Home Construction Zuneth Sattar: A Commercial Property Buyer’s Guide

Zuneth Sattar: A Commercial Property Buyer’s Guide

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The British are well known for their aspirations of homeownership. Nevertheless, as property market expert Zuneth Sattar will be well aware, UK buyers are increasingly investing in non-residential property, with commercial premises now accounting for approximately 13% of the UK property sector.

The UK commercial property sector comprises:

  • Leisure Premise such as pubs, restaurants, hotels, cinemas and gyms
  • Industrial Premises including factories and warehouses
  • Office Premises i.e. buildings used for professional, bureaucratic, and commercial purposes
  • Retail Premises such as shops, shopping centres, supermarkets, and out-of-town retail parks

Other common types of commercial property include schools and petrol stations.

Shrewd investment in commercial property involves the following critical steps.

1.         Finding the Right Property

It is important to buy at the right time. A successful investor will avoid acquiring a property at the height of the market to avoid inflated prices. It is prudent for investors to analyse market trends, incorporating factors such as:

  • Supply and demand for commercial property locally
  • Commercial property value
  • Appetite of investment competition
  • The availability of commercial mortgages
  • Rental values

Commercial property investors need to consider how the premises will suit operational business needs. Is the property convenient for road, rail, sea and air links? Does it include parking and delivery facilities? Is it close to potential clients, employees and suppliers? What facilities does it include, for example, furniture and equipment? Is the space well configured? What impression will the building convey to potential clients and employees?

2.         Calculating Costs

Typically, a deposit is required from the buyer at exchange of contracts, with the remainder paid upon completion. Nevertheless, buying a commercial property incurs numerous costs, including:

  • Professional advice from solicitors and surveyors
  • Stamp Duty Land Tax (Land Transaction Tax in Wales and Land and Buildings Transaction Tax in Scotland)
  • Brokers fees for arranging a commercial mortgage, if required
  • Refurbishment and redecoration of the property
  • Setting up facilities, e.g. establishing IT
  • Purchasing equipment and furniture and hiring contractors to transport and install it
  • VAT

Continued costs of maintaining commercial property include maintenance and repairs; insurance; services such as cleaning and security; Local Authority charges e.g. waste collection; commercial mortgage repayments and interest, where applicable; property management company fees, if any.

3.         Securing Financing

A commercial buyer may seek to boost their buying position by securing a business loan. A commercial mortgage is a common method of funding the acquisition of commercial property, with commercial mortgages typically spanning between three and 25 years.

4.         Making an Offer

When the buyer has chosen a commercial property to invest in, the next step is to make a written offer, usually via the vendor’s estate agent.

If the offer is refused, negotiation may still be possible to arrive at a mutually acceptable figure.

It is important to remember that commercial property vendors are often motivated by additional considerations over and above sale price. For example, a speedy transaction could help a commercial seller significantly reduce ongoing operational overheads.

5.         Legalities

Once the deal has been agreed in principle, the buyer will generally require the seller to withdraw the property from the market to prevent ‘gazumping’. The buyer’s legal advisors are instructed, and start to conduct a thorough investigation of title, commissioning a Local Authority search, and performing other investigatory work to ensure that all is in order.

Between exchange of contracts and completion, a detailed sale agreement will need to be agreed between the buyers and sellers via their legal advisors, ironing out the fine details of the transaction. Typically, only once the full purchase price has been delivered to the sellers the agents will be instructed to release the keys, enabling the new owner to enter the property.

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