Real Estate Alliance

Buying Commercial 11 Tips

The process of buying a commercial property, whether as an investment or for your own use, can be broken down into 11 clear steps as follows:

1. FIND THE PROPERTY AND DO YOUR INVESTIGATIONS:

Having found the property in which you are interested, you need to take plenty of time finding out all about the property. Visit the planning office to examine the planning records for the building and the surrounding buildings. Find out what plans there are for developments in the area. Talk to local businessmen, engineers and auctioneers to get the inside track on the potential for the building and for the area.

2. SECURE THE PURCHASE:

Having decided that you want to proceed, you will be asked for a booking deposit by the auctioneer selling the property. This does not legally bind either party to proceed and it will be refunded in the event that you don’t. It will, however, put in train the process for contracts to be issued.

3. CONTRACT:

Having been advised by their client’s auctioneer about the sale, the solicitors for the vendor will obtain his title deeds and prepare a contract. He will send it to the purchaser’s solicitor. This will typically take a week to two weeks.

4. SURVEY:

Instruct an architect, engineer or building surveyor (who is fully qualified and has professional indemnity insurance) to carry out a structural survey of the property. As well as being asked to examine the physical condition of the building, he should be provided with all planning documents received with the contract. He will often be asked to visit the planning office to look at the planning file for the property.He should also look at the boundaries to make sure they are clearly defined and there is no likelihood of any dispute. The principle “Caveat Emptor” (let the buyer beware) still applies to the purchase of property. You buy the property as it is, warts and all!

5. LOAN:

Make your application at an early stage for a loan from your bank/building society, making sure that you provide them with all the information they require at the start (for example; identification documents, copy accounts, copy evidence of income etc.).

6. “MAKE YOUR MIND UP TIME”:

At this stage, you have decided that you are happy to proceed, you are satisfied with your surveyor’s report and you have a loan offer. You will visit your solicitor so that he can advise you about the contract which you will then sign. You will generally be required to pay a 10% deposit (less the booking deposit you have already paid).

It is very helpful if the solicitor has already received the mortgage documents from the bank so that all documentation can be signed at the one visit. The signed contract and deposit is sent to the vendor’s solicitor in duplicate. The vendor will sign one copy and return it and you are then bound to proceed. If you don’t proceed, you will lose your deposit and will be liable to be sued to complete the contract or for any losses that the vendor suffers in selling the property elsewhere.

7. LOAN CONDITIONS:

Get cracking as soon as possible on satisfying the loan conditions. The biggest culprit in delaying the issue of loan cheques is life insurance (if that is required in your loan offer). Make your application for life cover at the earliest stage possible so that if there are any medical reports/examinations required, you will be ahead of the game. The bank will not entertain a request for the loan cheque until the life assurance is in place and also until the building is covered by fire insurance. The valuer who will value the property for the bank will generally specify what level of fire cover is required. When you arrange the insurance, you must obtain an “indemnity letter” from the insurer confirming the insurance and noting the interest of the bank.

Make sure that you have gone through the loan offer to see that there are no other conditions in the loan that you need to deal with.

8. REQUISITIONS:

Requisitions on title consist of 40/50 pages of questions that will be put by your solicitor to the solicitor for the purchaser dealing with a multitude of title and practical issues regarding the property. Correspondence may follow if your solicitor is unhappy with the replies he has received.

9. COMPLETION:

There will generally be a period of three to four weeks between the contract stage and the completion of the sale. The solicitor will ensure that all his queries have been answered satisfactorily and will request a loan cheque from your bank. He will ask you for any balance that is required and for his fees and the outlays (money spent on your behalf). These will include stamp duty (generally at 9% for a commercial building), land registry fees and search fees. If you have already signed the relevant documentation with your solicitor, you will not be required for the closing meeting and indeed many closings now take place by post. The solicitor for the purchaser sends the money to the solicitor for the vendor and the documents and keys are then despatched.

The property is now yours and you can take up occupation!

10. REGISTRATION:

After the sale, your solicitor will ask you to sign the purchase deed and will then register your title and the mortgage in the Land Registry or the Registry of Deeds. When he has completed this, he will send the deeds to your bank or building society where they will be kept.

11. THE BANK’S SOLICITOR:

For smaller transactions, the bank will send the mortgage documentation directly to your solicitor and will accept the certificate from him that the title is in order and will rely on him to register their mortgage. However, occasionally they will instruct their own solicitors to prepare the mortgage documentation and those solicitors will accept the certificate from your solicitor. Finally, particularly in higher value transactions, they may instruct their solicitors to carry out a full investigation of the title themselves and this may slow down the process somewhat.

TO SUM UP:

The process of buying a property can take anything from three weeks to two months, depending on the complexity of the transaction and whether any problems arise. Having completed the transaction, you are ready to start work in your building or, having found a tenant, arrange lease documentation with your Solicitor and create an income stream. If you proceed down this route, it is important that leases be in place before your tenant is allowed in. Your lease gives you protection and, possession being nine-tenths of the law, your tenant will lose interest in a lease if he is already in possession. Your Solicitor will also deal with issues like VAT on the lease.

Niall Farrell is the managing partner of Patrick J. Farrell & Company Solicitors, Newbridge, County Kildare and specialises in commercial property.