Buying commercial property

buying commercial propertyIf you are buying commercial property what should you bear in mind? What are the most important factors to have taken into account before purchasing commercial property in England and Wales?

Caveat emptor (“Buyer beware”)

This principle is fundamental in English Law.   The seller is not obliged to disclose physical defects in a commercial property.  It is for the buyer to employ a surveyor to carry out a buildings survey so that the buyer is aware of any defects in the property such as subsidence, landslip and heave, damp, flooding, poor insulation, structural defects.  The surveyor will also highlight whether alterations appear to have been carried out to the property which might have needed planning permission or building regulation approval.    He will highlight issues which need to be investigated by your solicitor as part of the conveyancing process such as rights of way, asbestos survey, fire risk assessment, energy performance certificates (see below for further detail).

If you buy a property without a survey, you will have no come back against the seller after completion whereas if you have a survey done before you are contractually bound to buy the property, in other words, before you have exchanged contracts, you can negotiate with the seller a reduction in the purchase price to take into account the cost of the works which will be needed to the property.

Alternatively,  a some of money can be held back from the purchase price paid on completion and held by the solicitor acting for the seller or buyer and not released until the seller is able to satisfy the buyer that the works have been done to a good standard.

So don’t buy blind.   Go with in with your eyes open.

Do I need searches?

Many people buying commercial property skimp on searches.  They think that there is little risk of a local authority search or environmental search revealing anything adverse.

A little explanation of the various searches usually carried out by conveyancers might help you to weigh up the need for searches.

Local Authority Search

The search is carried out by sending a request off to the relevant local authority.  It costs around £150 to £250 and takes a week to 2 weeks to complete.  It is formed of 2 parts: a search of the Local Land Charges Register and then a standard form asking numerous questions of the planning department, building control department, highways department, environmental health department and other relevant departments.

The local land charges register would have registered on it such entries as compulsory purchase orders, planning permission conditions, planning permission enforcement notices, financial charges, planning charges, road bonds etc.

The additional enquiries might reveal traffic schemes, rail and tram schemes, environmental contamination remediation notices, radon gas issues, flooding issues, breaches of building regulations, breaches of health and safety notices.

It would be a brave purchaser who skipped this search.   Having said that, it is quite rare for purchasers of commercial property to skip this search.  Most people realise it is money and time well spent.

Drainage and Water Search

This search is carried out at the regional water authority eg. Thames Water, Southern Water.  It costs about £160 for a commercial drainage and water search and the results are usually obtained within a few days.    They reveal whether surface water and foul drainage from the property drains to a publicly maintained sewer within 100 feet of the property.

It also reveals if there are any private agreements in place for drainage or whether there are agreements in place for the water authority to adopt newly constructed drains and sewers.

It reveals if the property is connected to a water supply and whether that water supply is metered.  So quite a useful search and many buyer would want to know if there were problems with drainage as the cost of putting in new drains or connecting to an existing sewer can run into the hundreds of thousands of pounds.

Environmental Search

This is a desktop survey so no company actually visits the property or takes samples of the soil.  It reveals whether based on the historical data , maps and information for the property the property has a historic use which may mean that it is contaminated.   These searches becamse necessary when the Environmental Protection Act was passed in 1990 making property owners and occupiers (including tenants) liable to clean up contamination under the property.

Again the cost of cleaning up contamination can run into to the hundreds of thousands.

Most leases would oblige the tenant to comply with any legislation relating to a property and this would include compliance with environmental legislation.   The searches have a certificate at the start in which the experts who compiled the report certify whether the property has “passed” or “failed”.    A fail would usually mean that either further investigations are needed ie. Soil samples sent to a laboratory for analysis or evidence of clean up produced by the seller.   Again,  a pretty essential search for most buyers of commercial property.  The search takes 24 hours and costs about £175 for a commercial search.

Chancel Check

This reveals whether the property is situated within the boundary of a medieval parish and therefore there is a possibility that the owner of the property could be made to contribute to the cost of repairing the church’s roof or the part of the roof above the altar known as the chancel.    This liability dates back to the time of King Henry V but still is capable of costing owners of property substantial sums of money.  A couple in Warwickshire took a case all the way to the House of Lords and lost costing them over £200K in liability.    The chancel check is another quick search costing £15.00 and completed in hours.   If an adverse result is revealed, a number of companies offer indemnity insurance to cover against the risk of liability.   Your solicitor will be able to advise you on premiums.  Commercial property premiums are much higher than residential premiums.

Asbestos Surveys

It is legal requirement that all owners and occupiers of commercial property have an asbestos survey carried out to determine the presence of asbestos in the property and to set out a plan for managing any asbestos found.  This can mean just ensuring that the asbestos is not disturbed or it can mean expensive removal and safe disposal of asbestos by experts in the removal of asbestos.   If the property you are buying does not have such a survey, you should insist the buyer carries this out at their expense.  A typical survey would cost around £300 but it can take several weeks to find a contractor to carry out the survey.

Energy Performance Certificates

It is a legal requirement that all persons selling or letting commercial and/or residential property must have an energy performance certificate. This rates the energy efficiency of the building and includes a little bar chart similar to that found on new white goods.  The Seller of a commercial property cannot put the onus on a buyer to obtain an EPC.  A commercial EPC can cost up £300 and upwards depending on the size of the building so make sure your seller obtains this as any future purchaser will be asking you for it.  They last 6 years.

Fire Risk Assessment

Again it is a legal requirement that every owner or occupier of a commercial property who employs more than 5 people must have carried out a full and detailed fire risk assessment of the building.    Failure to comply can result in massive fines being imposed by the fire authorities.   If the seller is unable to produce an assessment then get the local fire authority to insepct the property to advise you on whether the building complies with current fire regulations.  The cost of installing fire detection systems or fire escapes can be eye-wateriningly expensive so make sure you know exactly what is required before commtting yourself to the purchase of a commercial property.

These are just some of the issues you need to be aware of before buying commercial property.  Please send off for our free booklet which provides further guidance on issues to bear in mind when buying commercial property.  Email for your free e-booklet.

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Dominic Beeton, Solicitor
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