If you are considering purchasing or selling your commercial property, it is imperative to carry out each step of the process with care and close attention to detail, to protect your current and future financial and business interests. As a London-based law firm specialising in commercial property, AQ Archers is well versed in the end to end process of commercial property transactions and will handle your matter fully on your behalf, quickly dealing with any issues that arise on the journey to completion.
The following legalities need to be addressed before a sale and purchase can be completed:
- due diligence
- exchange of contracts
- completion
What are the steps in a commercial property transaction?
It is helpful at the outset to understand the key steps taken during a typical commercial property transaction; these are as follows:
- find an investment property (this maybe with the help of an agent)
- instruct a commercial property solicitor
- organise finance
- make an offer on the property (consider instructing a valuer to ensure you are offering what the property is worth)
- preparation of Heads of Terms. Proposed timescales will be agreed, and you will need to present proof you can finance the purchase
- conduct due diligence on the property and negotiate on any findings (if applicable)
- your solicitors will prepare and negotiate the following documents:
- mortgage documents (if applicable)
- the sale and transfer documents (if the property is freehold)
- the sale contract, the transfer document and any permissions required by the landlord (if the property is leasehold)
- all documents are signed, and contracts are exchanged, and deposit paid
- completion (or closing) of the transaction (this will differ slightly, depending on whether the property is leasehold or freehold)
- Stamp Duty Land Tax is paid, and the transaction is registered at the Land Registry
The importance of due diligence
The importance of undertaking thorough due diligence cannot be overstated. This involves:
- investigating the title (or the lease if you are purchasing a leasehold property)
- undertaking appropriate searches and surveys such as environment and water searches, obtaining structural and engineering reports, planning restrictions, sewerage access, checking who maintains access roads to the property and any proposals which might affect the property
- gathering information on the current tenants of the property
- finding out if there are any legal action/disputes pertaining to the property
Your accountant and other professional advisors will also conduct due diligence in terms of the rental yield and value of the property.
While the due diligence is being conducted, you may wish to enter into an exclusivity agreement with the seller. This will state that for a specified time, whilst due diligence is being undertaken, the seller will not negotiate with any other interested parties.
These types of agreements are difficult to negotiate, and there are limited damages available for a breach. Your solicitor will advise you as to whether asking the seller to enter into an exclusivity agreement is in your best interests.
Exchange of contracts
A well-written Heads of Terms will outline much of the sale and purchase agreement in advance of the drawing up of the contract, which may make the process run more swiftly and smoothly (subject to due diligence findings).
Once the contracts have been drawn up, final negotiations have been completed, a deposit paid, and the documents signed, they will be exchanged.
From this point onwards, you are legally obliged to complete the transaction. If you withdraw from the deal, it is likely you will incur liability.
Completion of the sale
The completion date is usually specified at the time contracts are exchanged. The final balance of payments is made at this time, and you officially own the property.
There are usually severe penalties if completion is not made on time. As a purchaser, if you fail to complete by the specified date, the seller can charge you for loss of income, pursue a claim for damages, and take steps to terminate the contract and retain the deposit.
Your lender can also charge interest on outstanding completion monies.