Getting onto the commercial property ladder
If you are a business owner, a goal you might be working towards is to buy your own commercial freehold property. Buying your own commercial property gives you freedom to fit it out as you want (subject to planning approval) and provides certainty over tenure and costs. It allows the business to build up an asset over time, which could be sold on in the future, used for collateral to release funds for expansion or once redundant be redeveloped subject to planning approval.
If you have not purchased a commercial property before then you might be apprehensive about the process. Depending on the type of commercial property you are planning to buy and how you plan to buy it, then it should be straight forward. Here are a few tips to keep your purchase on track.
Narrow down your search criteria
It may take time to find exactly what you want, in the area you want, and for the price you can afford to pay.
Think about issues such as is the location suitable to receive and dispatch deliveries, does the property have any residential neighbours which might be impacted by your business operations, will employees and visitors be able to park at or near the property easily or is it close to good transport links. Also consider future business plans and whether the property will allow your business to expand.
Look into the Energy Performance Certificate for the property as rules have been introduced which require many commercial properties to be brought up to minimum energy efficiency standards unless they are exempt. This could affect plans to let the building in the future.
Once you have found a property it is important to understand if you are buying a freehold or leasehold property, the extent of the boundaries, the condition of the property, if there are any restrictions on use, breaches of planning conditions, access routes and so on, as the caveat ‘buyer beware’ also applies to a commercial property purchase.
You will need to check if there are service charge provisions for upkeep of the estate and communal areas.
If the property is being purchased as a share sale, then there may be additional disclosure information ahead of the purchase and warranties given by the seller. This should include environmental law warranties.
Ultimately it will be for you to be thorough in carrying out the due diligence process and to ask as many questions as you can.
Have the right team on board
As well as having an accountant to advise you on the tax position of your purchase ahead of it being made, instruct a competent commercial property solicitor who can help to advise you before and as the sale proceeds.
They will report back to you on a range of issues and raise queries with the seller, lender, managing agents etc on your behalf. They will help you to complete the necessary due diligence and identify any risks or other issues which could affect your ability to use the property as you intend, so it is important to work together early in the process.
In addition to the purchase price of the property there will also be a variety of other fees to consider, so make sure you have sufficient cash flow to pay for it or a loan facility in place. As well as the professional fees of a sales agent, surveyor, accountant, and solicitor there will be land registration fees and there may also be Stamp Duty Land Tax, VAT, and auction fees/buyers’ premium (if buying
Commercial mortgage lenders tend to lend around 70% of the cost of a commercial property so a deposit will need to be factored in. There will also be a lender’s arrangement fee. Shop around for the best mortgage deal as interest rates tend to be higher on commercial borrowing and you could save a significant amount each month.
Don’t forget when budgeting to plan for the running costs of the building which should include insurance and maintenance, communal service charges, business rates along with any compliance costs to bring the property up to a certain minimum standard.
Exchange and completion
Once you are ready to exchange contracts and pay your deposit it is important to make sure there is no funding gap, that all the lender requirements if there is one have been met and you can pay the full amount plus any fees and expenses on completion, otherwise you risk losing your deposit.
If you would like to discuss a commercial property purchase or sale, get in touch with our team today.
Marianne Webb can be contacted at firstname.lastname@example.org