Commercial property: buying, selling, leasing and finance

How commercial work differs

Commercial property includes offices, shops, industrial units, land and mixed-use buildings, such as a shop with a flat above. The legal principles are similar to buying a home, but buyers are expected to investigate more for themselves and there is less consumer protection. Terms are negotiated in more detail, and tenants, planning, VAT and finance can all affect the value.

Most deals begin with heads of terms, a short summary of the main points agreed between the parties, such as the price, any lease terms and the timetable. Heads of terms are not usually legally binding, but they guide the lawyers when the contract is drafted.

Buying or selling commercial property

A commercial purchase usually involves:

• due diligence: investigating the title, searches, planning history, environmental risk and any existing leases or tenancies
• commercial enquiries, detailed written questions to the seller about the property, its services, disputes and running costs
• checking any loan documents, and a company buyer's authority to sign
• exchange of contracts, the point where the deal becomes legally binding, and completion, when the price is paid
• paying any property tax and registering the new owner

On a sale, your law firm prepares the contract and the information the buyer needs, and answers their enquiries. Instant quotes are available for a commercial purchase, a commercial sale and a mixed-use purchase.

Leases, finance and development

Leases and specialist work depend on the details, so our team prepares a tailored quote, usually within one working day. This covers:

• granting, taking or renewing a lease, or assigning one, which transfers it to someone else
• a licence to assign or a licence to alter: the landlord's formal consent to a transfer or to building works
• a surrender, which ends a lease early by agreement
• refinancing, and bridging loans (short-term finance)
• development land, option agreements (a right to buy land later, often once planning permission is granted) and overage agreements (a promise to pay the seller more if the land later rises in value)

Many business leases in England and Wales give the tenant a legal right to renew, unless both sides agreed to exclude it before the lease was granted. Our commercial lease guide explains what to look for.

What it costs

Your quote separates the legal fee and any additions, such as for a company buyer or a mortgage, from VAT and disbursements (third-party costs such as searches and registration fees).

Property tax on commercial and mixed-use property is charged at non-residential rates. In England and Northern Ireland, Stamp Duty Land Tax (SDLT) is 0% up to £150,000, 2% from £150,001 to £250,000 and 5% above that, so SDLT on a £500,000 office would be £14,500. If VAT is charged on the price, the tax is worked out on the VAT-inclusive figure: at £600,000 including VAT it would be £19,500. Wales has its own rates, set out in our property tax guide.

VAT itself depends on the seller. A seller who has opted to tax, a formal election to charge VAT on a building, will usually add it to the price. A let building sold with its tenants can sometimes be treated as a transfer of a going concern, with no VAT charged, if strict conditions are met. See our guide to VAT on commercial property.

What to have ready

Your law firm will ask for these early on:

• details of the buyer or seller, and for a company its registered number, directors and the people who ultimately own or control it
• your funding, including lender details and any deadlines in the loan offer
• your VAT registration status, and whether you intend to opt to tax
• the agreed heads of terms, and details of your other advisers
• how you plan to use the property, so planning can be checked
• for a sale: title deeds, existing leases and rent details, planning documents, certificates for building works and service charge records
• any deadline, such as an auction completion date or a lease expiry

Buying through a company? Our company purchase guide explains the extra checks.

How long it can take

There is no typical timescale for commercial property. A simple vacant freehold may move as quickly as a house purchase, while a tenanted building, a development site or a deal with several lenders can take much longer. Agreeing a realistic timetable in the heads of terms helps everyone plan.

Auctions are the exception. At a traditional auction the contract becomes binding when the hammer falls, and completion follows on a date fixed by the auction conditions. Have the legal pack checked before you bid, and get a commercial auction quote early.

Common pitfalls

Common problems include:

• Agreeing a price without checking whether VAT will be added.
• Overlooking capital allowances, a form of tax relief on some fixtures, which may need to be dealt with in the contract. Speak to your accountant early.
• Buying a let building without reviewing every lease, including rent reviews, break clauses (options to end the lease early) and any right to renew.
• Assuming the planning permission for the current use covers what you plan to do.
• Underestimating dilapidations, the repairs a tenant must carry out or pay for when a lease ends.
• Starting the legal work too late to meet an auction or finance deadline.

Next steps

Get an instant quote for a commercial purchase or sale, or browse our services to request a tailored quote for leases, finance or development work. Our commercial purchase checklist is worth reading before you instruct.

When you ask to go ahead, we introduce you to a regulated law firm that handles your type of transaction and covers the area. If no firm on our panel fits an unusual matter, our team looks at it personally and talks you through the options.