What Is Commercial Property Conveyancing?
Whether you are buying or selling commercial property, conveyancing is the legal process through which the ownership of the property in question is transferred from one business or individual to another. This includes any property used for commercial purposes, such as offices, retail spaces, restaurants, bars, industrial units, warehouses, leisure facilities, and even medical surgeries.
The commercial property conveyancing process involves the drafting, review and negotiation of several legal documents, including but not limited to title deeds, financial statements, property surveys, and sale and purchase contracts. For this reason, it is highly advisable to instruct a commercial property solicitor throughout the transaction to represent and negotiate the best possible deal for you.
Differences Between Residential and Commercial Property Conveyancing
While the commercial property conveyancing process is similar in structure to the residential conveyancing process, commercial transactions tend to be more bespoke due to the additional considerations when dealing with commercial properties. For instance, many commercial properties are subject to strict building regulations, with which owners must demonstrate compliance to progress a sale.
Moreover, commercial property may be subject to existing, occupational lease agreements with third-party tenants. Finally, as commercial properties can be achieve much higher valuations than most residential properties and can pose a greater financial risk to lenders, this can make it more difficult for buyers to secure funding for commercial property purchases, which similarly complicates and extends the process.
Types of Commercial Property Conveyancing
Depending on the type of property that is being bought or sold, the intended use of the property, as well as the interests of either party involved in the transaction, commercial property conveyancing can take various forms. These include:
- Sale and purchase: Buying and selling the freehold interest in a commercial property.
- Leasehold transactions: Many companies choose to lease their premises from a commercial landlord, rather than purchase their trading premises outright. This type of commercial property conveyancing involves negotiating the terms of a lease agreement, which includes the duration of the lease, the responsibilities of the tenant and landlord, as well as clauses that may trigger the early termination of the lease.
- Development and planning: Transactions involving commercial properties that are currently undergoing development require significantly more legal documentation and oversight to ensure the completed property meets the necessary building, electrical and environmental standards.
Commercial Property Conveyancing Process for Buyers
Assuming you are interested in purchasing a property that is neither leasehold nor under development, the commercial property conveyancing process for buyers is relatively uniform. We have outlined the process in the following steps:
- Step One: Instructing a solicitor
Consulting a specialist solicitor at the start of the process is crucial to ensure you receive the right legal advice at every step of your transaction. In addition to handling the legal aspects of commercial property conveyancing, they can alert you to any issues associated with prospective properties, while ensuring that your best interests are always protected.
- Step Two: Performing due diligence
When you start your search, your solicitor will conduct research into the commercial properties you are considering to ensure there are no underlying issues that could impact the sale. This includes commissioning the relevant property searches with planning authorities and environmental agencies, as well as reviewing the title deeds with the Land Registry.
- Step Three: Negotiating and drafting contracts
Once your solicitor has performed commercial property due diligence, you will be in a position to make an informed decision about which commercial property to purchase. When you have made your choice, your solicitor will start their negotiations with the seller’s solicitors to determine the terms of sale, such as the price, completion date, and resolving any issues raised during their due diligence.
- Step Four: Securing financing
While negotiations are ongoing, your solicitor may refer you to a financial advisor or mortgage broker who can help you find a suitable lender to finance the sale. This typically involves submitting an application for a commercial mortgage; however, you may need to seek a form of short-term finance if you have any difficulty securing a lender.
- Step Five: Exchanging contracts
Once the terms of sale have been agreed, you pay the deposit and exchange contracts with the seller, such that the deal becomes legally binding.
- Step Six: Completion
When completion day arrives, the remaining funds are released by your lender and transferred to the seller, such that ownership of the property can transfer to you.
- Step Seven: Post-completion obligations
The final step in the commercial property conveyancing process involves paying the requisite Stamp Duty Land Tax (SDLT) on the property and submitting an SDLT return to the HMRC, and submitting an application to HM Land Registry such that the property can be officially registered in your name.
Commercial Property Conveyancing Process for Sellers
While the structure of the commercial property conveyancing process is very similar for sellers, their responsibilities at the start and the end of the process are distinct from those for buyers, yet no less important. We have highlighted these differences in the following steps:
- Step One: Appointing a solicitor
As with buyers, it is essential to seek legal advice from a specialist solicitor at the beginning of the process to protect your interests throughout the transaction.
- Step Two: Preparing documents
Before placing your property on the market, your solicitor will collate and generate several documents that are needed at various points throughout the commercial property conveyancing process. In addition to creating a contract template and title pack, which proves your ownership, your solicitor will collate and provide documents that demonstrate your compliance with important regulations, such as an Energy Performance Certificate (EPC).
- Step Three: Negotiating and drafting contracts
Once a buyer has expressed interest in your commercial property, you will enter a period of negotiations to determine the price of the property, as well as other favourable terms of the sale.
- Step Four: Answering queries
Throughout negotiations, you must answer any questions and offer any additional information requested by the buyer (where reasonable), as well as provide the supporting documents.
- Step Five: Exchanging contracts
When the terms of sale have been agreed, you exchange contracts with the buyer to make the transaction legally binding.
- Step Six: Completion
On completion day, you must vacate the premises and hand over your keys to your estate agent, such that the property can transfer to the buyer with “vacant possession” (subject to any other occupational interests agreed in the transaction).
- Step Seven: Post-completion obligations
After the sale has completed, your solicitor will address any outstanding mortgage payments against the property, then transfer the remainder of the funds to you.
How Much Does Commercial Property Conveyancing Cost?
While the cost of commercial property conveyancing varies depending on the size, location and use of the property being bought or sold, having an awareness of the different fees that contribute to the overall cost is crucial when creating a budget for the process. The fees you should consider include:
- Property Value: It goes without saying that higher-value properties cost more money, but the price of a property usually has an impact on the overall cost of the commercial property conveyancing process.
- Complexity of transaction: As more complicated transactions, including additional searches or complicated leases, are more demanding on your legal team, you can expect the additional time they spend on your transaction to be reflected in the overall cost of the process.
- Insurance: You will need to obtain the relevant insurance for the property.
- Maintenance and service charges: Commercial properties that are part of larger developments are often subject to a common regime of facilities services and service charges.
- Stamp Duty Land Tax (SDLT):Much like residential property purchases, buyers must pay Stamp Duty on properties over a certain value, calculated by reference to the purchase price and value.
- Legal disbursements: From Land Registry fees to property searches, there are numerous costs that your solicitors (and you) will incur in support of a sale or purchase.
Can Newtons Help with Commercial Property Conveyancing?
We hope this article has improved your understanding of commercial property conveyancing and highlighted the importance of consulting specialist solicitors at every stage in the process. At Newtons Solicitors, we have supported numerous buyers and sellers with the transaction of commercial property, proactively requesting the necessary documentation and preparing for negotiations to ensure a seamless and successful conveyancing process for our clients.
If you are looking for an experienced solicitor to assist with your sale, or you have any unanswered questions about commercial property conveyancing, please get in touch with a member of our team today for more information about our services.