Prosperity Law LLP assists individuals, investment companies, business owners, charities and pension funds with the acquisition and disposal of commercial property.
Unlike residential purchases, commercial property transactions often involve additional layers of complexity, such as existing tenancies, planning and environmental considerations, and VAT treatment. As a result, the timeframe from instructing a solicitor to completion will vary depending on the nature and complexity of the transaction.
This guide provides a clear, step-by-step overview of the legal process involved in purchasing a commercial property, as well as other tips. Involving a specialist commercial property solicitor at an early stage can help you negotiate more favourable terms and avoid costly mistakes in the transaction. In other words, choosing the right solicitor can provide you with greater confidence throughout the process.
Purchasing a commercial property
Once a solicitor has been appointed and the client onboarding process is complete, the seller’s solicitors will provide the Land Registry title documents, together with a draft sale contract and replies to Commercial Property Standard Enquiries (CPSEs). These documents, along with any supporting documentation provided, must be reviewed carefully.
The terms of the contract will be negotiated, and any necessary amendments will be proposed to the seller’s solicitors.
While these terms are being negotiated, your solicitor will apply for property searches. We always recommend that searches are carried out, even where the property is already known to you, as they may reveal entries that could otherwise be overlooked and may prove costly in the future. If mortgage finance is required to fund the purchase, then a lender will usually insist on searches being carried out.
Once the search results are received, your solicitor will raise any necessary enquiries on the title documentation, replies to CPSEs and search results.
If mortgage finance is required to fund the purchase, your solicitor will review the mortgage offer, legal charge and any other related security documents, such as a debenture, that the lender requires you to sign, and will advise you on their terms.
A transfer deed will be prepared and submitted to the seller’s solicitors for negotiation.
Once all enquiries have been satisfied and the documentation has been agreed, your solicitor will prepare a full report on title. This will contain the information you need to make an informed decision about whether to proceed with the purchase.
If you decide to proceed, your solicitor will ask you to sign the contract and transfer deed, together with any mortgage documentation if required, in readiness for exchange of contracts and completion. You will also be asked to suggest a preferred completion date.
A source of funds check will need to be carried out so that your solicitor can comply with the regulations imposed by the Solicitors Regulation Authority.
Your solicitor will prepare a completion statement and request the deposit or the full amount due, as applicable.
Once a completion date has been agreed and all parties have signed the contract, contracts can be formally exchanged, and the completion date will become fixed. This is done between the parties’ solicitors, usually by telephone, and then the signed contracts are dated and physically exchanged. Once contracts have been exchanged, completion must take place on the date agreed; otherwise, you will be in breach of contract, which could result in you losing your deposit and being responsible for payment of legal fees.
Completion is the point at which you take legal ownership of the property. All monies, or the remaining balance, are transferred from your solicitor to the seller’s solicitor. Once the funds are received, the seller’s solicitors will release the keys, either through the seller or any agent holding them, and the solicitors will date the signed transfer deed.
Your solicitor will prepare a Stamp Duty Land Tax return. Once completed, it will be submitted to HMRC and any Stamp Duty Land Tax payable will be paid. This step must be completed within 14 days to avoid a penalty.
If mortgage finance has been used to fund the purchase by a company, then this will need to be registered at Companies House within 21 days of completion.
The purchase, and any legal charge, will then be registered at HM Land Registry. Your solicitor will advise you of the expected timeframe for registration. Current estimated completion times are generally between six and twelve months, depending on the complexity of the documentation.
Costs and disbursements to budget for
The purchase price is rarely the only figure a buyer needs to budget for. Depending on the transaction, you should also plan for:
- Legal fees for your solicitor’s work in progressing the transaction;
- Search fees, covering local authority, environmental, water and drainage and other relevant searches;
- Stamp Duty Land Tax (SDLT), payable to HMRC within 14 days of completion. The amount due depends on the purchase price, the nature of the property and applicable reliefs, so we would always recommend confirming the current rates and thresholds with your solicitor or accountant before exchange;
- HM Land Registry registration fees;
- VAT, where the seller has “opted to tax” the property. This can add a significant amount to the price payable on completion, so it is important to establish the VAT position early in the transaction;
- If mortgage finance is being used, the lender may instruct separate representation, and you might be required to pay for those legal fees, valuation fees and any arrangement fees; and
- Survey or structural report costs, where a buyer chooses to instruct a surveyor.
Your solicitor should be able to provide an estimate of these costs early in the transaction so that you can budget accordingly.
Frequently Asked Questions
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There is no fixed timescale, as it depends on the complexity of the transaction, whether the property is tenanted, whether mortgage finance is involved, and how quickly all parties respond to enquiries. A straightforward purchase may complete in a matter of weeks, while a more complex transaction can take several months from instruction to completion.
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Not always. VAT is only payable where the seller has opted to tax the property. Your solicitor will confirm the VAT position with the seller’s solicitors as part of the enquiry process, and you should factor this into your budgeting until the position is confirmed.
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CPSE stands for Commercial Property Standard Enquiries, a standard set of questions raised of a seller in a commercial property transaction, covering matters such as boundaries, disputes, planning, environmental issues and services. The seller’s replies form an important part of the buyer’s due diligence.
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Your solicitor will raise the issue with the seller’s solicitors and advise you on the options available, which may include requesting further information, attending to title rectification, negotiating a price adjustment, seeking indemnity insurance, or, in some cases, deciding not to proceed.
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Buying a freehold gives you outright ownership of the property. Taking an assignment of a lease means you are stepping into an existing tenant’s position for the remainder of the lease term, subject to the landlord’s consent and the terms of that lease. The due diligence and documentation required differ between the two.
What about selling a commercial property?
This guide has focused on the process of buying a commercial property. In Part 2 of this series, we will look at the process of selling a commercial property, including the steps involved and how sellers can prepare in advance to help their transaction run smoothly.
If you are considering buying, selling or leasing a commercial property and would like to discuss how we can help, please get in touch with the Prosperity Law LLP commercial property team.
The Real Estate team at Prosperity Law, led by Karen Piontek, are specialists in this area and can help you navigate your next commercial property purchase. Get in touch below.
📞 Call us at 0161 667 3686 to book a consultation with our expert legal team, or email enquiries@prosperitylaw.com, or use the form below.
