3 Things to Keep in Mind When Purchasing a Commercial Property

If you’re looking for an investment vehicle then commercial property is a very good option to consider. With property prices ever going upwards, even in recession, steady growth in the property value is one of the major bonuses, not to mention the monthly income from rent which should leave some profit after commercial mortgage payments. It’s not all plain sailing however, there is no investment golden goose out there, there will always be some drawbacks, so below we’ve put the three things every prospective commercial landlord should be wary of and watch out for.

Make Sure Your Conveyance is Thorough: The first pitfall to point out is the fact that the seller is not legally obliged to reveal every single thing that is wrong with the property. It is up to the buyer to arrange for a conveyor to assess the building and find any structural weaknesses with the property. The term ‘Buyer Beware’ has never been more apt!

Whilst the kinds of major structural defects that could ultimately render the property uninhabitable (such as a problem with underpinning) may have to be revealed up front (normally meaning that these sorts of properties are easy to spot), other less life threatening, but still extremely important structural defects do not, an example of this might be dry rot. It is your wealth at stake which means it is down to you to do the necessary investigative work to discover any issues during the purchasing process. Discovering problems after you have completed will leave you with no legal cover what so ever.

Unless the property is a brand new build, it is recommended that you instruct a full structural survey on any commercial property that you are considering buying. This may also be a condition of agreeing your commercial mortgage. A good quality valuation will also tell you whether there are any building regulations or planning issues you should be aware of.

Beware of restrictive covenants: The restrictive covenant might prevent you from being able to change the usage of a commercial property or to redevelop the site. For instance, developers often find that a covenant may prevent them from turning a large commercial building or house into several self-contained flats. Therefore, it is vital that you investigate as to whether such covenants apply to the building that you are purchasing. This is quite a straightforward process, and can be done by searching the Land Registry information and obtaining a copy of the property’s registered title.

You will also need to examine the Charges Register. This shows the prospective buyer a list of any covenants or rights that they have been placed on the property. The restrictive covenants which relate to the property will be detailed there. A charge of this kind could have a major effect on your designs for the commercial property that you are looking to purchase and might cause a serious rethink in your plans.

Searching… Database searching just doesn’t stop at Land Registry and the Charges Register, if anything it’s just the tip of the iceberg. When it comes to commercial property it becomes more vital to make these searches to avoid any nasty surprises or bills, so a Local Authority Search is one of the more important ones to take. It will cost in the region of 200 and take two or three weeks to complete cover areas such as planning and building regulations, CPO’s, Enforcement notices and see what applies to your property and whether they are all up to date.

A Drainage and Water Search will confirm the supply of water to the property and whether this is metered. It also tells you whether water and sewerage drains to a mains sewer within 100 feet of the commercial property. It costs around 140 and takes a few days to complete.

Environmental Search is next at 180, checking for any harmful substances that might be damaging the surrounding area or building, such as asbestos. It will also check if the building is in a flood risk area and whether it is liable to flooding. Not acquiring this search and report can come with fines that could total in the thousands if something were to happen that causes environmental damage in the future. As the commercial landlord, you would be held responsible.

In order to profit from commercial property it is vital that you undertake all the due diligence when buying. Failing to obtain a good survey or the right searches may save you a small amount of money in the short term but could end up costing you thousands of pounds in the long run.

Howard O’Gollegos writes for Just Commercial Mortgages the UK’s No1 site for the latest commercial mortgage rates and commercial property finance news.

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