Are you thinking of buying commercial property? Whether you are acquiring premises for your own business or as part of a wider investment strategy, make sure you know the risks.
While agreeing a purchase price is an important milestone, it is only one part of a much broader process. Understanding the legal position early on is essential to ensure there are no surprises later.
Understanding the legal due diligence process
A commercial property purchase involves a detailed legal due diligence exercise. This is designed to identify any issues which may affect the value of the property, your intended use of it, or your ability to deal with it in the future.
This process typically involves a careful review of the title to confirm ownership and identify any restrictions or third-party rights. For example, there may be rights of way, restrictive covenants or other obligations which could limit how the property can be used or developed. In addition, searches are carried out to reveal matters such as planning history, environmental risks and local authority issues that may not be immediately apparent.
Where the property is subject to occupational leases, these will also need to be reviewed in detail. The terms of those leases, the rent being paid and the wider relationship with tenants can all have a direct impact on the value and attractiveness of the property as an investment.
Investment vs owner-occupation considerations
The focus of the transaction will often depend on how you intend to use the property. Where the property is being acquired as an investment, there will be a strong emphasis on the income stream. This includes assessing the strength of the tenants, the length and terms of the leases, and whether the rent reflects current market conditions.
By contrast, where the property is intended for owner-occupation, the key question is whether it is suitable for your business both now and in the future. This may involve considering whether the current planning use is appropriate, whether alterations will be required and whether there are any restrictions which could limit your ability to adapt the space as your business evolves.
Why early advice makes a difference
Bringing legal advisors into the process at an early stage can help to identify potential risks before you become committed to the transaction. It also allows time to address any issues properly, rather than having to deal with them under pressure as the transaction progresses.
Early input can also help to avoid unnecessary delays, particularly where complex issues arise or additional investigations are needed. In many cases, it is this proactive approach that makes the difference between a smooth transaction and a prolonged one.
We regularly advise clients on commercial property acquisitions, supporting them from the initial review of documentation through to exchange and completion. Our role is to highlight the key risks, explain the practical implications and ensure that you are able to proceed with confidence, having a clear understanding of the property you are acquiring.
