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Legal Implications that Need Considering When Buying a Commercial Property

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This article was submitted by Bowden Jones Solicitors 

Buying commercial property is an important entity to consider for every business – either for trading use and/or investment, here are five important issues to consider:

Identifying Opportunities

Unlike the conveyancing industry, you will not find a surplus of commercial agents on your high street and many commercial investments are sold through private treaty however, auctions are a useful source of excellent value, particularly if you are just starting out.

It goes without saying that care is required at any auction – we’re not talking bargain hunt here – because if successful, you will need to hand over 10% on the day and complete within a month.Freehold or Leasehold?

Freehold purchasers control and own all of the property: the land itself, any structures on it, the subsoil below etc.  If inexperienced in relation to this entity, be aware that part of the ownership may be restricted by a third party, e.g. there may be a right of access over the property.

With leaseholds, the owner contractually holds the interest for set period limited to the length of the lease. The content of the lease will depend on the property and the relationship between the landlord and the tenant.

Business lease terms have gradually reduced over the years and the average lease length is now <8 years. Some commercial property tenants have a legal right to extend the contractual term of their lease.

It is likely that you will spend more in buying a freehold but you will probably achieve a greater return.

Cash Buyer or Loan?

Cash is often king and commercial property is no different.  Great deals are available if you can move super quickly.

If you are using a loan provider then keep them updated every step of the way it should go without saying that commercial property lenders are more interested in lending against the income generated by well-let properties rather than empty ones.

Costs

There are many costs to consider when buying commercial property.  These include:

  • The purchase price or lease premium
  • Stamp duty and land registry fees
  • Charges for surveyor, estate agent and solicitor
  • initial alterations and/or decoration
  • prepayment of initial rent (for leaseholds) and insurance
  • VAT (potentially).

Additional costs for drafting the lease can be expensive as there is no standard format for buying commercial property.

You also need to factor cost of empty business rates into any price valuation, a building survey & an environmental report; particularly if there is future redevelopment potential.

Tenants

Lenders are much happier lending against well let properties so unless you want to immediately use the property for your own purposes, the most sensible option would be to purchase a property which has a tenant in situ.

Good tenants are worth their weight in gold so it’s undoubtedly an advantage to inherit an immediate rent roll which allows you to accurately budget your costs going forward: the rent is fixed, you are paid in advance and rent reviews generally increase.

Expert Legal Advice With Bowden Jones Solicitors

If you require advice relating to commercial property please get in touch with our team of experts by calling 02920 484 550.  Alternatively, please visit www.bowdenjones.co.uk