If you are looking to buy a commercial property, there are a few steps you will need to take before making that important decision of purchasing.
What type of commercial property do I need?
Commercial properties are buildings that are used for business activities, and cover a wide range of sectors and industries including offices, shops, leisure, healthcare and industrial.
Advantages of buying a commercial property
There are a number of advantages associated with buying a commercial property as opposed to renting, such as:
- No sudden rent increase.
- Capital growth – an increase in value of your property will increase your capital
- More flexibility over changes that you want to make to your space to suit your business.
- Commercial mortgage repayments are very often lower than monthly rental payments for the same premises.
- Mortgage interest payments are tax deductible.
- More predictable monthly outgoings when chosen fixed rate mortgage.
- Long-term security
- You will have an option to sub-let your property to generate additional income.
Disadvantages of buying a commercial property
However, buying a freehold commercial property will come with several disadvantages that you should be aware of. For example:
- High deposit – typically between 20% – 30% of the sale price is required as an initial deposit by lenders.
- Variable rate mortgage can result in an increase in interest rates.
- Relocating your business can be harder as selling can be a complex and time-consuming process.
- As a property owner, you will be responsible for more things, such as repair and maintenance.
- Property value decline over time will result in a decrease of your capital.
Finding the right property
Finding a commercial property that meets your criteria means there are several critical factors that you will need to take into consideration, some of which will be detailed more in the later sections of this guide.
- The property type
- Location (more detailed information below)
- The property’s permitted usage
- Costs (more detailed information below)
- The condition of the commercial property
- Energy efficiency of the building
- Historic planning data
There are various different ways to search for commercial properties that are up for sale both online and offline.
Our up to date commercial property for sale database can provide you with a comprehensive list for you to start your search.
Other ways to search include:
- For sale signboards outside properties in your area
- Through a network of friends and family
- Through a network of property investors
- Through direct mail
- By appointing a commercial surveyor
Choosing the right location
Whatever type of commercial property you are searching for, location plays an important role in choosing your ideal premises. Some of the considerations to consider when choosing your perfect locations are:
- Are there good public transport links nearby?
- Can the location you choose give positive image and impression to your customers and clients?
- For certain business types, audience demographics may be critical – i.e. retail and hospitality businesses
- What level of footfall does the location have?
- Are there sufficient parking spaces for your employees, customers, clients and suppliers?
- Are there direct competitors located nearby?
- Congestion charges
- Delivery restrictions
- Centrally located premises can be more convenient, however, they can come with higher purchase price and ongoing costs.
Buying a commercial property is a complex process and there are important costs and expenses both before and following completion that you will need to factor in.
- Commercial property sale price
- Deposit – Buying a commercial property will require a substantial deposit, typically between 20 to 30%.
- Commercial insurance – The cost of commercial property insurance can vary depending on multiple factors, such as the property and contents value, type of business you operate and how ‘risky’ your business and industry are perceived.
- Business rates – Business rates payable will depend on the property value, size of your business and where you are located.
- Stamp Duty Land Tax (SDLT) – The amounts depend on the property value. Land and Building Transaction Tax (LBTT) applies if you plan to locate in Scotland.
- Repairs and maintenance
- VAT on commercial property purchase – Generally, VAT is not charged on commercial property purchases, however, some commercial property buyers choose the option to tax, which will come with both advantages and disadvantages
- Surveyor fees
- Solicitor fees
- Broker fees
- Mortgage fees – Arrangement fee and booking fee
- Mortgage repayments
- Removal fees
- Costs to buy required furniture and equipment
- Cleaning charges
- Local authority charges – including waste collection and parking
- Other ongoing business running costs
Exchange of contracts and completion
Exchange of contracts is when the final contract is signed by both the commercial property seller and you as the buyer and it becomes legally binding. This is also when you are required to pay a deposit to the seller.
Once contracts have been exchanged, the seller is not permitted to withdraw the property from the market or sell to another interested party. In England and Wales, there are no hard rules that prevent from commercial and residential property sellers to do so before the contracts are signed unless a lockout (exclusivity) agreement is in place.
How long the completion can take following exchange of contracts varies from a week to a month, which should have previously been agreed by both parties. Completion date means the date you become the new owner of the property that you have purchased.
Following a successful completion of a commercial property, there are still key stages involved including paying SDLT, ensuring you have sufficient insurance cover in place and registering your ownership at the Land Registry.