Tips For Buying and Selling Commercial Property

In simple terms, commercial property in the UK refers to buildings or land that are used for business purposes, rather than for living. This can include office spaces, shops, warehouses, and other types of industrial units.

There are a few key ways to tell the difference between commercial properties and homes:

• Purpose and Design: Commercial buildings are usually designed with businesses in mind. For example, an office building will be laid out with workspaces, while a shop will have areas for customers and stock.
• Regulations: Commercial properties are subject to different rules than homes. These rules can affect how they’re built, where they can be located, and how they can be used.
• Profitability and Leases: If you’re renting a commercial property, the lease terms are often longer, and the profit potential can be higher compared to residential properties. This gives businesses more stability and reduces the hassle of moving frequently.

Some properties are Mixed-Use, meaning they serve both business and residential purposes. For example, you might have a shop on the ground floor with a flat above it.

Selling a commercial property involves a series of important steps, and being well-prepared can make the process smoother and help you secure the best outcome. 

It’s also a good idea to create an information pack for prospective buyers. This should include essential details like planning permissions, the Energy Performance Certificate (EPC), business rates, local transport links, and other relevant costs. Providing this information upfront will make it easier for potential buyers to make informed decisions.

Just like with residential sales, it’s essential to make your property presentable before putting it on the market. Decluttering the space and fixing any small issues will make the property more appealing to potential buyers, while properly staging your space can help viewers imagine their business thriving there.

This is where working closely with an experienced commercial property solicitor can be incredibly useful. They’ll guide you through all the legal requirements, including managing deposits, handling contracts, and making sure everything runs smoothly during the sale process. 

You’ll also need to provide certain legal documents, such as an Energy Performance Certificate (EPC), to show how energy-efficient the building is. Make sure any planning permissions or building regulations are up to date, and disclose any ongoing disputes or environmental concerns.

An accurate valuation is key to a successful sale. To determine your property’s value, you’ll need to take into account several factors, including the location, market trends, and the condition of the building. It’s also worth looking at similar properties that have recently sold in the area to give you a good idea of what to expect. 

A professional valuer can provide a detailed report, which will help you set a realistic price that attracts serious buyers.

Selling at auction can be a quick way to sell your property, especially if you need to secure a deal faster. Auctions attract motivated buyers, and properties sold this way often don’t require as much preparation. The competitive bidding environment can sometimes help achieve or even exceed the market value of the property, especially if it’s highly sought after. Additionally, the transparent auction process assures sellers of a fair sale, with the certainty of a legally binding agreement as soon as the auction concludes. 

However, keep in mind that properties sold at auction may sell for a lower price, and there are auction fees to consider. To get the best result, you’ll want to market the property effectively before the auction takes place.

If you’d like to learn more about commercial property auctions, you can read our comprehensive blog here.

Maintaining your commercial property insurance is important, even while you're in the process of selling. It’s essential to keep your property insured against risks like fire, theft, or damage until the sale is completed and ownership is officially transferred. 

You may need to inform your insurer of the sale to ensure your policy is updated. This way, you’re protected against any unforeseen incidents during the selling process.

A solicitor will help manage the exchange of contracts, handle negotiations with the buyer's solicitor, and ensure all legal paperwork is in order. They’ll also help ensure that property searches are properly completed, deposits are managed correctly, and any legal issues are resolved before the sale is finalised. 

Instructing an experienced commercial property solicitor can make the entire process much smoother, meaning a less stressful process for you.

There are some common challenges to be aware of when selling a commercial property. Market conditions can fluctuate, affecting property value and the time it takes to sell. Legal issues, such as disputes over zoning or planning permissions, can also cause delays. Buyers may face financing difficulties, which can slow down or disrupt the sale if they struggle to secure a loan. Lastly, if the property is in poor condition, you may need to invest in repairs to attract buyers. 

With the right preparation and advice from your solicitor, it can be far easier to avoid these potential pitfalls or road bumps and achieve a successful sale in the shortest time frame possible.

Once an offer is accepted, the buyer will likely arrange a survey of the property. During this time, the buyer’s solicitor should review the title and request any relevant property searches, including Commercial Property Enquiries (CPSEs). The sale then moves towards the exchange of contracts, where the buyer will pay a deposit and a completion date is agreed upon. 

