Taking your business to the next level is an exciting but daunting proposition. Adding new staff is a common part of expanding any business, but it can be difficult to find suitable workspace for them. In some cases, such as expanding a workshop or enlarging an office, it’s necessary to either find new office space, rent extra floor space, or buy additional space.
Additionally, you may be considering purchasing an office from an investment perspective,
In this article, Buy An Office, we take a look at the process and mechanism involved.
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What are the advantages of buying an office?
Purchasing an office building is often a wise financial move because of the potential appreciation in value. It will be an asset on your balance sheet and can be put up as collateral if you need to borrow money.
Interest on a mortgage used to purchase commercial real estate can be deducted from taxable income and used to reduce corporate tax liability. Also, if you find that you no longer require the extra room, you may lease it out to bring in some extra cash.
If you buy an office building, you can also customise it to meet your specific needs.
Under certain circumstances, you may also be able to convert the office to residential use under permitted development rights. You should bear this in mind when investing in an office building.
What are the downsides to buying an office?
Purchasing usually involves a substantial financial outlay. Also, if you need to relocate to larger or smaller premises, or to a better location, but can’t because selling your office space is slow and complicated, your business may suffer.
What kind of office do you intend to buy?
Because of the worldwide change in work schedules caused by the pandemic, commercial and industrial areas have been put to new uses. Numerous high-traffic business facilities have become fulfilment centres for internet retailers. In contrast, light industrial properties evolve into a hybrid hub where tenants can locate both an office and a production floor.
Light industrial areas are warehouses, distribution centres, and distribution centres. Light industrial property may be a good alternative to conventional office spaces in the future due to its inclusion in Class E of the new use class regulation.
Many businesses, encouraged by the popularity of co-working and hybrid work arrangements, have begun searching for compact office properties with full amenities. With these spaces, they won’t have to divert resources from reaching their company goals towards hiring cleaning and maintenance personnel. The length of vacancies is one of the unknowns in commercial leases. Landlords can go without income for a while if it takes some time for their property to be rented by a new tenant. The creation of a shared office space is a viable solution.
Virtual businesses need a physical location where employees may gather to discuss and plan business matters. They can get the space and amenities they need for a limited time frame from a co-working facility, without having to sign a long-term contract.
Location, location, location.
Tenants and investors are more likely to be interested in a building that is in a prime location. Consider your tenants’ perspective and the ways in which they can benefit financially from renting from you. Vacancy rates can be lowered and property values can rise steadily if you buy an office in close proximity to places like schools, hospitals, and government buildings.
The old adage of the three most important things when considering buying a house can also apply to buying an office. Consideration needs to be given to the following factors:
- How far is the office from transport links? Is the office close to a road and rail network?
- How far is the office from staff and clients?
- Is there sufficient safe parking on site for staff and customers?
- Is the area booming or in decline? There is little point in investing in an area that is in decline. Look for signs of investment into the area.
- What is the level of supply and demand in the area for offices? If you intend to purchase an office for your own use, it is still useful to consider the potential investment value of the unit to a third party. At some point in the future, you may be looking to sell so try and future proof any purchasing decision. If there are row upon row of empty offices that are looking a bit tired, perhaps the area isn’t the best to invest in. The other side to this coin is that if this is the case, you will be in a strong position to get great price on buying an office in this area. Keeping an eye on how your competitors attract new tenants can provide you with some good ideas. By doing so, you can learn from their successes and mistakes and improve your own performance. Increasing the office space’s eco-credentials is a good example of this. Tenants are increasingly interested in properties that take steps to reduce their environmental impact.
Have you thought about your budget?
You undoubtedly already know that there are additional expenses beyond the initial investment required to acquire an office. So, when figuring out your financial plan, you need to also consider:
SDLT
If the acquisition price of your store exceeds £150,000 (at the time of writing), you will be subject to stamp duty (in England and Northern Ireland)
Market and Legal Expenses
Consulting with experts like solicitors, banks, and commercial agents will set you back additional fees.
Utility costs
You can learn a lot about a property’s energy efficiency and possible energy costs by looking at its Energy Performance Certificate.
Operating expenses
You should consider the ongoing expenses of the office once you have bought it. If you plan on renting out some of the space, you can even try to negotiate a split with the tenants. Insurance premiums, business rates, upkeep and maintenance, service charges, and maybe value-added tax also fall under this category.
Get your finances in place
Commercial loans differ from home mortgages. These loans are harder to come by because lenders are pickier about who they work with.
Even if you find a lender who is willing to work with you, the loan terms might not be ideal.
If you work with a mortgage broker who is well-versed in the market, you can lower the interest rate you pay on your office loan.
Brokers typically know what each lender is willing to finance and at what interest rates because of their insider knowledge and years of experience in the business. Doing your homework is vital if you want to get a good deal.
Lenders will look for evidence that you can consistently pay back their loans. Moreover, it may require any of the following:
- A business plan.
- A repayment plan for the loan
- Financial records, receipts and bank statements
Arrange a viewing
The next step, if you’re ready to buy, is to set up a viewing with the property owner. This will give you a chance to learn more about the area and ask any remaining questions you might have.
Make an offer
Now is the time to make an offer on the office you’ve been looking at. Investigate the market as much as possible to determine the going rate for an office of this type in the area. Much like when purchasing a home, you may need to negotiate with the seller if they do not accept your original offer.
Once a deal is made, though, it’s beneficial to include a lockout clause that removes the office from the market.
Keep in mind that any and all offers should be submitted to the agent in writing.
Agree Heads of Terms
The Heads of Terms is a preliminary agreement that will be developed into a full contract. A solicitor will handle all the paperwork involved in the transaction on your behalf.
Exchange and Completion
Contracts can be exchanged once both parties are satisfied with the terms of the contract, and funding has been secured.
Once contracts have been exchanged, neither you nor the vendor may back out of the agreement without paying a hefty penalty. If a deposit is needed, you’ll have to put down money for it.
When all the documents are signed and the remaining balance is paid to the seller, completion takes place and you will officially be the office’s new owner.
How we can help
We have a proven track-record of helping clients purchase office buildings. We are a multidisciplinary firm and have all the expertise inhouse to satisfy the most exacting requirements of our clients. We will guide you through all the necessary legal due diligence in a comprehensive and timely manner. We firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.
Deciding when (or whether) to incorporate, what kind of ownership
How to Contact Our Commercial Property Solicitors
It is important for you to be well informed about the issues and possible implications of buying an office. However, expert legal support is crucial in terms of ensuring a positive outcome to your venture.
To speak to a member of our New Enquiries Team today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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