Commercial Property Sales & Purchases.

Buying a tenanted commercial property — an investment purchase — involves additional considerations because the buyer is acquiring not just the building but the income stream and the landlord's obligations under the existing leases. Due diligence must include: a detailed review of all leases, including rent, term, rent review provisions, repairing obligations, and break clauses; verification of the tenants' financial standing and rent payment history; checking for any arrears, disputes, or breaches; and confirming the service charge position. The leases are assigned to the buyer on completion, and the buyer steps into the landlord's role. Where the property is sold as a transfer of a going concern, there may be VAT advantages. The strength and security of the income stream is central to the value of an investment property, making thorough lease due diligence essential.

A commercial property purchase typically takes between six and twelve weeks from agreement of heads of terms to completion, though complex transactions can take considerably longer. The timeline depends on the nature of the property, the extent of due diligence required, whether the property is tenanted, the complexity of title and planning issues, and how quickly the parties and their advisers respond. Transactions involving development land, environmental concerns, multiple tenancies, or financing arrangements take longer. Unlike residential transactions, there is no chain in the conventional sense, but the due diligence process is more extensive. Setting a realistic timetable at the outset — and agreeing it in the heads of terms — helps keep the transaction on track.

Commercial property transactions carry significant tax implications. In England, Stamp Duty Land Tax (SDLT) applies to commercial property at non-residential rates, which differ from residential rates and have their own thresholds; in Wales, Land Transaction Tax (LTT) applies at non-residential rates. VAT may be chargeable on the purchase price depending on the property and whether the seller has opted to tax. Capital allowances may be available on certain fixtures within the building, which can produce valuable tax relief for the buyer — this needs to be addressed in the contract. Capital gains tax or corporation tax may affect the seller. The tax position can significantly affect the overall cost and structure of the transaction, and early advice from both solicitors and accountants is strongly recommended.

Commercial conveyancing is the legal process of transferring ownership of commercial property — offices, shops, industrial units, land, and investment property. While it shares the basic framework of residential conveyancing, it is considerably more complex. Commercial transactions involve more detailed due diligence, more significant tax considerations including VAT and capital allowances, more complex title and planning issues, and frequently the transfer of existing tenancies and commercial leases. The parties are usually businesses rather than individuals, and the contracts are negotiated rather than based on standard residential forms. There is also far less statutory consumer protection — the principle of caveat emptor (buyer beware) applies more strongly, placing the onus firmly on the buyer to investigate the property thoroughly before committing.

Due diligence on a commercial property purchase is extensive and is the buyer's responsibility. It includes: investigating title to confirm the seller owns what they are selling and identifying any rights, restrictions, or encumbrances; reviewing planning permissions and confirming the property can lawfully be used for the intended purpose; checking building regulations compliance; reviewing any existing leases and the financial standing of tenants; assessing environmental risk, including contaminated land; commissioning a building survey to assess physical condition; reviewing the VAT position; and confirming compliance with health and safety, fire safety, and energy efficiency requirements. The buyer raises detailed enquiries (Commercial Property Standard Enquiries) and the seller responds. Thorough due diligence is critical — once contracts are exchanged, the buyer generally takes the property as it is.

Environmental risk is a significant consideration in commercial property purchases — particularly for industrial, former industrial, or brownfield sites. The principal concern is contaminated land: under the contaminated land regime, the current owner or occupier of land can be held liable for the cost of cleaning up historic contamination, even if they did not cause it. This liability can be very substantial. An environmental search is the starting point, and where it reveals concerns, a more detailed environmental assessment — a Phase 1 or Phase 2 environmental survey — may be needed. Other environmental issues include flood risk, the presence of asbestos in buildings, energy efficiency requirements (Minimum Energy Efficiency Standards), and Japanese knotweed. Environmental liabilities can be managed through contractual indemnities, environmental insurance, or price adjustments — but they must be identified before exchange.

At completion of a commercial property transaction, the purchase price (less any deposit already paid) is transferred from the buyer's solicitor to the seller's solicitor, and legal ownership passes to the buyer. The transfer deed is completed, and where the property is tenanted, the leases and any rent deposits are assigned to the buyer. After completion, the buyer's solicitor must: pay any SDLT or LTT due and submit the return within the required time limit; register the buyer as the new owner at HM Land Registry; and where the property was tenanted, notify the tenants of the change of landlord and deal with any apportionment of rent and service charge. Completion is usually a more involved process than in residential transactions, reflecting the greater complexity of commercial property and the need to deal with tenancies, tax, and registration.

A commercial property survey is a physical inspection and assessment of the building's condition by a chartered surveyor. Unlike residential transactions — where a mortgage valuation may be the minimum — a commercial buyer should almost always commission a full building survey, because the principle of buyer beware applies strongly and there is limited recourse against the seller for defects discovered after completion. A commercial building survey assesses the structural condition, the state of repair, building services, and any defects requiring attention, and can inform price negotiations and future maintenance budgeting. For older or industrial buildings, specialist surveys — for asbestos, structural engineering, or environmental matters — may also be appropriate. The cost of a thorough survey is modest compared to the cost of discovering serious defects after purchase.

An overage agreement — also called a clawback — is a contractual arrangement under which the seller of land or property is entitled to receive an additional payment from the buyer if a specified future event occurs that increases the value of the land. The most common trigger is obtaining planning permission for development. Overage protects a seller against the risk of selling land cheaply only to see the buyer profit from a subsequent change of use or development. Overage agreements must be carefully drafted to define the trigger event, the calculation of the additional payment, the duration of the obligation, and how it is secured against the land — usually by a restriction at HM Land Registry. Both buyers and sellers should take specialist advice, as poorly drafted overage provisions are a frequent source of dispute.

Where commercial property is owned by a company, the buyer can acquire it in one of two ways. An asset purchase means buying the property itself directly from the company that owns it — the buyer takes the property, and the selling company retains its other assets and liabilities. A share purchase means buying the shares in the company that owns the property — the buyer acquires the whole company, including the property but also all the company's other assets, liabilities, and history. Each has different legal and tax consequences. A share purchase can offer SDLT or LTT advantages — stamp duty on shares is lower than on property — but it also means inheriting the company's liabilities, requiring far more extensive due diligence. The right structure depends on the commercial and tax circumstances, and specialist advice is essential.

VAT on commercial property is one of the most complex areas of commercial conveyancing. The default position is that the sale of commercial property is exempt from VAT — but the seller can exercise an option to tax, which makes the sale standard-rated at 20%. Newly constructed commercial buildings (within three years of completion) are standard-rated automatically. Whether VAT applies significantly affects the buyer: VAT-registered buyers can usually recover the VAT, but it affects cash flow and the SDLT or LTT calculation, which is charged on the VAT-inclusive price. Where a tenanted commercial property is sold as a transfer of a going concern (TOGC), the sale may be outside the scope of VAT altogether if specific conditions are met. The VAT position must be clarified early — it affects the price, the tax, and the structure of the deal.

The searches required for a commercial property purchase are broadly similar to residential but often more extensive. They include: a local authority search, revealing planning history, road schemes, and enforcement notices; a drainage and water search; an environmental search, which is particularly important for commercial sites given the risk of contaminated land liability; a chancel repair search where relevant; and depending on location, coal mining, brine, or other mineral searches — coal mining searches are commonly needed across much of Wales. Additional searches may be appropriate depending on the property and its intended use — for example, a flood risk search, a highways search, or a utilities and services search. The buyer's solicitor advises on which searches are appropriate for the specific property and transaction.