For many businesses the acquisition of a new premises will be a significant financial investment and key to growth. Whether you are an established business looking to scale up your property portfolio or a new business in its infancy acquiring premises for the first time we can assist. Whilst leasing business premises offers a degree of flexibility, a freehold purchase may be more suitable if a return on investment is a key factor. We have compiled a list of some of the key considerations when undertaking a commercial property acquisition.
Topics to be answered in this article
Types of property
There are many different types of commercial properties that you could buy. These are:
Offices: This type of property is used to conduct business or professional services, they can be either employee only or a client / employee mix. The diversification of office space remains a hot topic in a post-pandemic climate.
Retail: Retail premises such as standalone units or units comprised within a larger shopping centre locations. Location is a key consideration here and we continue to see smaller businesses and start ups occupy retail units which have become more readily accessible as our high street continues to evolve.
Industrial and logistics: Industrial property is primarily used for the purpose of manufacturing or storage. The prevalence of online shopping continues to see a sustained demand for prime warehousing space.
Leisure and Healthcare: Hospitals, doctor or dental surgeries, nursing homes and any other medical establishments.
Planning for the workspace you will need
Consideration should be given to agile working policies, client meeting spaces, storage areas and space for any necessary equipment. Thought should be given to the layout of the property and whether this needs to be consumer client or business customer friendly.
Additional consideration should be given to any required alterations and whether the building itself is suitable to hold or store your business equipment. Further is there parking nearby and if not is the property easily accessible for employees, visitors and deliveries? Will the workspace reflect your brand and ensure that you can properly deliver the services and ethos your business desires?
Location and facilities
Location is a pivotal factor when considering where to base or expand your business. If you are relocating and are unsure of the local market, specialist planning consultants and surveyors are best placed to advise on key considerations such as rental value or market value if your business is acquiring a freehold or a long lease at a premium.
Transport links and / or car parking to support both employee and client access should be properly considered. Research should be undertaken to ensure that there are no other factors which may deter custom or hinder future investment value (a local search is often vital to here). It is also prudent to consider the services available at the property and whether any additional works will be required to install or update services which are insufficient or unavailable. Landlord consent will be required in most instances if additional tenant plant is required when leasing a property.
Size
It is important to consider the size of the property to ensure that it provides a balance for your business needs now and in the future. If the property is currently too large but it is likely that the business will organically grow to utilise this space in the future subletting may be an option until this time. Is there additional land which could allow for extension or are there any other limitations which may prohibit extension (ie listed building). Subletting as below may be a potential option.
Leasehold or freehold?
Is the commercial property you are going to buy a leasehold of freehold. This is really important to know as there are some key differences to be considered
Freehold
If you own the freehold of the property this means you will own the whole of the premises and are free to extend, use, alter or sub-lease part or the whole of the property as you wish (subject to any lender and / or planning authority consent). As a freehold owner, you will be responsible for all maintenance, repair and insurance of the property together with any additional outlays that may become due from use of any private roads or shared carparks with adjoining neighbours.
Owning a freehold will likely mean a large initial outlay for your business in respect of the purchase price, conversely the acquisition may represent an investment opportunity and the property will become a company asset.
Leasehold
If you own the leasehold of a property you will occupy the whole (or part) of a property under a lease for a contractual term. As a leasehold occupier of part you will only be responsible for the repair and maintenance of the part of the property you occupy with the Landlord responsible for the repair and maintenance of the exterior and remaining parts of the property (and such costs will most likely be recovered via a service charge).
If the Landlord is agreeable, rental sums can be charged at an initial base rate and then topped up with a percentage of the business profits – this can be beneficial to the business if this is in its infancy. The length of each lease can be negotiated to reflect the wishes of both parties and can also include assignment clauses and break clauses to protect you should you wish to terminate or transfer your lease at an earlier stage. Leases can therefore provide businesses with greater flexibility in their premises arrangements. The lease will govern any subletting and alterations.
Additional costs
Stamp duty land tax, advice from professionals, VAT, mortgage fees, fitting costs, equipment, moving, surveys. Add a paragraph on what support a legal firm can give in this area.
There are always additional costs associated with property purchase or relocation and these will need to be factored in when considering any move.
Stamp Duty Land Tax can be payable on both leasehold and freehold transactions. It is sensible to conduct a Stamp Duty Land Tax calculation as part of your due diligence or we can carry out the calculation on your behalf.
Professional costs will be incurred through legal fees but there will also be additional fees in relation to searches, surveys and mortgage fees.
Further there may be additional costs relating to the property itself in relation to fitting it out to best suit your needs and removal and fitting fees for any furniture or specialist equipment.
Finally, if the Seller or Landlord has opted to tax the property VAT will be payable on the rent or the purchase price (this is not usually an issue if the purchaser is themselves VAT registered).
Searches and surveys
The adage of ‘buyer beware’ means that a prudent buyer should ensure that a full set of property searches are commissioned. Searches are typically commissioned in advance of exchange of contracts to ensure as much information as possible about the property is gathered and enquiries raised accordingly. A buyer is free to decide if they wish to commission searches unless the purchase is subject to finance in which case a lender will require that searches are commissioned (to include an environmental search, local search, drainage and water, highways and chancel).
It is always advisable to have a survey carried out to identify any potential issues whether you are acquiring a freehold or leasehold interest in the property. This can be potentially beneficial if you are taking on a full repairing and insuring lease. The results of a survey can ensure that any issues are dealt with post-completion or may lead to a re-negotiation in price. Further, the results may persuade a landlord to accept a tenant’s repairing liability is limited by way of a schedule of condition. The schedule will document any specific defects that will fall outside of the tenant’s repair covenant.
Financing
There are numerous options available when considering how best to finance any proposed property acquisition. A mortgage broker can often advise you on the most appropriate mortgage to suit your relative needs and will be able to discuss the pros and cons of both fixed and variable rates in line with your proposed timeline and objectives.
A further consideration is the size of the deposit on the initial purchase or rental price and the relative impact this would have on any longer-term rental or mortgage payments.
Alternatively, you may wish to consider raising capital through investors or other third-party funding. Investors may be happy to accept shares in the company or a profit percentage in return for their initial investment, this may benefit your business given that the capital, which would otherwise have been expended into the property, can be used elsewhere.
Subletting
Subletting could be considered as an option to raise additional funds if your business premises has excess space which could benefit a third-party occupier. Necessary permissions and consents will need to be obtained from any lender or landlord prior to any subletting. Additionally, there are legal requirements commercial landlords are required to abide by (ie EPC’s and gas safety inspections).
Businesses considering underletting part of their property will need to consider whether a shorter-term tenancy may be more appropriate to allow for flexibility if it is likely the business may need to take back the space in the future, or alternatively whether a longer term would provide stability through the regular income it provides. Legal advice should be taken prior to any underletting to ensure that any tenant does not secure security of tenure and to ensure that the lease permits subletting.
How can Goughs help?
Each transaction is as unique as each property and sector specific considerations should be taken into account. Our team has experience in a wide range of sectors including offices, retail, industrial and logistics, and leisure and healthcare.
Please get in touch if we can be of assistance if you would like assistance whether your business is looking to add an additional property to its portfolio or if you are acquiring a commercial property for the first time as part of your new business venture.