On completion day, the legal details are finalised, and the remaining funds are transferred by the buyer’s mortgage lender. At this point, ownership is officially passed on, and the sale is complete. Congratulations, you’ll have sold your commercial property!

Purchasing commercial property involves several key steps essential for making an informed investment. Here’s your complete guide to navigating this complex process.

To find your perfect commercial or business property, you should always start by defining your property needs based on business requirements. Consider location, size, and type of property like retail spaces, offices, or warehouses. 

You could consider using online property portals, commercial estate agents, and networking events to find and consider your options. Engaging with a commercial property agent to gain insider knowledge and access to off-market deals is another option. The most important factor is to always conduct a site visit to assess the property's suitability for your needs before committing to anything, whether you’re buying through an auction or an agent.

Start by instructing a solicitor to manage the legal aspects of your purchase. They will ensure the property’s title is free from disputes, encumbrances, or any restrictions that could affect your ownership. Additionally, they will verify that the property complies with zoning laws and planning permissions, ensuring it aligns with local regulations. 

You (or your solicitor) should also make sure you obtain full disclosure of any potential environmental liabilities and assess any health and safety concerns. A thorough review of all contracts and property documents is crucial to avoid any hidden liabilities that may arise later.

Auctions tend to offer a higher chance of commercial properties selling well below their market value, while the more open and competitive nature of the bidding gives all participants a more equal opportunity to purchase the property. The process is usually a lot quicker, too, leading to immediate ownership transfer once the payment is completed.
Here are the steps you should take when considering buying a commercial property at auction:

• Identify suitable properties through auction listings and catalogues. 
• Attend auctions to understand the process and dynamics. 
• Register in advance and ensure you're clear on the auction terms. 
• Have your financing arranged as successful bids may require immediate deposits. 
• Inspect the property beforehand and perform due diligence to assess its value and condition. 
• Set a bidding limit to avoid overcommitting.

If you’d like to learn more about commercial property auctions, you can read our comprehensive blog here.

Hire a certified valuer to assess the property's market value. Compare similar properties in the area to gauge competitive pricing. Understand the property's income potential through tenancy agreements and occupancy rates. Evaluate the physical condition and possible repair costs. Consider future market trends and the location's development plans. Accurate valuation helps in negotiating a fair price.

When you're looking to buy a commercial property, there are several ways to finance the purchase. Understanding these options can help you choose the best approach for your business needs.

Capital Spend

If your business has the necessary capital, you can choose to buy the property outright. This approach avoids any interest payments and keeps the overall cost down. However, using a significant chunk of your available capital could limit your ability to invest in other important areas of the business, like marketing, staffing, or expansion. It’s worth weighing up whether using your own funds will leave you with enough flexibility to grow your business after the purchase.

Commercial Mortgages

A commercial mortgage is one of the most common ways to finance a property purchase. It works much like a residential mortgage, with the loan typically repaid over 5 to 30 years. You’ll need to put down a deposit, often between 25% and 40%, and make monthly repayments over the term. Keep in mind that securing a commercial mortgage can take time, as lenders will assess both the property and your business to determine whether you’re a good fit for the loan.

Bridging Loans

If you need to act fast - perhaps you're buying at auction or can’t wait for a mortgage approval - a bridging loan might be an option. These short-term loans give you immediate access to funds, allowing you to secure the property. You can then pay off the bridging loan when your longer-term financing, like a commercial mortgage, is finalised. Bridging loans are more expensive than traditional loans, so they’re best used as a temporary solution.

Auction Financing

Auction purchases come with tight deadlines - typically, you’ll need to pay for the property within 28 days. Auction financing is a form of short-term loan that helps you meet this deadline while securing more permanent financing. Usually, auction financing covers up to 90% of the property’s value, so you’ll need to have at least 10% in capital ready to complete the deal.

External Investment Funding

If you don’t want to take on debt, you might consider external investment. In this case, you secure funding from investors who take an equity stake in your business rather than expecting repayment. This option can be appealing if you're looking to grow your business while purchasing a property, as investors may see a fully owned property as a secure venture.

