Recent data from Rightmove shows an 11% rise in commercial property investment compared to the previous year. This increase marks the biggest quarterly leap in demand since 2021, indicating a buoyant market for potential investors.
With the market performing well, you may be considering investing in commercial property. If so, careful preparation will help you navigate the complexities of commercial property purchases.
This article covers the key steps in the process, including financial considerations, legal processes, due diligence, and deal completion.
Step 1 – Defining Your Purpose
You must know the intended use of your commercial property for several reasons, including planning use and permission, regulatory compliance, and marketability.
Furthermore, using a commercial property for residential purposes can leave you in breach of freehold and leasehold contracts and invalidate your insurance.
Aligning your purchase with long-term business strategies and development plans can contribute to your long-term success in the commercial property market.
Step 2 – Assessing the Finances
There are a range of costs associated with buying a commercial property. Your budget should factor in outgoings such as deposits, mortgage payments, and fees like stamp duty.
When financing the deal, compare commercial mortgages to ensure the best value for money. Other financing options include bridging loans and asset-based lending, which may consider work-in-process, raw materials, property, land, equipment, and office furniture assets.
Commercial property deals often include less obvious expenses such as insurance, maintenance, and service charges. Having funds available to meet unexpected costs will ensure a smooth transaction.
Step 3 – Legal Considerations
Investing in commercial property comes with specific legal requirements. You’ll need planning permission from the local authority to build, change, or use a building or land.
Engaging an experienced conveyancer will help you adhere to UK law and give you peace of mind that your contracts and terms are watertight before you sign.
Step 4 – Due Diligence
Conducting thorough research is a key part of preparing for commercial property investment.
A property inspection will help uncover structural or other issues that may impact your purchase. Meanwhile, researching why the property is for sale will help you detect potential risk factors.
Due diligence will also help ensure the price is right, based on factors like amenities, location, and how the property is used. Some basic steps of the process include:
- Determining whether it’s a buyer’s market or a seller’s market
- Understanding your location’s demographics, economy, and job market
- Analysing the region’s ROI for commercial property
- Getting to know the community a property is in
- Crunching the numbers around the area’s median listing price, rental income, and occupancy rate
You’ll also need compliance checks to uncover environmental issues, building codes, and energy efficiency certifications.
Step 5 – Operational and Practical Aspects
You may want to renovate or alter your property once the purchase is complete. Investing in additional financing and seeking relevant permissions for any changes is essential.
It’s also critical to ensure the property has the necessary infrastructure, such as parking, internet and utilities.
Finally, liaising with the local council or potential tenants will help you build positive relationships in your local community.
Step 6 – Closing the Deal
Getting the best deal possible often involves using the information uncovered during due diligence to renegotiate the price, particularly if you’ve identified structural problems or a market downturn.
The property’s purchase price will impact your Stamp Duty Land Tax (SLDT) rate. You can expect the following rates:
- 0% on properties up to £250,000
- 2% on the portion between £250,001 and £925,000
- 5% on the portion above £925,000
If you’re acquiring a leasehold property, SDLT may also apply to the rent’s net present value (NPV).
Signing and Exchanging Contracts: Ensure both parties have legally signed the final purchase agreement. Double-check the contract terms.
Transfer of Funds: Coordinate with your solicitor and bank to ensure the funds are transferred on time. Payment delays could lead to penalties or missed deadlines.
Obtaining Keys and Legal Ownership: Once funds are cleared, your solicitor will confirm completion, and you’ll receive the keys to the property and a completion statement.
Securing Insurance: Arrange appropriate commercial property insurance once the purchase is completed. This may include public liability, building, and landlord insurance (if applicable).
Registering with HM Land Registry: Register the property under your name or business. Your solicitor will handle this, but confirming completion is prudent.
Arranging Utilities: Notify utility providers of your ownership. If the property is leased, coordinate with tenants to ensure uninterrupted services.
Notify Local Authorities: Update the local council regarding the property’s new ownership. This step is vital for business rates and planning considerations.
In Summary
Purchasing a commercial property is a major commitment that requires thorough preparation. Each step we’ve outlined is crucial, from defining your purpose and assessing financial readiness to navigating legalities and conducting due diligence.
Skipping or rushing any of these stages can lead to unforeseen challenges, such as hidden costs, legal disputes, or properties that fail to meet your needs.
Remember to consider the property’s long-term potential, including its adaptability.
Ultimately, a well-prepared purchase helps you secure a valuable asset and set the foundation for a successful investment.
Need expert, cost-effective help with a commercial property purchase?
Toomey Legal offers quality commercial property advice at value-driven rates. We deliver our reliable expertise quickly, professionally, and responsively, offering practical solutions at an agreed fixed rate.
We offer a fixed fee service of £995+VAT to purchase a commercial freehold property. This is the total cost of our service, although some disbursements are payable.
Call now for a quote or fill out the below form with your enquiry details.