Have a question? Call us on 0800 1979 345
Have a question? Call us on 0800 1979 345
This article was published on December 14th, 2023
Commercial property ownership is all about contingency planning, ensuring you are covered to the fullest extent possible in terms of the rights and options available to you should the worst happen. Whether you are part of the business community or an aspiring investor, working with a legal professional specialising in commercial property law means safeguarding your interests.
When making decisions regarding a commercial property investment, you must consider many legal factors and tax implications. Commercial conveyancing is a complex and sometimes lengthy process, so it is advisable to seek advice from an experienced lawyer early on.
Commercial property refers to all property and land used for business activities under the Town and Country Planning (Use Classes) Order 1987. UK commercial property falls into several classes, including office, retail, industrial and hospitality. Commercial property also includes mixed-use properties such as shops with flats above them.
If you purchase a commercial property with the sole intention of using it as a residential dwelling space, you must apply for a “Change of Use”. This is a complex process with many additional costs and considerations, such as obtaining building permits, ensuring compliance and meeting building regulations.
There are several advantages to purchasing a commercial property in the UK but one of the first questions to ask yourself is whether you want a short or long-term investment. The timescale of the investment you are looking for will affect the type of property you invest in and how you will finance your investment. For long-term investments, evaluate the property’s potential for repurposing under different use classes to protect your investment against economic shifts. If immediate returns are your priority, focus on property types and locations historically exhibiting strong capital appreciation to maximise short-term gains.
Commercial properties potentially generate higher rental incomes compared to residential properties. Businesses typically sign long-term leases, offering property owners stable and predictable cash flow. Over time, commercial properties in prime locations can benefit from capital appreciation, increasing their value and leading to greater capital gains upon sale. Unlike residential properties, commercial tenants are usually responsible for the property’s upkeep, repairs and operating expenses, reducing ongoing maintenance costs for the owner. There is also a wider choice of financing options and tax benefits relating to commercial property investments.
However attractive the investment, you need to be aware of all the potential legal pitfalls. Engaging experienced commercial property and conveyancing solicitors can help ensure compliance, review contracts and lease agreements and protect your interests.
Is it freehold, or is it leasehold? This is usually one of the first questions your lawyer asks when instructed. As the owner of a freehold commercial property, you have exclusive ownership. It is your asset, and you can choose whether and when to sell it and move out at your discretion. On the other hand, a leasehold title means you will not own the property; you have exclusive use of the lease-held building for a fixed or periodic term as a tenant. Whether or not you can assign (sell) your lease to a third party or move out of the property before the end of the agreed term will depend on the lease terms and your landlord’s consent. However, you might be able to take out a lease-to-own plan if you would like to purchase the property in future.
When it comes to commercial property, the stakes are often high, meaning significant financial risks and more complex decision-making; weighing up whether it’s advantageous for buying or leasing will be a crucial choice in your business growth or investment strategy. Both types of transactions come with their risks and rewards. A commercial property lawyer can help you understand the contractual obligations, clauses and other technicalities.
Buying a property means you own it outright once any mortgage is paid off. Renting out the property, or part of the property, will gain rental income whilst there’s potential for significant capital growth. You might also benefit from tax relief and can draw upon the equity as collateral if you need business financing. You will also have more control to change the space in a purchased property.
The disadvantages of owning your property are having your cash tied up with a considerable initial down payment, ongoing maintenance costs and mortgage repayments.
When you take out a lease, you rent a property from another owner, meaning your cash is not tied up. You will have a tax-deductible rent and the flexibility to relocate your business should you wish to do so. You can usually agree on the lease length you require with the landlord or have a break clause in the lease.
Total rental payments are likely to be more than equivalent mortgage repayments. You will also have to pay the landlord’s service charge. You will be liable for rent for the entire lease agreement term even if you no longer use the property. However, when the lease is drawn up, your commercial conveyancing lawyer could negotiate a clause that allows you to sublet. You will also not benefit from any long-term capital growth as you would if you had purchased the property.
If you are looking for help with the acquisition or disposal of commercial property, advice on commercial leasing or are involved in a property dispute, the Thorneycroft commercial conveyancing team can help. We have a wealth of experience in commercial property and can offer valuable insights and guidance on buying, leasing, property trends and the latest legislation. To find out how we can help with your commercial property conveyancing, call our legal experts on 0800 1979 345.
