Almost half thef respondents said that they do not, as a standard, commission an environmental assessment. These assessments can reveal potentially significant remediation costs and impact on subsequently land values. Furthermore, only half the lenders interviewed always require a check against occupier requirements and institutional standards of development. To make matters worse, a significant proportion of lenders allow the borrowers to set the scope of the technical due diligence.

Stuart Johnson, director at FPDSavills, said: "Although on the whole banks are lending responsibly, we have uncovered areas where risk is not being appropriately assessed. Lenders must satisfy themselves that all aspects of technical due diligence are considered in order to minimise the risk of cost overruns, delays or potential problems with the future sale or letting of the property."

The fact that so many lenders allow developers to set the parameters of the due diligence is probably, in Johnson's view, a reflection of the current highly competitive debt market but presents risks to lenders. He said: "…there is considerable pressure on lenders to chase business, win and hold onto new clients, but this should not influence the breadth and depth of due diligence undertaken when considering development loans."

The report concludes: "To ensure the minimum level of risk before, during and after the construction phase we believe that lenders should be instructing their monitor to evaluate all of these areas of due diligence."