The purchase or sale of commercial property is a hugely important transaction for most businesses. Buyers can obtain a foundation from which to build their business while sellers can benefit from a big cash injection. Here we provide some guidance and tips to help you navigate the legal side of the process.
Suitability of the premises
Potential buyers of commercial property need to take into account certain legal considerations to decide if the property is suitable for their business. Buyers also need to be aware of these to target marketing effectively. For example:
- The local council planning classification must be compatible with the type of business (eg. pub, shop etc) using it.
- The property could be subject to restrictive covenants affecting its use, or easements allowing certain individuals to enter the property for access purposes.
- The physical nature of the premises should allow the business to comply with laws regarding disabled access; and fire, health and safety regulations.
- There might be local restrictions on delivery times, waste disposal, and noise and pollution levels.
Lockout Agreement
Once they have a target property the buyer (normally through solicitors) will start negotiations with the seller. In the meantime they might make a “lockout agreement”. The exact nature of these agreements varies but in essence it means the seller agrees not to sell the property to anyone else while negotiations are taking place.
Due Diligence
This part of the process consists of checks made by the seller’s solicitor to make sure there are no hidden problems with the premises. This typically includes:
- Checks on the suitability of the premises for the buyer’s business as described above.
- Planning applications that could affect the property (eg. for lengthy building works next door) and proposed road schemes.
- Whether the property is a listed building or in a conservation area.
- That any alterations to the building have been approved by Building Control.
- The validity of the seller’s legal title and any restrictions on this (eg. a mortgage).
- The property’s connection to drainage and water supply.
- Environmental and surveyor’s report.
Exchange and Completion
Once the due diligence is complete the buyer and seller will, through their solicitors, exchange signed contacts for the sale of the property. The buyer will pay the deposit for the purchase price. At this stage the sale becomes legally binding and neither party can pull out without becoming liable for compensation to the other party. On the agreed completion date the balance of the purchase price is transferred to the seller.
After-Sale Formalities
The solicitor for the buyer will prepare a Land Registration Return to be submitted to HMRC who in turn will calculate the amount of stamp duty land tax payable. The solicitor will also register the buyer’s ownership of the property at the Land Registry.
The legal side of a commercial property sale can seem confusing at first. However, the legal formalities exist in part to protect buyer and seller. Using a commercial property solicitor for all parts of the process is highly advisable to ensure a smooth sale.
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