Commercial Property
Your FAQs

A. When buying a commercial property, a buyer would need to consider carrying out searches which reveal information about the property or local area that may not be available from the paperwork provided by the seller. Searches such as a Local Authority Search, Highways Search, Drainage and Water Search and Environment Search are commonly carried out. If a buyer is taking a mortgage, then it is most likely that the lender will require these searches. Following completion there will be Land Registry fees to pay and possibly notice fees and Companies House fees depending on the transaction and the buyer. This is not an exhaustive list and other fees and costs may need to be incurred.

A. You pay Stamp Duty Land Tax (SDLT) on increasing portions of the property price (or ‘consideration’) when you pay £150,000 or more for non-residential or ‘mixed use’ land or property.

When you buy a new non-residential or mixed leasehold property you pay SDLT on both the purchase price of the lease (the ‘lease premium’) and the value of the annual rent you pay (the ‘net present value’). The net present value (NPV) is based on the total rent over the life of the lease. You do not pay SDLT on the rent if the NPV is less than £150,000. If VAT is payable on the purchase price and/or the rent then you will need to pay SDLT on the VAT as well.

A. This will depend on whether the seller/landlord has opted to tax the property. Freehold sales, leasing or renting, are normally exempt from VAT. This means that no VAT is payable, but the person making the supply cannot normally recover any of the VAT incurred on their own expenses. If a seller/landlord opts to tax then all the supplies made of the seller’s/landlord’s interest in the land will normally be standard-rated and can recover any VAT incurred in making those supplies. If there is an option to tax then VAT will be payable on the purchase price and any rent under a lease.

A. The lease must be read carefully to check what financial commitments are involved. Usually, the tenant is obliged to pay a fair proportion towards the insurance of the building. If the property forms part of a larger building, the tenant will most likely have to contribute towards the maintenance and running of that building by way of service charges paid to the landlord or managing agent of the landlord. The services charge estimates and potential future service charges should be investigated before a tenant commits to a lease, as such a variable cost may be detrimental to the tenant’s business and finances.

A. Under the Landlord and Tenant Act 1954 (1954 Act), a tenant of business property has a right to stay in the property when the lease ends. A landlord and tenant may agree for a lease to exclude the security of tenure provisions of the 1954 Act meaning that the tenant will (1) have no right to stay in the property when the lease ends (2), the tenant will need to leave the property (unless the landlord chooses to offer the tenant another lease, which it is not obliged to do) (3) be unable to claim compensation for the loss of the property (unless the lease specifically gives this right) (4) if the landlord offers the tenant another lease, the tenant will have no right to ask the court to fix the rent.

A. The lease will set out who is responsible for the repair and upkeep of the property. Often leases require the tenant to keep the property in good repair and condition. If the property is a part of a building then the landlord will likely be responsible for repairs to the exterior parts of the building and the lease may allow for the landlord to recover the cost of these repairs from the tenants. If the property is not in good condition prior to commencement of the lease then the tenant may want to have a schedule of condition prepared and limit its liability to the condition as set out in the schedule of condition.

A. The lease will set out any assignment and underletting provisions. Unless assignment and underletting are expressly prohibited, the landlord cannot stop the tenant from assigning or underletting the property but the landlord can set out in the lease the requirements for assigning and underletting. Such requirements may provide for the tenant to be a guarantor, for the assignee to have a further guarantor and to provide for a rent deposit. Any underleases would have strict requirements. Often assignment or underletting of part is prohibited under a lease. A lease will often set out the requirements for consent and the circumstances where the landlord may refuse consent.