Secure comprehensive insurance to protect your investment. Cover fire, flood, and other significant risks. Consider public liability insurance if the property will host customers or clients. Evaluate additional coverages like rent guarantee insurance to shield against tenant default. Work with a broker to find the best policy that suits your needs. Annual reviews will ensure your policy remains up-to-date with changing requirements.

Solicitors provide crucial support, managing legal aspects from start to finish. They conduct due diligence, ensuring no legal impediments affect your purchase. They draft and review contracts, safeguarding your interests. Solicitors verify compliance with regulatory requirements, including zoning laws and building codes. They coordinate with lenders and manage the transaction process, from initial offer to final completion.

Purchasing a commercial property for the first time can be both exciting and challenging. Here are some important financial and practical factors you should keep in mind:

Initial Costs of Buying a Commercial Property

• Deposit: Typically, you’ll need around 25% of the property’s value as a deposit when securing a commercial mortgage. This is often the largest upfront cost, so be prepared for this financial commitment.
• Stamp Duty Land Tax (SDLT): In England and Northern Ireland, you’ll need to budget for Stamp Duty Land Tax (SDLT), which is charged on commercial property transactions. In Scotland and Wales, similar taxes (LBTT and LTT) apply.
• VAT: Some sellers may charge VAT (20%) on the property sale, so check if this applies before finalising your budget.
• Legal and Administrative Fees: Solicitor and surveyor fees will apply, covering services such as reviewing contracts and carrying out property surveys.
• Financing Fees: If you’re using a mortgage or loan, don’t forget to factor in financing-related costs, including broker or arrangement fees.

Costs to Move In

• Refurbishment and Decoration
• Furniture, Fittings, and Equipment
• Moving Services
• Set-up Services

Ongoing Costs

Even after you’ve moved in, you’ll need to consider the ongoing costs of running the property. This includes utilities, maintenance, and property management fees, which will impact your business’s cash flow. It’s wise to explore financing options to help manage these ongoing expenses and ensure your business remains financially stable.

At GloverPriest, we provide friendly and transparent legal advice. Our expert Commercial Property Solicitors can advise both commercial sellers and buyers and deal with all aspects of the transaction for you, giving you specific advice on other areas including employment law when transferring contracts or dealing with transferring employees.

If you would like further advice on commercial auctions, please don’t hesitate to speak to one of our expert commercial property lawyers today. Complete our enquiry form.

Preparing a commercial property for sale involves tidying up, making necessary repairs, and staging the space to attract potential buyers. Ensuring the property is clean and in good condition can make a significant difference in buyer interest.

An Energy Performance Certificate (EPC) is legally required when selling commercial property. It provides information on the building's energy efficiency, which can influence buyer decisions and ensure compliance with regulations.

To accurately value your commercial property, consider hiring a certified valuer and comparing similar properties in the area. Accurate valuation attracts serious buyers and helps achieve a fair sale price.

Selling at auction can result in a quick sale and competitive bidding, potentially driving up the price. However, there is a risk of not achieving the desired price, and auction fees can be high.

Effective advertising and networking are key to finding the right buyer. Utilise online platforms, estate agents, and industry networks to reach potential buyers.

Proper insurance protects the property from damage and liability issues during the selling process, ensuring that you are financially covered in case of unexpected events.

Define your property needs based on your business requirements, such as location, size, and facilities. Clearly identifying your needs helps narrow down suitable options.

Legal due diligence ensures that the property complies with zoning laws, is free of environmental liabilities, and has a clear title. Instructing a solicitor to conduct these checks is crucial for a smooth transaction.

Before participating in an auction, conduct pre-auction inspections, set clear bidding limits, and understand the terms of the auction. Being well-prepared can help you make informed decisions.

Financing options include commercial mortgages, business loans, and government grants. Consulting with financial advisors can help you choose the best option based on your financial situation.

Comprehensive insurance protects your investment from risks such as property damage, liability claims, and loss of income. It provides peace of mind and financial security.

First-time buyers should understand ongoing costs, such as maintenance and taxes, and seek professional guidance to navigate the complexities of commercial property acquisition.