Buying commercial property can be risky and rewarding in equal measure. However, there are various mistakes which must be avoided when buying commercial property to secure the long term benefits. It’s important to be aware of these mistakes whether you are a first time buyer or a seasoned investor. This post details the common mistakes that get made when people come to buy commercial property.
How to prepare to buy commercial property
There can be many potential reasons for buying commercial property, so the first step is to keep your goals in mind when beginning your search. This will help you to plan how to buy a commercial property that will service the needs of your business. As a result, you’ll have a set of parameters which you can use to guide your property search. For instance, a certain location might be ideal for the business to connect with customers or suppliers. Considering these factors helps make sure the property is providing real value to the business.
Common mistakes people make when buying commercial property
One of the biggest mistakes when buying property is to rush into the decision. This is especially true when it comes to the commercial property market, as it typically involves longer lease terms and larger transfers of money. The following are some of the mistakes that are commonly made by buyers when purchasing commercial property.
1.Lack of due diligence
Prospective buyers must conduct thorough research on any property, commercial or residential, before declaring their interest. This prevents the buyer from having to deal with unexpected costs that weren’t included in the sale price. For example, a Schedule of Condition is essential when buying a commercial property that is in a dilapidated condition. Although most commercial leases will contain a clause that requires tenants maintain a good standard of repair within the property, responsibilities can always vary. Due diligence checks should also consider the property’s design, layout, location, sustainability, and any remedial works that are required for the business to use the building.
2.Establishing market value
Where residential property is often valued base off comparisons to similar properties within the same area, this is not the case for commercial property. Here, price may not reflect any renovations or improvements made to the property over the course of the previous lease. The value of some commercial properties may also include inventory within the building. Getting an accurate valuation of the property is important to make sure you aren’t overpaying.
3.Lack of budgeting
Commercial property is a long term business investment which can incur unexpected costs. It could include ongoing maintenance, repairs, or rising costs. Having cash available to cover these expenses is a good idea. It can also be beneficial for buyers that want to secure a loan to help with the purchase.
4.Not getting professional legal support
A significant challenge when buying commercial property is knowing what to look for. Having the support of a legal property expert such as Toomey Legal, will provide bespoke advice that relates to your goals. Our team also help gather all the relevant information and paperwork from the seller during the property transaction. This enables you to make a fully informed decision when buying a commercial property and avoid any mistakes.
5.Not reviewing the terms of the lease
A commercial property lease typically lasts for longer than leases for residential tenants. As such, it’s important to take care when looking over all the terms of the lease to completely understand what is being agreed. In particular, buyers should check the rent, length of the lease, outgoings, and any conditions set by the seller. Read ‘What terms are commonly used in a commercial property lease?’ for more insights.
6.Appealing to tenants
If you are buying a commercial property for the purpose of renting it out to a business, or multiple businesses, it’s important to consider how it will appeal to potential tenants. Oftentimes, this will be indicated by the building category. For example, UK properties that fall into the A1 use category are designed for retail shop operations.
7.Making unauthorised changes
It’s relatively common for business tenants to make changes to a property during the course of their lease. However, most leases state that the landlord must be consulted before any alterations can be completed. Furthermore, certain types of buildings will require an application for planning permission for extensive changes to be made. Failure to follow any of these authorisation processes can result in fines or legal action.
8.Missed dates for break clauses
Break clauses can be included in a commercial lease for the benefit of landlords, tenants, or both. If you wish to trigger the break clause, this should be planned well in advance of the break date. Failing to trigger the notice date could result in you having to take on the liabilities of the property for another lease period.
Experts in commercial property conveyancing
In conclusion, there are a wide range of factors that need to be considered when buying commercial property. These are necessary to avoid mistakes that could result in significant costs. Toomey Legal specialise in commercial property deals, with our lawyers able to guide you through the conveyancing process. Our services extend to buying and selling both freeholds and leaseholds, as well as established businesses. If you have any questions, don’t hesitate to contact us.