What are the Legal Implications of Purchasing a Commercial Freehold Property?

Whether you are looking to buy an office, a shop or a warehouse, choosing the right commercial property is critical to the success of your business or investment potential. There are certain legal aspects associated with purchasing commercial property and you need to understand them if you are in the market.

Acquiring a freehold premise can be highly beneficial to a business. It can offer greater freedom as you have the option to own and occupy, let the premises to a third party (or Group Company) or a mixture of both by only letting out part of the premises. This can then either provide a foothold for the business to trade from or a steady stream of income for your investment return.

Legal Aspects

• Planning Permission: Planning permission will need to be in place or attainable from the Local Authority for the desired use of the premises. You will need to ensure that this is correct for your business requirements or appealing to the market depending on your plans for the premises. Planning permission will also need to be explored if you propose to extend or alter the premises.

• Survey: Whilst the importance of a survey is widely known for business tenants, this should also be noted when purchasing the freehold of a commercial property. If the premises are in a dilapidated state and you are proposing to let to a tenant, it may put off potential tenants in the market place due to covenants likely to be imposed in the Lease. A standard tenant covenant is to keep the premises “in repair” which can also include an obligation “to put” the premises into repair. If a Tenant is advised on this point and the premises are in a bad state of repair, they may not proceed with the Lease and you may be limiting the marketability of the premises by not having a survey carried out beforehand.

• Occupational Tenants: If you are purchasing a commercial property with an occupational tenant already in place, you will need to check the Landlord’s obligations under the existing Lease as these will need to be abided by to avoid a potential breach of covenant claim from the Tenant.

• TOGCs and VAT: Having an occupational tenant already in place can have its benefits in terms of the application of VAT. Ordinarily, if the Seller is VAT registered and they have exercised their option to tax on the premises, VAT would be payable on the purchase price. However, where there is an occupational tenant in these circumstances, you may be able to claim that the purchase is a transfer of a business as a going concern (TOGC). This can be claimed where you also opt to tax the premises and certain conditions are met. These conditions are outside the scope of this note however advice should be taken from a specialist tax advisor before proceeding in this manner.

If you would like to discuss a Bespoke or Commercial Property issue or require additional information about the wide range of work that we undertake, please contact Reece Chapman, Solicitor on 01908 660966 or via email at reece.chapman@franklins-sols.co.uk,. Further information on the services we offer can also be found on our Commercial Property page.