Buy Commercial Property and Avoid Top 4 Mistakes That Destroy Value

Buy Commercial PropertyWhat should you be looking for when you buy commercial property?   Here are our top 4 tips to look out for when looking to buy commercial property.

1. Avoid onerous restrictive covenants

If you are looking to redevelop property or change the use of commercial property, then it is vital that you check the title for restrictive covenants.  If the title is registered (and most property is registered at the Land Registry), then for a small charge (£8.00) you can search the Land Registry records by property description or even postcode and obtain a copy of the registered title to any property in England and Wales.

You then need to look at the Charges Register which sets out all of the rights and covenants which the property is subject to.    The entries in the Charges Register will tell you if the property is subject to restrictive covenants which might affect your ability to redevelop or change the use of the property you are looking to buy.   Some of these restrictive covenants are extremely old and are worded in quaint language but they can still affect properties despite their antiquity.

So what happens if the property you are interested in buying has restrictive covenants preventing the property say, from being used other than a single residential dwellinghouse and you want to turn into a block of flats or want to sell off the large back garden as a separate house plot.    Well, you can get a specialist legal insurance company to cover you against the risk of someone popping up and claiming a breach of covenant when you have started redeveloping.  The premium paid is a one-off premium and the policy covers your mortgage lender and all future owners of the property.    The premium is calculated on the price being paid for the property or sometimes you may want to insure against the full redevelopment value after your refurbishment or works.

The other alternative is to obtain the consent of the person who has the benefit of the covenant.  It can be a difficult process trying to track down the owner and when you find them, they may want a hefty premium in order to grant you the consent to redevelop or change the use.

2. Don’t skimp on the usual searches

The usual searches are Local Authority Search, Drainage and Water Search and Environmental Search.

Local Authority Search

This takes about 2-3 weeks costs about £200 and covers issues such as planning conditions, enforcement notices, compulsory purchase orders, notices under Health and Safety legislation, traffic and road schemes, environmental contamination notices, breaches of building regulation approvals etc.

Drainage and Water Search

This reveals whether surface water and foul water and sewerage drains from the property to an adopted mains sewer within 100 feet of the property.  It also confirms if the property has a water supply and whether that supply is metered.   This can be a major issue if you get an adverse result to this search as the cost of getting drainage to a property can be astronomical.  A commercial drainage search costs about £140 and is received within days.

Environmental search

This is a desktop search which searches the historical records and maps for the property to confirm whether the property has ever been situated on or near any land or building which may have had a potential for contamination of the soil.   It also reveals whether the property is in a flood risk area.  A commercial environmental search costs about £180 and is received within hours.    Cleaning up contamination in a property can run to the hundreds of thousands and lenders are really hot on this area as are pension funds and investors.   So an essential search as a Fail on this search could mean you need to think again about this site.

Chancel Check/ Chancel Repair Liability Indemnity

Since medieval times, neighbouring property owners within the boundaries of a medieval parish have been liable to contribute to the cost of repairing the chancel of the local C of E church.  The chancel is the part of the church above the altar.    This liability is being eradicated by the Land Registry who are insisting that any liability must be registered at the Land Registry.  In the meantime, there are searches or indemnity policies to cover the risk.

3. Have a full structural survey done unless this is a new build

The old adage still applies in English law, “caveat emptor” or buyer beware.  This means that a Seller of land is not obliged to disclose any defect in the building or the land; it is for the buyer to carry out a survey so that he has notice of any possible defects.   Of course, if a seller has had subsidence and has had to have the property underpinned, this would need to be disclosed but any structural defects in the building do not need to be disclosed.   If the buyer finds major structural defects or serious wants of repair, there is no recourse against the seller after completion.

It is for this reason that a full structural survey is vital in most cases (apart from new builds) so that you are not buying the property blind.    Surveys also reveal whether there have been alterations or additions to the property which might need guarantees, building regulation approvals or planning permissions.  If the surveyor misses anything, then a negligence claim can usually be brought against the surveyor.

4. Seek collateral warranties from the main contractor and all key contractors if the property is newly constructed.

It is amazing how often sellers try to sell newly constructed commercial property without having negotiated with the contractors and professionals employed in the construction and design of the building that they will provide collateral warranties to all purchasers, tenants and lenders.   Under contract law, it would be the developer who could sue a contractor if he had negligently constructed a building.   An ongoing purchaser or their lender would not have any contractual relationship with the contractor or the sub contractors or professionals such as the structural engineer, the electrical contractor or the quantity surveyor and so would not be able to sue them if they were negligent.

So a collateral warranty creates a direct contractual relationship between the contractor or professional and the ongoing purchaser or their lender.  The collateral warranties are usually in standard form and would be underpinned by the contractor’s professional indemnity policy.  So you should check the policy and make sure that there is a formal letter of engagement for the professional and ensure the cover is sufficient and the policy is in force.

This is an extract of a much larger leaflet for buyers of commercial property.  If you want the full free booklet, email us on

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Dominic Beeton, Solicitor
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