Buying or leasing commercial property – what’s the process?

If you wish to enter into a lease, be aware that it you try to deal with all the documentation yourself you could be stuck with a legally binding agreement that does not meet your needs but also causes potential problems for your business. By instructing a Solicitor at Axiom DWFM to deal with the paperwork you will avoid pitfalls arising down the line. Our solicitors will:

• Guide you through the technical rules and regulations (and various loopholes) affecting this area of the law and provide jargon-free advice
• Can negotiate the lease terms to safeguard your rights and identify any hazards

Once you have instructed a Solicitor to act on your behalf in buying or leasing a property there are certain procedures they will need to comply with to open their file and act on your behalf. These include:

• You supplying evidence of your identity (to comply with money laundering regulations) & confirming whether you are buying in your individual name or in a company name;
• Your confirmation as to where the funds for your purchase will be coming from (e.g. savings, from a family member or a loan from a bank)
• Providing monies on account to cover the cost of pre contract searches

Investigation of Title

It is of fundamental importance for the Solicitor to examine all the documentary evidence available in relation to the Seller’s ownership (“legal title”) of the property. This is to check that the Seller is able to sell the property/create a lease relating to it and that there are no defects in the legal title which could adversely affect your proposed rights and interest in the property whether as a Buyer/Tenant. For example, there could be something in the legal title which prohibits/restricts the use of the property which could prevent you from using the property for your business purposes.

If problems are established with the legal title during the course of these initial investigations, it is often possible to find solutions, examples include:

• asking the Seller to arrange indemnity insurance to cover the risk of a claim being made against you for using the property for purposes which the legal title prohibits
• obtaining a formal right of way for the benefit of the legal title if only informal arrangements currently exist

Sometimes the information collated by the Solicitor during these investigations may lead you to conclude that the property is not suitable for your purposes and you will be able to withdraw from the transaction before you make a legally binding commitment to proceed.

Pre Contract Enquiries

Your Solicitor will also at the start of the transaction raise various enquiries with the Seller’s Solicitor to gather as much information about the Property.

Usually the Commercial Property Standard Enquiries (“CPSE’s”) are raised for purchases and leases. These are a suite of documents endorsed by the British Property Federation. These enquiries are extensive and cover a wide range of issues such as:

Planning Matters

The various enquiries relating to planning matters will help to establish the planning position relating to the property (in conjunction with certain searches – see below).You must check the planning position to ensure your proposed use of the property is lawful. The fact that a Seller currently uses the property for a certain business use or a landlord will allow you to use the property for your intended business purpose, does not in itself mean that planning permission for that use is in place. You may need to consider an application for change of use.

In addition, most alterations and works done to the property should be approved by Building Control and Building Regulations Certificate should have been issued and the CPSEs are designed to obtain full information from the Seller on these matters.

Compliance with other laws

The CPSEs will reveal what steps have been taken by the Seller to comply with various statutory provisions and laws affecting the property.

The Solicitor can advise you on the implications for you if any non-compliance by the Seller of the relevant laws is revealed.

Pre Contract Searches

There are various searches which your Solicitor will recommend are carried out at an early stage, the results of which could influence your decision to buy or lease the property. These include:

Local Land Charges Search

• Reveals any conditions which may be attached to planning permissions relating to the property
• Any planning enforcement orders which may exist

Local Authority Search

• Reveals important information in relation to the Property being searched and its immediate surroundings
• Whether the road on which the property fronts is “adopted” i.e. maintained at public expense or private
• Details of any planning consents applied for granted or refused including the permitted use of the property
• Whether the property is a listed building or in a conservation area
• Building regulations applied for and granted
• Proposed road schemes

Drainage & Water Search

• Confirms whether the property is connected to a mains water supply
• Indicates whether foul and surface water drains into a public sewer
• Will establish whether the property is served by a private sewerage system
•  Reveals whether there is a consent to discharge trade effluent

Environmental Search

It is advisable to obtain a report assessing environmental factors which may affect the property i.e. contamination, flooding and subsidence on the land where the property is situated. A Lender if you are funding the purchase with a loan will insist on such a report. It is also important if you are thinking of changing the current use of the property or wish to redevelop the site.

An occupier or an owner of a legal interest in contaminated land can be asked to pay for the clean up of any contamination of that land or property even though they did not cause the pollution and this can be a very expensive liability depending on the type and level of contamination.

There are relevant searches which might apply to the property such as Coal Authority Search regarding mining activity in the area. Your Solicitor will recommend which other searches are relevant depending on the location of the property.

Chancel Repairs Check

A check can be initiated to establish whether the property lies within a parish which carries a risk of liability to contribute towards the cost of repairs to the chancel of the local church. Recent case law has highlighted the potential levels of financial risk associated with chancel repair liability. Any liability can have a serious impact on the property’s title, value and marketability. More detailed searches can be carried out and it is possible to arrange insurance cover if a potential risk is identified.

Negotiating the contractual documentation

Having collated the information revealed in replies to enquiries, investigating the legal title and considered the search results your solicitor will be able to negotiate with the Seller’s Solicitor in respect of the wording of the documentation necessary to transfer the property to you/create a new lease or the transfer of an existing lease to you.

Most purchases are dealt with by a Sale Agreement or Contract and a Transfer document or Lease and if you are entering into a mortgage there will be a Mortgage Deed to sign.

Your Solicitor will be able to negotiate the contract terms and incorporate conditions which the Seller must fulfil as appropriate. For example, they may be able to limit your responsibility for certain defects in relation to the property or insist that the Seller obtains an indemnity insurance policy to cover a risk identified.

In relation to a new lease, there may be an Agreement for Lease placing an obligation upon the Owner/Landlord to carry out works to the property before you complete the Lease or stating that the completion of the lease is conditional upon you first obtaining planning consent for change of use for the property.

A lease document itself is a lengthy and complex document (often over 40 pages long!) and it can often take some time to negotiate the wording of the lease to suit your requirements.

Reporting to you

This next stage is only relevant if you are acquiring the property. It involves you reading and going through our property report to see if you are satisfied with the legal position of the property. We often sit down with clients in a face to face meeting to go through all matters affecting the property with them to ensure they have a clear understanding of the property and any risks, if any.

As a buyer you will then need to decide if you wish to continue with your purchase, sign the contracts in readiness for an exchange/completion.

Completion

For completion to take place on the completion date the buyer’s solicitors must have the balance of the purchase price and the seller’s solicitors must have the signed documents.

The buyer’s solicitors will then transfer the balance of the purchase price to the seller’s solicitors. Your solicitors will confirm when the money has changed hands and the property has legally passed from the seller to the buyer and the keys can then be release to the buyer.

Post completion

The next step varies depending on whether you are purchasing or selling.

On a purchase, we will pay stamp duty if required and register your ownership with the Land Registry.

Once you have bought the property it is necessary to register your ownership at the Land Registry and the Solicitor will deal with this registration process on your behalf.

Not all new leases or the purchase of an existing lease will trigger the need for registration at the Land Registry, but it is compulsory to register a lease which is for more than 7 years or has more than 7 years of the term left to run (if it is not already registered). If the lease is for less than 7 years, steps will be taken to apply to the Land Registry to note the rights in your lease against the Landlord’s title (if it is registered).