Buying a commercial property

What do I need to know when buying a commercial property?

Buying a commercial property can be a very daunting but exciting investment. However, different to purchasing a residential property, the process of purchasing a commercial property comes with certain considerations you need to be aware of.

Caveat emptor

It is your responsibility to ensure you are satisfied with the state of repair and condition of the property, including any foundations or other areas not necessarily in plain sight. This principle is known as “caveat emptor” and is one reason why we would always recommend professional surveys carried out by a RICs certified building surveyor.

As solicitors, we do not necessarily view the property and so we rely heavily on clear information being provided as to any specific issues which need to be considered. Examples might include:-

When we investigate the seller’s title to the property we will look for matters such as restrictive covenants and examine whether these might restrict or interfere with your propose use.

Use of the property

You need to consider whether the current use of the property aligns with your intended use going forward. The use of the property should be permitted in accordance to the terms of the lease (leasehold) and the local planning authority (leasehold or freehold) and in accordance with any other covenants on the title.

If your intended use of the property is different to the current use or is not permitted (or if you plan on making significant alterations) then you must consider obtaining the necessary consents from the local planning authority or pursuant to any lease. A failure to do so might resolve in enforcement action being taken which is likely to result in you being unable to use the property. This is a key issue which ought to be reviewed early on in the transaction.

Tenancies and the status of any occupiers

If the property is occupied by someone other than the seller than we will need to review the basis upon which they occupy. Ideally, a formal tenancy agreement will be in place which properly documents the arrangement between the seller and occupier. A careful review will need to be carried out in order to review various matters such as:

If you require vacant possession of the property then this will need to be arranged, ideally before exchange of contracts. We can however exchange contracts with completion being conditional on the seller obtaining vacant possession of the property.

Environmental considerations

Any buyer should carefully consider the contaminated land regime as set out in the Environmental Protection Act 1990. This allows for land or property (commercial or otherwise) to be designated as “contaminated” by the relevant authority and require a satisfactory clean up.

There are different categories of persons who might be liable for the remediating of the land or property. Whilst the primary rule is that “the polluter pays”, an unknowing buyer can also become equally responsible or worse if the original polluter is not identified.

The extent to which environmental considerations are important will depend on the type of property, the nature of its use and its location. If the property is going to be subject to future development then this should be scrutinised more closely.

Most buyers will instruct us to carry out an initial desktop environmental search to check whether the property ought to be investigated further. Whilst these searches can be helpful, we always compliment this with specific enquiries of the seller and recommend full surveys and inspections to check for unrecorded circumstances such as illegal dumping.

VAT and outgoings

Early consideration should be given to whether VAT will be chargeable on the purchase price and if so, how that interacts with the buyer’s own VAT position. If the property is subject to a tenancy or an ongoing business then often the purchase can be treated as a Transfer of Going Concern (or TOGC), meaning no VAT is actually payable.

Buyers should always check the outgoings associated with the property, in the first instance by making enquiries of the seller’s agent and the local authority if applicable. Key outgoings will include business rates and utility services, but buyers should also check for other associated payments such as service charges. As part of the buying process we will investigate and confirm these payments as necessary.

Certificates and records

When buying a commercial property you will want to see the usual records for the installation and servicing of key utilities and equipment such as a gas boiler, electrics, air conditioning, extraction systems, roller doors and lifts. Failure to do so can leave a buyer with large and unaccounted for expenses after completion.

There are a variety of other certificates and documents which are statutory requirements for the seller to provide you with. These can include the Energy Performance Certificate (which must also meet the required minimum standard), an asbestos survey and also a fire risk assessment.

Finance

We often act for clients buying commercial property with secured finance from a lender. If that is the case we can usually act for your lender at the same time although sometimes either this is not possible or the lender would prefer to use its own solicitor.

When obtaining secured finance you should be aware the lender will have its own set of minimum requirements which must be met before funds are released.

For all buyers

The experience of our team allows us to offer peace of mind in dealing with your commercial property purchase regardless of the value or complexity involved. Here are out top tips for making progress as straightforward as possible:-

  • Get tax and accountancy advice early on regarding VAT, capital allowances and anything else connected to the purchase.
  • Speak to the agent early on and arrange for us to be sent the draft heads of terms so we can discuss these with you before being agreed.
  • Instruct a chartered building surveyor to carry out a building survey as soon as possible.
  • Give any lender our contact details at the earliest opportunity and if you have a personal relationship manager or broker then introduce us to them.
  • Look at the local authority’s planning history for the property and check the business rates which are likely to be payable.
  • If you intend on changing the use of the property or carrying out development works then obtain planning advice early on.
  • If the property is agricultural then consider obtaining advice from a rural land agent on the value of any entitlements or subsidies.

Our commercial property team have extensive experience of helping clients with their purchase of a commercial property. For more information on how we can help support you when buying commercial property, please contact one of our commercial property specialists in our Newbury, Thatcham or Maidenhead offices below.

Our Buying a commercial property Team

Unsure who to contact? Make a general enquiry:

Newbury Thatcham Maidenhead
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