Buying or selling business premises

Buying

Businesses tend to rent premises rather than buy them as finding vacant commercial premises for sale is often hard. Buying also tends to tie up what could be crucial capital and commercial mortgages tend to be shorter and therefore more expensive.

On the up side, buying can be a shrewd investment if it gains in value before you sell and can provide a useful income stream in the meantime if you let it out. Buying also offers more flexibility in terms of management and repair of the property and allows you to move whenever you want.

If you are set on buying a commercial property there are some things you need to decide beforehand. They include:

• The kind of premises you require - i.e., shop, office, factory, warehouse - or a combination of these – and whether you want living quarters on the property. Check that local planning restrictions will let you to use the building for the purpose you intend.
• The amount of space you need to run your business – you should factor in the possibility of your business expanding and therefore requiring more space in the future.
• The type of facilities/ utilities you need – including gas, electric, phones lines, broadband, heating, parking, plumbing etc.
• Whether the building is in the right location – for example, there’s no point burying yourself in the country if your business depends on passing trade - and whether it will give off the right impression to staff and customers. When choosing the location, look into possible available grants, loans on preferential terms and incentive schemes set up to tempt small businesses into urban areas. Some local authorities have also set up Enterprise Zones to boost local economies.
• Whether the property meets legal requirements for fire, health and safety etc.
• Whether you can fulfil the above requirements within budget (don’t forget to factor in running costs plus local authority charges and business rates which will be dearer in some areas than others).
• If you think the premises is going to need alterations, seek professional advice before you buy as planning permission, building regulations and other restrictions and financial consequences might mean you’d be better off buying something more immediately suitable.

Property purchase costs

Buying a commercial property involves a number of costs both around the time of purchase and on an ongoing basis. These include:

• Professional fees – eg for surveyors and solicitors.
• VAT (if you're VAT registered you may be able to claim this back or you may be exempt).
• Stamp Duty Land Tax.
• Search/ enquiry fees from local authorities or Companies House.  
• Alteration and fitting out costs – you may be able to claim capital allowances or the business premises renovation allowance towards the cost of renovating or converting your business premises. 
• Business rates and local authority service charges.
• Insurance.
• Repairs and maintenance.
• Running costs such as for lighting, heating, cleaning or security.

Making an offer

Once you’ve found a place you like, you can put a conditional offer in (ie, you want to buy it provided certain conditions are met, such as a satisfactory survey and being able to raise the finance) to the agent who must pass it onto the vendor. Ensure you get a lock out agreement (not required in Scotland) which ensures the agent won’t market the property or negotiate with anyone else about selling it. 

Professional advice

A surveyor will carry out a survey to assess the value and structure of the property and help you decide if it is fit for your purpose. He/she can also make sure the business rates are fair and advise you if you want to alter or improve the building. They can also assess the right level of insurance cover and negotiate with the loss adjuster if you need to make a claim.

A specialist commercial property lawyer will ensure:

• You understand what's in the contract and what your responsibilities will be if you sign.
• The seller has a good title to pass on to you.
• The best terms for the contract are obtained.
• There are no problems with the property by conducting searches.
• Your purchase is completed as quickly as possible.

Selling

When selling a commercial property you need to decide whether you want a quick sale or to make as much money from the sale as possible. This will dictate how much time and money you spend doing the place up in readiness for sale. Preparations could include:

• Fixing anything which is obviously broken, apply a lick of paint if the place is looking shabby and remove any clutter.
• Ensure the location is compliant with any regulations such as fire, health and safety, asbestos, environmental etc.
• Deciding what items are to be included in the sale.
• Obtaining consent for the sale from a lender if the property is subject to a secured loan.
• Collate any documentation which proves that any alterations or building work you’ve had done was with the right consents etc.
• Get the premises valued and decide what price you are going to ask for. Assess whether VAT is payable on the sale price.
• Find out whether any capital allowances can be applied to machinery in the property.
• Line up an estate agent to do the marketing and a solicitor to do the conveyancing once a buyer is found.

Choosing a buyer

If you receive several offers for the premises you may want to go for the one who is offering the most. However, you should check that they have the necessary finance in place before you commit (ie are they a cash buyer or will they need a mortgage?). If you are in a hurry to move you might want to opt for a lower price if this buyer has the money readily available, isn’t in a chain and is ready to name a completion date.

Once you’ve got all the details agreed, it’s a good idea to put the terms of the sale in writing (ie price, included fixtures and fittings, names of parties and their representatives). 

The sale process 

There are a number of documents which need to be filled in, drawn up or hunted down during the sale process, as well as action required by you or your solicitor. The main steps involve:

• Completion of a property information form.
• Completion of a fixture and fittings form.
• Production of the title deed and any charges that you may have on the property, such as a mortgage.
• Drafting of the contract which sets out the main terms of the proposed agreement. This is then sent to the buyer’s solicitor.
• Completion of required searches and survey.
• Production of an Energy Performance Certificate.
• On agreement of the contract and satisfactory search and survey results, contracts can be exchanged and a date agreed for completion.
• At completion, the title deed and transfer document will be transferred to the buyer’s solicitor in exchange for the money for the property.
• You pay off your mortgage, pocket anything that’s left after all fees etc have been paid and hand over the keys to the new owner.