Buying A Commercial Property Checklist

There are several economic, logistical, and legal considerations to make before purchasing a commercial property

The term “commercial property” encompasses a wide range of real estate, including but not limited to the following

Offices – Places of professional, administrative, or commercial activity.

Leisure – Cinemas, hotels, fitness centres, and restaurants and bars.

Retail sector encompasses a wide range of businesses, from grocery stores and shopping centres to corner shops and specialty boutiques.

Industrial – factory and warehouses

In this article, Buying A Commercial Property Checklist, we take a look at the process and mechanism involved.

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Free Initial Telephone Discussion

For a free initial discussion with a member of our new enquiries team, get in touch with us today. We are experienced in dealing with all aspects of commercial property law and once instructed we will review your situation and discuss the options open to you in a clear and approachable manner. Early expert legal assistance can help ensure you avoid the stress of dealing with these issues on your own. Simply call us on 0345 901 0445 or click here to make a free enquiry and a member of the team will get back to you.

When is the best time to buy a commercial property?

It’s best to put off any commercial real estate purchases until the market isn’t at its peak and has calmed down. You need to study the marketplace, paying attention to regional and national patterns. This entails keeping an eye on:

Commercial properties sales
The number of available commercial properties
Mortgage options for financing the purchase of commercial real estate.
The level of competition: at any given time, how many investors are purchasing business real estate?
Market demand and rental rates in the area where the property is located.

What are the advantages of buying a commercial property?

Despite the many benefits of owning a commercial building, many companies still choose to lease instead.

Purchasing your own building is a long-term financial investment that can pay off handsomely and secure the long-term success of your company. In the long run, it can serve as a valuable commercial asset, generating profit that can be reinvested.

There are also other financial advantages to buying a commercial property, such as cheaper monthly expenses due to the cost of the mortgage compared to the cost of rent. Businesses can better plan for the future by locking in the interest rate on a commercial mortgage and eliminating the risk of unexpected rent hikes, which are standard in commercial leases.

Buying commercial property, as opposed to leasing it, can give more security and stability for your firm, especially if your landlord is trying to limit your security of tenure. If your lease is coming to an end and there is no way to renew it, you can save time and money by purchasing a building instead of having to find new premises.

Advantages of owning a commercial building include greater independence and freedom, as you will not be bound by the restrictions of a commercial lease. You’re free to sell, lease, sublease, or otherwise dispose of your property in any way you see fit, within the bounds of any applicable laws, lending requirements, or restrictive covenants.

Depending on the nature of your business and the restrictions imposed by the local authority, you may be able to make structural changes or add on to your building. However, as a tenant under a business lease, you will likely be restricted in the types of improvements you can make. At the end of the lease term, you may also be responsible for restoring the property to its original condition.

What are the disadvantages of buying a commercial property?

There are, of course, some drawbacks to purchasing commercial property that should be taken into account.

The initial financial commitment required to purchase a building can be significant. A sizable deposit is still necessary, as most lenders will only finance up to 70% of the value of the property. You should also budget for legal and land registry fees, as well as stamp duty land tax and any valuation or arrangement fees.

The value of your commercial property could go down as well as up, exposing you to a negative equity situation. In addition, if you default on your business mortgage, a variable mortgage rate will put you at risk of additional repayments and, ultimately, repossession.

The capital outlay isn’t the only expense to think about when purchasing a commercial building. You, as the property owner, will be responsible for upkeep, repairs, and insurance. However, many commercial leases place the burden of paying for insurance and repairs (whether structural or otherwise) on the tenant.

While purchasing a commercial building can provide you peace of mind, it can be difficult to sell at short notice. If you need to relocate or free up some working capital, these scenarios can be problematic. You may be able to get out of a commercial property lease early by an agreement, assignment, or subletting.

Where should you be looking?

A superior location increases the likelihood that tenants and investors will be interested in a building. Take into account the viewpoint of your tenants and how they can financially gain from renting from you. Purchasing a commercial building in close proximity to amenities such as schools, hospitals, and local authority services can help reduce vacancies and boost property prices.

Location is vital when considering buying a commercial building and the following things should be taken into account:

Where is the nearest tube, tram or bus stop to the property? Is there easy access to the building via motorways and trains?
How far away is the property from potential employees and customers?
Is there enough secure parking on the premises for employees and visitors?
Is there growth or decline in the region? Investing in an area that is in decline is not a wise move. Keep an eye out for new businesses opening up in the vicinity.
What is the current supply and demand for commercial property in the area? Even if you’re buying a property for your own use, it’s a good idea to factor in the unit’s potential investment worth to a third party. Any purchase you make should account for the possibility that you will want to sell in the future. Rows and rows of rundown, abandoned commercial buildings might not be the ideal place to put your money. On the flip side, if this is the case, you’ll be in an excellent position to negotiate a low price for a property here. You can learn a thing or two about tenant acquisition by observing how rivals do it. Doing so can help you get insight into the challenges they faced and the solutions they found. One such action is boosting the green credentials of the workplace. Properties that work to lessen their impact on the environment are gaining more and more tenants’ attention.

Have you thought about your budget?

You undoubtedly already know that there are additional expenses beyond the initial investment required to acquire a commercial property. 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 building 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

Unlike residential mortgages, commercial loans have different requirements. Lenders are more selective than in the past, making it more challenging to secure one of these loans.

If you do manage to track down a lender who is ready to work with you, the terms of the loan may leave much to be desired.

You can reduce the interest rate you pay on your business loan by working with a mortgage broker who is familiar with the market.

Brokers have the insider information and years of experience in the industry to know what each lender is willing to finance and at what interest rates. If you want to save money, it’s essential that you do your research.

Lenders want to see that you have a track record of responsibly repaying debt. In addition, 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 that you should make a bid on the property. Find out how much similar buildings in the surrounding area often rent for by doing as much research as you can. If the seller does not accept your initial offer, you may need to engage in some form of negotiation, just like you would when buying a house.

However, a lockout clause that takes the property off the market would be something to consider.

Remember that any offers to the agent must be made 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 commercial property. 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 a commercial property. 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.

Authored by Ben Posted in News Tagged as