In a nutshell, bank monitoring is being the eyes and ears of a bank (or other lender), providing it with expert advice on feasibility, construction, contract, procedural and statutory matters to enable it to minimise development related risks when it lends money to a developer.

To begin with an initial review of the proposed commercial development is undertaken. This is followed by regular ‘interim’ inspections and reports during the construction phase and until practical completion. The initial report is essentially a ‘sense check’ looking at all the design information to make sure that what the developer is proposing stacks up in terms of cost, design, timescale, planning permission and procurement method, among other factors.

The report provides an in-depth assessment of the viability of the development from a technical perspective and requires a lot of information to be gathered from the developer in order to interrogate their due diligence. This can include making sure they’ve got planning permission, checking that they’ve made sure the ground conditions have been assessed sufficiently for the foundations to be designed and making sure that their budget is realistic based on suitably advanced design.

These checks reassure the bank that the designs and costs of a project are robust and risks have been considered and are being properly controlled. Reporting is carried out in tandem with a valuer who calculates how much the end product will be worth so that the bank can be sure that it will get its money back on completion. 

Once works commence, regular site visits are undertaken to monitor progress and to make sure the work is of a good standard and matches the approved design. On these inspections there are also checks to ensure due process is being followed in terms of the contract planning and building control discharges.

Other duties include ensuring that all parties are properly appointed, have the correct insurances, and provide warranties in favour of the bank – again to reduce risk. Building works can be vulnerable to delays and cost overruns, particularly if the conversion of old properties is part of the scheme or if significant ground works are required. Checks ensure that the site is safe and well organised, progress is happening and any delays, unforeseen extra costs or any threats to the project are reported back.

The amount of money released to the borrower is controlled, on the basis of costs incurred and works done. This ensures that the lender isn’t allowing the developer access to excess funds which would expose it to risk should the borrower go bust or disappear with the money. For this reason, the monitoring surveyor must be fully aware of the project finances to ensure that the sums claimed relate to the development and its progress.

Ultimately, when undertaking bank monitoring, the core responsibility is to make sure that if the borrower disappears for whatever reason, the bank could step-in to complete the project with the remaining loan funds and ultimately recover their cash once the asset is sold.

Further information

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