Commercial Property specialist, Sophie Robins highlights 5 areas you should thoroughly investigate before purchasing commercial property.
Buying any real property is a serious and involved undertaking. Commercial property especially has numerous areas that need to be investigated in order to avoid the pitfalls before contracts are exchanged.
With this in mind, I have set out below my ‘top 5’ property specific matters to investigate, consider and address when purchasing commercial property.
You can purchase property that is freehold or leasehold. Freehold property means that you own outright the land and buildings on it. Leasehold property, broadly speaking, means you temporarily own the property and what you can and cannot do with it are limited by the terms of a lease.
As you will readily appreciate, freehold property is generally considered a better tenure than leasehold because it is not subject to the constraints of the lease terms. Within leases there can be a varying degree of constraints and the terms of a lease over, say, 999 years should give greater freedom to the tenant than a lease of 20 or even 99 years.
The types of lease terms that can be onerous to the tenant typically include the required standard of maintenance, alterations (which may be prohibited), landlord consent to sell/assign the lease and the requirement to pay rent until the end of the term (unless there is a break clause). In addition, and crucially, in certain circumstances the landlord can forfeit the lease and take back the property with the tenant losing its rights to the property altogether. All these matters will need to be taken in to account and could dramatically affect the property’s value and or a purchaser’s intended uses.
The extent of a property is described by red edging on a plan provided by HM Land Registry or the seller if purchasing part of a registered title. This boundary line may not correspond to existing boundary features and the exact location of the boundary could be in another place altogether. It is therefore essential to visit the property and have it surveyed for condition as well as the boundary location. Boundary issues are fairly common and can be expensive to resolve once the property is sold, so it is important to address these types of issues before the purchase. If any boundaries are new or easily moved, it is especially important to have the land surveyed as there is no requirement for HM Land Registry to check the accuracy of the plans.
Almost all property in England and Wales is registered at HM Land Registry. This means that each area has a unique title number given to it and connected to that title number will be a register and a title plan. The register will provide a brief description of the land, owner information, financial charges secured against it , any rights over other land that benefit the property and rights reserved over the property to benefit other land.
Rights of way to benefit or burden property are fairly common. These may not be easily seen on the land but if present on the title, you will acquire the property subject to them. They can also come with onerous maintenance obligations and /or require contributions towards that cost.
Other types of restrictions that may be reserved over the property include restrictions not to use it for anything other than one dwelling house or as a building merchant’s yard or preventing the sale of alcohol. These restrictions are more common than you might expect. There may also be a general restriction not to disturb or cause a nuisance which could amount to a potential breach of the restriction if there has been a change of use since that restriction was put in place.
It is also worth noting that Local Planning Authorities do not take account of matters on a property’s title which means that a planning permission (for example for the building of a wine bar and restaurant ) will, if implemented, be in breach of a restriction on the title if the title prohibits the sale of alcohol. Owners of the land with the benefit would have grounds to intervene and to stop any building works causing substantial loss and damage.
Most properties are accessed by a road but not all roads offer the same assured access to the property. The ideal scenario is a property that abuts directly on to a highway maintained at public expense. Alternatively, one that has express rights over other land which in turn abuts a highway maintained at public expense is acceptable. If the property does not abut such a highway there could be a potential ‘ransom strip’ between the property and road which is owned by a third party who could assert their ownership in order to prevent access to and from the property.
In some cases it can be difficult to ascertain whether or not the property abuts a public highway in which case a highways search can be requested from the Highways Authority.
Sometimes ransom strips arise by accident because of mismatched plans held by HM Land Registry. Typically, a seller can evidence prescriptive rights of way have arisen through their conduct over time. However, in some cases, ransom strips are intentional and if not discovered early can have costly consequences.
For most commercial property, the Local Planning Authority will have ascribed a particular use which can be undertaken at that property. The use class allocations are changing and permitted changes between different classes is being phased out. Generally speaking, ascribed uses for a property can be determined from an implemented planning permission. If however, a change of use is planned (and is not a permitted change) you must apply to the Local Planning Authority to ask for permission. If there is no evidence of use from previous planning permissions and/ or the actual use is contrary to a planning permission, then an application to the Local Planning Authority for a lawful development certificate can be made, preferably before committing to the purchase!
These are just five of the various areas to investigate before purchasing commercial property. There are, of course, other areas to consider and every property is different as are the priorities of different types of buyer, such as developers, owner occupiers etc.
For further advice on the above or any other commercial property matter, please contact Sophie or another member of our highly experienced Commercial Property team.