Inspecting a property in an insolvency context

The physical inspection of the property will differ little from the practitioner's usual method of inspecting property for valuation, agency or landlord and tenant purposes but, depending upon the nature or type of instruction, the practitioner may be attentive to different aspects.

Environmental concerns

If a practitioner is advising a landlord where there is a risk that the tenant may be in financial difficulty, the issue of environmental pollution is going to be of paramount importance. If the tenant is a potential polluter – this may be pollution caused by the tenant's day-to-day business or by pollutant material having been left on site – the usual principle of 'polluter pays' will have little relevance if the polluter cannot pay. The responsibility for clean-up may then move up the chain to the landlord. While liability could rest with a previous occupier – particularly an occupier who has caused the pollution – it is also possible for the landlord (as owner of the site) ultimately to be liable for the clean-up. This is likely to have a significantly detrimental effect on the value of the freeholder's interest, so the practitioner should recommend that specialist advice be sought either from a chartered surveyor who specialises in environmental matters or from solicitors. The RICS Find a Surveyor includes an option to search by specialisation.

Who is in occupation of the property

The practitioner should ensure that there is no risk of the client creating or acquiescing in a landlord and tenant relationship with a third party. For example, a tenant in financial difficulty may be tempted to share occupation, or even allow a third party into full occupation of the property, in order to mitigate rental or other liabilities. It may be appropriate for legal advice to be sought and for a 'section 40 notice' under the Landlord and Tenant Act 1954 to be served upon the tenant so that full disclosure is made as to who is in occupation. There may be a risk that a tenant in financial difficulties will not provide a totally truthful answer, or indeed answer at all.

What is on site

It is important to consider what is physically on site. This is generally an easy issue to deal with if the property is vacant. If the property is still operational, it is necessary to attempt to distinguish between

• items owned by a landlord
• items owned by a tenant, and
• items owned by a third party, such as leased equipment.

Validity of insurance

The client should keep the insurance company informed of developments on site to minimise any grounds for the insurance company to either refuse to meet a claim or to seek to reduce a claim in the future. The client should of course be aware of the insurance details of the property. Either the landlord will be insuring and collecting the insurance premium from the tenant, or the tenant will be insuring with the landlord having full knowledge of that insurance. If the property is still operational, there should not be an issue here (although the practitioner should ensure that the tenant is complying with the insurance conditions).

A lease where the tenant has the primary duty to insure usually contains a provision enabling the landlord to insure at the tenant's cost in the event that the tenant fails to meet their insurance obligation. In any event, it is essential that appropriate insurance cover is preserved.

If the property is vacant, the insurance provider is likely to have very stringent conditions attached to continuing cover, such as:

• regular inspections
• draining down water
• turning off gas and/or electricity
• sealing of all windows and doors
• sealing of other openings such as letter boxes, and
• removal of any combustible material on site.

The insurer may also decline cover or only offer limited cover.