THE COMMERICAL PURCHASE

Why Invest in Commercial Property...

You may choose to purchase commercial property to either operate your business from it or rent it out to other businesses. This guide outlines the steps and considerations involved in buying a commercial property.

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Understanding Commercial Property...

A commercial property is one that a business uses for its operations. If you need financing for the purchase, you would typically require a commercial mortgage. It's important to distinguish this from buy-to-let properties purchased through a limited company, which require a specific buy-to-let mortgage rather than a commercial mortgage.

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Types of Commercial Properties:

1. Offices - For professional or administrative work.

2. Retail - Includes shopping centers, supermarkets, and stores.

3. Industrial - Comprising warehouses and factories.

4. Leisure - Restaurants, pubs, cafes, hotels, and sports facilities.

5. Healthcare - Hospitals, nursing homes, or specialized clinics.

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Commercial properties are classified under the Town and Country Planning (Uses Classes) Order of 1987, which determines their legal uses. It's crucial that your intended business activities align with the property's permitted use. If you need to change the property's use, you may need to apply for planning permission from the local council.

 

Financing Options for Commercial Property

1. Commercial Mortgages:

• The most common method of financing, with terms typically up to 25 years.

• Owner-Occupier Mortgages: For purchasing a property to run your business.

• Commercial Investment Mortgages: For properties intended to be leased to other businesses.

2. Bridging Loans:

• A short-term financing option, often used to bridge the gap until long-term funding is secured.

• Useful for purchasing properties needing renovation or when facing tight deadlines, such as auctions.

• Typically secured against the property, with repayment options including monthly installments or at the end of the term.

3. Auction Finance:

• A specialized type of bridging loan used to quickly secure property purchases at auctions.

• It’s advisable to arrange this financing before attending an auction to ensure you can meet the payment requirements.

Key Considerations Before Purchasing

1. Location: The property's location should suit your business needs or those of potential tenants, taking into account factors like accessibility, local amenities, and foot traffic.

2. Property Type: Determine whether the property is suited for retail, office, or industrial use, as this impacts factors like foot traffic, transportation links, and logistics.

3. Investment Duration: The term of the mortgage will affect the overall cost, with longer terms generally leading to higher total interest payments.

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The Purchase Process

1. Agree on Purchase Price: This step often involves an estate agent who prepares a memorandum of sale, outlining key transaction details.

2. Solicitor Involvement: After terms are agreed upon, solicitors are appointed to handle the legal aspects of the purchase.

3. Contract Package and Due Diligence: The seller’s solicitor sends a contract package, including essential documents like the draft sale contract and Energy Performance Certificate (EPC). Your solicitor conducts due diligence, ensuring compliance with legal and lender requirements.

4. Review and Agreement of Contracts: Once due diligence is complete, the sale contract terms are finalized.

5. Exchange and Completion: Contracts are exchanged, the deposit is paid, and the legal title of the property is transferred upon completion.

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This comprehensive approach ensures that your commercial property purchase is aligned with your business goals and legal requirements, setting a solid foundation for your investment.

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