Australia: Due diligence is a fact of life for fund managers, but how many use it to drive value?

It's hard these days for Fund managers to find new ways to boost asset performance, but due diligence is one area that's often overlooked.

It's a potent tool that when used cleverly can unlock greater investment value in the short and long term.

So much due diligence is a "one size fits all" approach using generic reporting templates. All too often these reports are populated with superfluous information.

A simple value test is how often does anyone refer to the reports after a transaction is completed? If the answer is seldom or not at all, the question must be "how can we get more value from the reports?".

There is an answer. Sophisticated managers get more from their due diligence spend by discarding off-the-shelf approaches and developing a bespoke strategy that keeps costs down and focuses on generating value.

It's not hard and you'll get a better result. Here are six principles you can follow:

1. Get your due diligence people working together as a team

You can minimise duplication and reduce costs by having all due diligence functions (legal, financial, technical) working together as a single team. Also include your external lawyer at this early stage.

Once the team is formed and as part of setting fee budgets, identify and agree on:

  • investment objectives and strategies for the asset from acquisition to exit,
  • who are your stakeholders (and what are their interests),
  • materiality thresholds, reporting timeframes and assumptions.

Due diligence is meant to be solution driven. Stipulate that any risks identified must be accompanied by a suggested risk mitigation strategy.

2. Consult with your financier

Develop your due diligence strategy in consultation with the proposed financier for the venture. Perhaps the financier is happy to rely on a due diligence report prepared by the Fund's lawyers as supplemented by reports from other consultants? If so, this will avoid duplication and save time and money.

The financier is a stakeholder, so it's important to confirm what issues are important to it and ensure these are addressed in the due diligence strategy.

The Fund's lawyer can then develop a template of proposed issues which can be settled with input from the financier.

Valuations should not be viewed in isolation. Indeed if the Fund or financier is to rely on a valuation, the due diligence report should verify each of the valuer's assumptions. As a matter of course, the valuer will base its valuation on assumptions that:

  • all improvements are lawful;
  • the current uses are lawful and approved;
  • there is compliance with fire regulations;
  • the existing improvements are in good repair;
  • key leases have a minimum term;
  • there are no encroachments;
  • there is no contamination; and
  • there are no geotechnical issues.

Your due diligence should be designed to respond to these assumptions.

3. Give priority to those factors that will impact on your investment strategy

For example, if there is potential to add value to the asset in the medium to long term by virtue of a redevelopment or an extensive upgrade, your due diligence should focus on constraints and opportunities to achieve this.

Knowing which questions to ask is crucial. For instance, do the leases contain relocation or redevelopment clauses which the Fund can use to its advantage? Are there town planning restrictions which could impact on redevelopment or conversion to a different use?

In this case, the due diligence might include an analysis on the rights of tenants to extend their lease terms by options to renew or the need to consider the impact of any contractual rights of third parties which may impact on the staging of a future redevelopment.

On the other hand if an investment is simply based on securing an immediate income stream, the focus will be on understanding the potential risks to the income stream.

4. Align due diligence with ongoing management strategy

Too often lawyers produce detailed lease reports which contain information of no real value in the post acquisition phase of the investment.

The Fund's asset managers and lawyers should work together in the initial due diligence planning phase to review and refine reporting templates. These can then be used as a tool to underpin ongoing property management post acquisition.

If you can remove the need to report on issues which do not add value, the cost of due diligence will be reduced.

5. Use technology to reduce legal due diligence costs on leases

Technology can make a real difference to lease due diligence quality and costs. For example, document review software can scan and identify discrepancies in lease documents in a fraction of the time it would take a person.

6. Are you In or Out?

In the past, some have used due diligence as part of a "box ticking" exercise and a way for Fund managers to create evidence that they have discharged their fiduciary duties. However, of itself, due diligence may not add any value to the Fund at an asset management level.

Due diligence should be seen as a tool to generate real value. Done well, it will not only verify the value of the assets and issues which require immediate management focus but can also represent the first step in a value adding strategy over the life of the investment.

By developing your own, tailored strategy on an asset by asset basis, you can get a lot more bang for your due diligence bucks.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Most awarded firm and Australian deal of the year
Australasian Legal Business Awards
Employer of Choice for Women
Equal Opportunity for Women
in the Workplace (EOWA)

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.