Buying commercial property is a complex process with the application, financing and due diligence requiring far more consideration. The amount of capital on the line tends to be far greater than in a residential property transaction, and buyers need to ensure that they are in compliance with UK law during the purchase process.
This article will shed some light on the commercial property buying process. To speak to one of our experienced commercial property solicitors about how they can help your buying journey, contact your local Eric Robinson office at the following locations: Southampton, Hedge End, Chandlers Ford, Winchester, Lymington, or Richmond Upon Thames.
What are the different types of commercial property?
Commercial property is anything which does not fall under the title of residential property. This can include space dedicated to profit-making activity, but it doesn’t have to be. Spaces dedicated to healthcare, childcare or non-for-profits also count as commercial.
Commercial property can be divided into five categories which are:
- Offices: Places of business.
- Retail: Locations for the selling of products and services eg. shops and shopping centres.
- Industrial: Warehouses and factories, for example.
- Leisure: Hospitality locations like hotels and restaurants, and sports facilities.
- Special use: This title encompasses healthcare, educational, religious and charitable institutions.
Steps in buying commercial property
Identifying the right property
It is important to spend time surveying the market for a property that is within your budget and meets your needs and the needs of your business. Another important point to consider is whether you will need to apply for planning permission to change its intended use.
Cost and finance
In commercial property purchases, a deposit is generally required when contracts are exchanged. The rest of the money is paid upon completion either as a lump sum or, more frequently, a commercial property mortgage.
Securing a commercial property mortgage requires a lot of work. The lender will need to see records such as a business plan, bank statements and business accounts.
Apart from the cost of the property itself, there are other costs to consider such as:
- Advice: most people buying commercial property will enlist the support of a commercial property solicitor whose fees will be added to the final payment.
- Mortgage costs: You will need to pay a mortgage advisor if you use one, and there are fees charged by the lender for arranging the mortgage too.
- Stamp duty: In England, stamp duty is charged at 2% on commercial property above £150,000, and 5% on £250,000 and above.
You also may want to pre-plan for costs that arise when owning a commercial property such as:
- Your commercial mortgage payment
- Insurance
- Utility bills
- Renovations or repairs that are needed
Making an offer
Once you have chosen a suitable property, you will make a written offer to the seller’s commercial estate agent. You may need to negotiate, but once your offer is accepted, it is time to enlist an experienced commercial property solicitor who will guide you through the next stage of the process.
Due diligence
It is common practice to conduct a local authority search and a structural survey to find out about any issues such as planning applications or building regulations, or issues with the building itself.
Your commercial property solicitor will orchestrate this, as well as coordinate the comprehensive investigation of the legal aspects of the property you are buying, also known as ‘due diligence’. This will involve looking at all the information available associated with the property to foresee any legal, structural or financial issues which may arise at a later date.
Your solicitor can organise an exclusivity agreement to prevent your seller from negotiating with any other party whilst you take the time to check if it is the right property for you.
Finalising
Your solicitor will draft an agreement including the details of the sale like how it’s being financed and suggested timescales. When both parties are happy with this, you are satisfied with the physical condition of the property, and you have secured the necessary finance, contracts will be exchanged and the sale will become legal.
We understand that the process of buying a commercial property can be daunting with so many considerations and potential pitfalls. Our experienced commercial property solicitors can alleviate some of the stress and guide you through the process ensuring you and your finances are fully protected. Get in contact today to talk to one of our solicitors who would be more than happy to assist.
How can our Solicitors help?
We understand that buying commercial property is a large investment and the financial stakes are high. There are several crucial stages to get right in order to safeguard your investment and ensure you are making the correct choice.
Our expert commercial property solicitors have extensive experience managing commercial property transactions swiftly and effectively. To speak to us and find out more, get in touch with one of our local branches at the following locations: Southampton, Hedge End, Chandlers Ford, Winchester, Lymington, or Richmond Upon Thames.
FAQ’s
Can a first time buyer buy a commercial property?
First time buyers can buy commercial property but should be aware that lenders are likely to have strict criteria including a good credit score, profitable business and decent deposit.
Can I use my pension to buy commercial property?
It is possible to use your pension to invest in commercial property by using a pension scheme. There are two options for this: a Self-Invested Personal Pension (SIPP) or a Small Self-Administered Scheme (SSAS). Speak to a qualified commercial property solicitor for advice on the right path for you.
Can you buy commercial property with a residential mortgage?
You will need to qualify for a commercial property mortgage in order to buy commercial property and cannot use a residential mortgage.
Can you buy commercial property for personal use?
You can purchase commercial property and convert it into a residential property for personal use but will need to make sure the following points are met:
- You have planning permission approved for the conversion of the property from commercial to residential use.
- You have the appropriate insurance, as commercial property insurance doesn’t cover residents.
- You are aware of the building regulations that the building will need to meet.
Do you pay VAT when buying commercial property?
Generally, you don’t pay VAT on commercial property purchases. You may pay VAT if the property is ‘elected to tax’, incomplete or less than 3 years old.
How long does it take when buying a commercial property?
Generally commercial property purchases are complete within four months. However, this is an estimate because circumstances can affect the timeline such as:
- The buyer waiting for a commercial mortgage to be approved rather than paying in cash.
- Tenants using the commercial property at the time of purchase.
- A chain of sellers and buyers
- The need for surveys and searches
How much deposit do I need to buy a commercial property?
The deposit required will depend on the lender, the property type, and the specific circumstances of your commercial property purchase and how ‘risky’ the lender deems the investment. Generally, deposits for commercial property range from 25% to 40%.
How does buying commercial property differ from buying residential property?
There are several differences, including the following:
- Interest rates on commercial mortgages tend to be, on average, 6% higher than on residential mortgages.
- Commercial properties are seen as a better investment because of higher rental yields meaning larger profit margins.
- The seller will need to pay capital gains tax if they are making a profit, which doesn’t apply to residential property in which you reside
Do I need a solicitor for buying commercial property?
If you are applying for a commercial mortgage, then the lender will generally require you to use a commercial property solicitor.
You can technically opt out of using a solicitor if you are a cash buyer, but this is not recommended due to the complex nature of commercial property law and the high financial stakes.
An expert commercial property solicitor will look out for your interests and ensure the transaction goes smoothly. To find out how Eric Robinson can help, contact us today.
