Buying a commercial property – steps to completion
If you’ve never purchased a commercial property before, it can feel like a daunting prospect. Between solicitors, contracts and mortgage agreements, it’s easy to get lost in the jargon.
At Grey-Smith Legal, our team aim to make the process as painless as possible, and we are with you every step of the way.
Read on to discover the steps that make up the process of a commercial property purchase.
Heads of Terms agreed between parties/agents
The Heads of Terms set out the main points of the transaction, and although usually stated to be “subject to contract” and not legally binding, they are referred to for the legal drafting and should be accurate. If there is a selling agent, they will usually prepare the Heads of Terms.
Once the Heads of Terms have been agreed between you and the seller, they will be sent to the appointed solicitors.
You will need to formally appoint your solicitor at this point, and, once you have done so, they will usually send you their terms of business, request your identification documents and ask to be notified of any money on account, for property searches and Land Registry documents.
The seller’s solicitor will send the contract package to your solicitor. When buying a commercial property, this will usually include a draft sale contract, the title documents, the energy performance certificate and replies to Commercial Property Standard Enquiries (CPSEs). CPSEs are general property enquiries raised on the purchase of a commercial property.
Buyer’s due diligence
Once your solicitor has received the contract package, they will carry out a due diligence check on the property in accordance with your requirements and the lender’s requirements (if you are having a mortgage). This will include reviewing the contract, investigating the title and reviewing the seller’s replies to the CPSEs.
Your solicitor will also request the property searches at this stage, which will include a local authority search, an environmental search, and a water and drainage search. Your solicitor may also advise that additional searches are carried out depending on the property and its location.
It may also be necessary for you to commission a survey/valuation (with a property surveyor) of the property so that you are fully aware of its structure and condition. If you are borrowing, your lender will most definitely require this. If so, you should also provide this to your solicitor as they will need to review this.
Once your solicitor has reviewed the contract package, survey/valuation, and search results, they will usually raise any necessary enquiries with your seller’s solicitor.
Due diligence can be the longest stage of the transaction and could take a few weeks, as your solicitor will be reliant on third-party search providers and your lender.
Review mortgage papers
If you are having a mortgage, your solicitor will review the terms of the mortgage and any other security documentation provided by the lender. Your solicitor will also comply with any of the lender’s requirements.
Contract agreed and reporting
Once your solicitor is happy with the information discovered from the due diligence, the terms of the sale contract and transfer deed will be negotiated and agreed upon with the seller’s solicitor.
Your solicitor will report to you on the due diligence process and their findings. They will also discuss your requirements for the property and whether there are any defects you should be aware of.
At this point, you will usually sign the contract, mortgage papers (if applicable), transfer deed and any other necessary documentation. Your solicitor will also request the deposit amount from you (usually 10 per cent).
Once you and the seller have signed your respective parts of the sale contracts, they will be exchanged and your solicitor will pay the seller’s solicitor the deposit.
Exchange is usually a telephone call between solicitors, who follow up the call by exchanging the contracts formally in the post. On exchange of contracts, the purchase is now legally binding and a completion date is set.
If you are borrowing, your solicitor will request funds from your lender at this stage. If you are not borrowing (or it does not cover all sums due), your solicitor will request the balance purchase from you.
Just before completion, your solicitor will carry out pre-completion searches at the Land Registry.
On completion, your solicitor will receive the funding from either you or your lender, before sending the balance of the purchase monies to the seller’s solicitor.
At this point, the transfer deed (and mortgage) will be completed, and the legal title of the property passes to you. This is the exciting part – you’ll now be able to collect the keys from the agent!
Your solicitor will deal with any post-completion matters such as registering the transfer at the Land Registry and paying the Stamp Duty Land Tax.