of what surveys are critical to your project…
6. Future Construction:
How ‘buildable’ is our intended development..?
We need to consider all aspects of the construction process and assess any issues that might arise.
Can the site be accessed..? Is there space for site accommodation..? Can we make the site secure from trespassers..? etc etc…
In the case of the future construction issues, its always best to speak to a contractor to get their opinion. They will quickly be able to provide some advice on the potential issues associated with the site and more importantly, how to overcome them.
As you can see from the article above, identifying and eliminating as many risks pre-purchase is an important process to go through before buying a site. Many new developers, unfortunately, do not have the experience to identify all these risks which can lead to big issues later once the site has been purchased.
The property development due diligence checklist has been put together to provide a simple format to highlight and identify the most common and critical due diligence items before purchase.
Hopefully you have downloaded it and seen the value it will offer.
As we know in development, each site is different. It is imperative that you complete your own DD on the site and identify any risks which may not be on the checklist. As always, its impossible to detail each one, but the checklist will give you an excellent place to start…
All the best,