Tips when purchasing a commercial property:

When purchasing a commercial property, especially if you are a first-time purchaser, it is important to be aware of additional issues that you wouldn’t necessarily come across when purchasing a residential property. Some key issues are considered below: 

  1. A purchaser should consider whether asbestos is present or likely to be present at the property and an asbestos report should be requested from the seller, who has a duty to provide the same. If the report confirms that asbestos is present, the seller has a duty to put a management plan in place to manage the asbestos. A copy of the same should also be requested from the vendor. 

  2. A purchaser should always ensure that they fully inspect the property before contracts are exchanged. Whilst this applies to both residential and commercial purchases, this may be more poignant on a commercial purchase where the property might not have been kept in good repair, or where previous industrial use may have lead to environmental contamination of the property. The purchaser’s basic environmental search will provide some guidance as to the environmental condition of the property, but the purchaser should also ask the vendor to provide any environmental reports held in relation to the property. The purchaser may also wish to request that the vendor obtains a letter from the search provider stating that the purchaser is able to rely on the results of the same. If the purchaser has any concerns, the purchaser may also wish to instruct their own in-depth environmental search. If this reveals environmental issues, the purchaser should obtain confirmation from the vendor that the vendor will be responsible for any costs required to “clean up” and decontaminate the land. 

  3. A purchaser should carefully check the title deeds to the property to check for the presence of any “Restrictive Covenants” (restrictions) on the use of the property. Commercial properties are more likely to be subject to restrictions than residential properties, as residential properties are mainly used as dwellings only. If any such restrictions are present, the matter should be discussed with the purchaser’s solicitor, but if the purchaser believes that following purchase of the property, they are likely to breach the restriction, they may either wish to withdraw from the purchase or see if restrictive covenant insurance is available. The matter needs to be considered on a case by case basis. The purchaser should also check with the vendor that there is no existing breach of the restriction. 

  4. A purchaser may be liable to pay VAT on the purchase price of a commercial property (or on rental payments under a commercial lease). The situation is determined by whether the vendor has “taxed” the property at HM Revenue & Customs. If this is the case, HMRC will have provided a letter to the vendor authorising them to charge VAT in relation to the property. A copy of this letter should be obtained from the vendor as proof that they have the right to charge VAT. 

  5. A purchaser should always check that the property benefits from adequate planning permission for the use required. With residential properties, this is usually automatic given that the property is likely to have been used as a dwelling for a significant number of years, however, with a commercial property, the property may have changed use several times in recent history. A vendor should therefore always be asked to provide evidence of planning permission having been granted authorising the use of the property. If this is not available, as a minimum, the vendor should be asked to confirm how long they have used the property for its particular use. The purchaser’s solicitor will then need to advise their client as to whether the response is satisfactory or not, or whether the purchaser would risk enforcement action from the local council following completion. In addition, if any works have been carried out at the property, the vendor should also be asked to provide evidence of planning permission and building regulation certificates required for the work carried out.

If you would like more information on any aspect of commercial property please do not hesitate to contact David Leviten.