Commercial Property Purchases FAQs
What are heads of terms?
These are the terms of sale agreed between you and the seller at the outset, including details such as the identity of the parties, the agreed price, any conditions to the sale and required time frames. Commercial property agents and solicitors can assist with negotiating the heads of terms.
I have agreed terms to buy a commercial property; what happens next?
Once terms have been agreed:
- you should ensure that you have sufficient cash funds or an offer of finance
- the parties will each instruct solicitors
- the seller’s solicitor will prepare a sales pack typically comprising:
- title information proving the seller’s ownership
- industry-standard replies to enquiries about the property covering everything from disputes to asbestos, known as CPSEs
- sale contract
- we will do the following:
- order searches and review results
- review the sales pack referred to above
- negotiate the sale contract
- raise additional, specific enquiries resulting from our due diligence
- draft and negotiate the transfer deed
- report to you
- deal with the requirements of your lender or their solicitors (if applicable)
- once you are satisfied with our report and are prepared to proceed, the contract will be signed and exchanged – at this point, the parties will be legally bound to the transaction
- the transfer deed will be completed (and the property formally transferred to you) on the completion date agreed in the contract or when any conditions to the contract have been satisfied
- we will deal with post-completion formalities including the filing of any required Stamp Duty Land Tax return with HMRC, registration of any legal charge at Companies House and registration of any legal charge and the transfer deed at the Land Registry
Timings and transaction documents will vary depending on the circumstances of the transaction, for example:
- auction purchases are often quicker than private sales
- cash purchases are more straightforward than those requiring funding
- completion may depend on contractual conditions being satisfied, such as obtaining planning permission for redevelopment.
In every case, we will clearly explain anticipated timeframes and potential delays throughout.
What are searches?
We will obtain searches of the property to find out as much as possible about it, in case there are any problems that could be expensive to fix or restrictions that might prevent certain uses.
Searches we typically obtain include:
- Local Authority – this search reveals planning and building regulations information about the property including any breaches/enforcement action, compulsory purchase orders and proposals for road and rail schemes in the vicinity of the property.
- Flood Risk – if the building is deemed to be at risk of flooding, this could significantly affect insurance premiums or make insurance unobtainable.
- Drainage & Water – this search reveals information about water and drainage services at the property, the existence of pipes and sewers beneath it and connection details.
- Environmental – this search assesses the environmental risks affecting the property, including the risk of it being designated as contaminated land.
- Coal – this search assesses whether coal mining has taken place on or near the property and the likelihood of the property suffering from subsidence as a result.
We can provide a quote before ordering searches. A full suite of searches for a commercial property typically costs in the region of £800 - £1,000 plus VAT.
What if I need to borrow money to fund my purchase?
We can advise you on the terms of any loan documentation your lender may require from a simple legal charge through to debentures, loan/facility agreements, personal guarantees, cross-company guarantees and third-party security. We are also able to advise on more complex finance structures such as where a lender taking an equity stake in a particular project.
In many circumstances, your lender will instruct us to act for them as well as for you in relation to your purchase. If the lender chooses to instruct a separate firm of solicitors, we will liaise with them regularly to provide all information they require, to enable them to progress the loan arrangement as quickly and efficiently as possible.
How much are legal fees and how long will my purchase take?
This depends on the specific requirements of each transaction in each case. For example, a contract to purchase a property conditional upon you obtaining planning permission for redevelopment is more complex and time-consuming to draft, negotiate and agree than an unconditional contract for you to purchase a property immediately following exchange.
Similarly, a contract conditional on planning will involve a delay between exchange and completion whilst you attempt to satisfy the conditions, whereas an unconditional contract might exchange and complete on the same day.
We will provide a detailed fee quote and estimated timeframe at the outset of the transaction and will keep you fully informed of any anticipated changes to those, throughout.
Do I need a survey when buying commercial property?
We would strongly recommend that a structural survey is carried out in every case. The seller is not necessarily obliged to disclose defects in the property and some may not be visible with the naked eye. You should consult a structural surveyor at the outset to ensure that the building is sound before other costs are incurred. Note that a survey is not the same as a lender’s valuation which is only concerned with ensuring that the property offers sufficient security for the loan, as opposed to identifying any physical problems with the building itself.
What other expenses will I have to pay aside from legal fees?
Typical expenses may include:
- commercial property agent’s fees (if appointed to assist in finding a property to buy and/or negotiate of heads of terms)
- valuation, arrangement and lender’s solicitor’s fees (if you need a loan to fund the purchase)
- surveyor’s fees
- search fees
- Stamp Duty Land Tax - calculate your costs here
- Land Registry and Companies House registration fees
At the outset of each transaction, we will provide an estimate of our fees and the likely expenses we will incur during the transaction to include search fees, Stamp Duty Land Tax and registration fees.
Will I need to take advice from other professionals?
Yes. You should consult:
- a surveyor at an early stage to obtain a structural survey of the building
- a valuer to check that the building is worth the price you have agreed to pay
- a tax specialist to ensure that the proposed structure of the transaction is most efficient for your personal circumstances and to assess the tax consequences of the purchase
Will I have to pay VAT on the purchase price?
Generally, the sale of commercial property is exempt from VAT. There are certain exceptions including where the property is less than three years old or the seller has made an option to tax the property for VAT purposes with HMRC (sometimes called a VAT Election). If any of these exceptions apply, it would mean that the seller would normally need to charge VAT on the purchase price. If the property is let to tenants, the purchase may be treated as a Transfer of a Going Concern meaning that no VAT is payable. We will address the VAT position in our enquiries of the seller and will consult with you and your tax advisers to ensure that the VAT position is established and dealt with appropriately in the contract.
What is a Transfer of a Going Concern?
A Transfer of a Going Concern (TOGC) is the sale of a business including assets which will be treated by HMRC as outside the scope of VAT and therefore no VAT will be payable if certain conditions are met.