What is involved in the purchase of commercial property?

Anyone embarking on the purchase or lease of commercial property should have an awareness of the practice and procedures involved in that process. This will assist both lawyer and client, vendor and purchaser by assisting all parties to agree to sensible timescale and commercial solutions where problems arise. Thankfully these are few and far between. Title problems, where they arise, can take weeks or even months to resolve. Much can be achieved by sensible pre purchase enquiries. Hints and tips on this are given below. We set out below the general sequence of events for a commercial property purchase. The position for leasehold situations is slightly different, and you should refer to the next page for further information. The usual process is as follows:-

1. Purchaser views suitable property. Offers to purchase can be made subject to survey, but this may not be attractive to a vendor, particularly where there is likely to be competition, so the purchaser should consider instructing a survey. The extent and depth of that survey should be discussed in detail with a suitable surveyor. We have added at the end of this page the contact details for a number of surveyors with whom we deal on a regular basis who are experienced in commercial property matters. Their particular areas of expertise are highlighted.

2. The purchaser submits an offer to purchaser. It is more usual for a purchaser to submit an offer to purchase than for a seller to issue an offer to sell. The purchaser highlights all conditions to be attached to the purchase. These would include obtaining good title, making sure there are no adverse notices affecting the property and will also narrate any preconditions to the purchase, such as survey, raising finance, or obtaining planning permission, whether of new or for a change of use. Realistic timescale should be given for completion of these conditions. If planning is a condition, decide whether you want to be able to appeal against a refusal. The vendor will expect a time limit for these conditions, so that if they are not satisfied by a specific date the vendor can withdraw. Decide if you want to be able to pull out of the deal if the property is damaged or destroyed before you take entry. Ensure your solicitor has a reasonable description of the property.

3. Conclusion of missives. This is the name given to the process by which vendor and purchaser thrash out a bargain between themselves and end up with a contract which is binding on both parties, from which neither can withdraw unless for breach of a stated condition. The process of negotiating missives for complex commercial property transactions can be a long one involving many exchanges of letters. The process can become something of a due diligence exercise for the purchaser, eliciting information from the vendor about the state or condition of the property which the purchaser is expected to accept.

4. Production of the property title to the purchaser's solicitor. This is the point at which title problems will emerge. The title may contain a burden prohibiting the purchaser's proposed use of the premises. There may be a technical defect in the title. Most of these can be resolved by title indemnity insurance, relatively easily obtained. Sometimes the precise area of a property cannot be determined. The position is easier where the area is land registered. The Land Register is an ordinance based registration system and instead of a large bundle of titles the purchaser receives for examination a relatively straightforward Land Certificate which certifies the vendor's title and narrates all relevant burdens and conditions. This should also reduce the purchaser's expense, as it minimises the time the purchaser's solicitor has to spend examining title. The process of examining and satisfying oneself on a title may take some time, depending on the uncertainties which arise.

5. The purchaser's solicitor will require sight of the following items as part of the examination of title:- 1. Search Reports from the Property Register, confirming that there are no impediments to the sale such as inhibitions or a bankruptcy order against the vendor; 2. Local Authority Searches. These are Certificates from the Local Authority to the effect that there are no planning or other notices adversely affecting the property; 3. Planning Permission, Building Warrant and Completion Certificate for the original building or any alterations; 4. Discharges of any extant securities over the property.

6. The purchaser's solicitor will prepare a Disposition in favour of the purchaser and submit it to the vendor's solicitor for approval.

7. The parties will agree a Letter of Obligation. Because there is always a delay in the registration of deeds in the Property Register, there is a danger that, even with relatively up to date Property Searches, the vendor will have registered a charge or there is some impediment to the sale which cannot be ascertained. This gap period is covered by the vendor's solicitor granting an obligation to deliver clear Searches following completion. Even the negotiation of a Letter of Obligation can be a tricky exercise. The vendor's solicitor is effectively certifying the behaviour of the vendors. Depending on the financial situation of the vendor that may not be a straightforward exercise. Once the foregoing process has been completed, the parties will agree a Completion Date and the purchaser will hand over the price, subject to any agreed retentions.

8. If the property is an investment property, the only variation to the foregoing process is that the purchaser's solicitor has additionally to examine the leases to which the property is subject, obtain confirmation whether there are any breaches of same and will take the property subject to possession by the disclosed tenants.

9. If the purchaser is borrowing money to fund the purchase, the lender will take security over the property. The procedures carried out by the lenders solicitors are very similar to those set out above. In the vast majority of cases it is not possible to avoid a certain amount of duplication, with the lenders solicitor effectively checking that the purchaser's solicitor has carried out a correct examination of the title. There are certain additional procedures, and these are set out in the next following page.

We are happy to recommend the following commercial surveyors.

Their particular areas of expertise are listed:-

Colliers CRE
Bob Fisher, Tim Appleton, Alastair Coats, Jack Campbell
137a George Street
Edinburgh
EH2 4YJ
Tel No: 0131 220 3220
Email: rfisher@collierscre.co.uk

Hartley Cowley & Company
Jim Savage, Ron Cowley
213 West George Street
Glasgow
G2 2LW
Tel No: 0141 221 5107

E-mail: jim.savage@hartleycowley.co.uk, ron.cowley@hartleycowley.co.uk