Buying and Selling Commercial Property

Once you have considered your budget and funding options, researched the market, and identified a property to buy, you will typically make an offer to the seller’s agent. If your offer is accepted, the agent will prepare a memorandum of sale or heads of terms.  This will set out who the parties and their legal representatives are, the price and timescales, and any other terms, for example if the contract is conditional on the grant of planning permission or the seller obtaining vacant possession from a tenant. It is advisable to have your solicitor check the heads of terms before they are finally agreed as the commercial terms can be tricky to renegotiate these terms later.

Once the heads of terms are passed to the parties’ solicitors, they start work on the legal process as set out above.  If you are obtaining a mortgage to finance the purchase, your solicitor may also act for the lender in satisfying their requirements. You will need to make any mortgage application so that instructions are issued to your solicitor to do so.

A seller is not obliged to disclose physical defects and issues. It is therefore always recommended to carry out a survey, which will reveal physical defects and potential issues such as Japanese Knotweed or pests, and identify any works carried out to the property which may have required planning permission and/or building regulations compliance. Your solicitor will need to obtain the applicable paperwork for recent works.

If title to a property is freehold, the proprietor owns it absolutely and in perpetuity. They will have control of the property and own the land, buildings, subsoil and airspace. The owner may grant leases out of its freehold title.

If title to a property is leasehold, the proprietor holds a lease of that property for a limited period (usually a maximum of 999 years). The lease should set out the rights and responsibilities of the landlord and tenant regarding the property and the building in which it is situated. The tenant will not have absolute control of the property: it may need permission to make alterations or sell the lease and may have to pay a rent and service charge.

The land under either class of title may have the benefit of rights over other land or be subject to rights of benefitting other land (which are known as ‘easements’) or restrictive covenants which may limit the use of or activities on the property.

Your solicitor will advise on the various searches that should be carried out. Generally, this will include a local land charges search and local authority enquiries, a drainage and water search, a desktop environmental and flooding search, a chancel repairs search and a highways search.

Depending on where the property is located or what you intend to do with it, e.g. redevelopment, additional searches such as coal mining or utilities may be recommended.

The Environmental Protection Act 1990 sets out the framework for the remediation of contaminated land. Land is ‘contaminated’ if significant harm or pollution is being caused or there is a significant possibility of it being caused.

If land is identified as contaminated, notice may be served by the Environment Agency to remediate the land. If the person who caused or knowingly permitted the contamination can be identified, they will be liable for that remediation. If they cannot be identified, notice may be served on the owner or occupier of the land.

It is therefore important to establish the risk of a property you are buying being qualified as ‘contaminated’. A desktop environmental search is the starting point: this will either give a ‘Passed’ result, meaning that the level of risk is not such as to indicate that the land might be deemed “contaminated”, or recommend ‘Further Action’. In the latter case, a buyer should consider a risk assessment by an environmental consultant.

The contract for sale of the property may contain provisions for the apportionment of environmental liability, particularly if the land is being sold for development. A seller will want to pass all risk of any future remediation to the buyer.

This is when the contract becomes legally binding and the parties are obliged to complete the sale and purchase of the property. The price, completion date and other terms are formally agreed and if one party breaches those terms, particularly if they fail to complete the transaction, the other party will have rights and remedies against them.

This will depend on the terms of the contract. Risk usually passes to a buyer on exchange of contracts and they will still have to buy the property if it is damaged or destroyed. If the seller is obliged to maintain insurance until completion, the contract should contain provisions for making a claim and transferring the insurance monies to the buyer. If the buyer insures the property from exchange of contracts, then they can hopefully claim under their own policy.

The buyer will pay the seller the price or lease premium for the property and the transfer or lease will be dated. This will transfer the title to the property or, if the transaction is for a leasehold, the title will be created.

Completion will be the trigger for the Stamp Duty Land Tax return to be filed and payment to be made (within 14 days) and for registration of the transaction at the Land Registry (where applicable).