5 top tips for buying your first commercial property

Buying your first commercial property is an exciting milestone, but it comes with legal complexities that differ significantly from residential purchases.

Whether you’re investing in retail space, an office building, or industrial premises, understanding your legal obligations is crucial to protecting your investment and ensuring the transaction runs smoothly.

In this blog, our commercial property lawyers share five top tips to guide you through the process.

1. Location, location, location

It may seem obvious to consider the location of your property before committing to the purchase, but it’s not uncommon for buyers to get carried away with what seems like a ‘good deal’ without properly thinking about whether its location suits its purpose.

Key considerations when it comes to finding the right location for your commercial premises are:

• Is there high foot traffic? (Particularly important for retail and hospitality spaces)
• Is there parking available, either at the property or nearby?
• Are there good public transport options?
• Will there be enough space for your workforce and customers/clients?
• Is there a demand for your business type in the area?
• Is there good access for suppliers?
• Will there be any issues accessing utilities? e.g. WiFi

2. Understand the different types of commercial leases

Commercial properties often involve complex lease structures that can significantly impact your rights and obligations. It is important to seek legal advice before signing any lease. A solicitor who specialises in commercial leases can check the lease terms and advise you on how these fit with your business’s setup and objectives.

The main types of leases are:

• Full Repairing and Insuring (FRI) Lease
• Internal Repairing and Insuring (IRI) Lease

Full Repairing and Insuring (FRI) Lease

A Full Repairing and Insuring (FRI) lease is the most common form of commercial lease. With an FRI lease (‘lease of whole’), the responsibility for insuring and repairing both the internal demise and the external or structural elements of the property falls entirely on the tenant. For example, where the lease is of the whole of a building, the tenant insures the contents of the premises, while the landlord will normally obtain a building insurance policy and recover the cost of the premium from the tenant through an insurance rent.

As for maintenance and repairs, in a lease of whole, the tenant bears responsibility, including for the structural elements of the building.

Internal Repairing and Insuring (IRI) Lease

Another common type of commercial lease is an ‘Internal Repairing and Insuring’ (IRI) lease. In an IRI lease, the tenant is only responsible for internal repairs and maintenance, with the landlord retaining responsibility for external repairs.

Where the lease is of part of a building only, the tenant’s insurance rent contribution will generally be proportionate to the floor space the tenant occupies within the building (or by an alternative calculation which will be included in the lease). Additionally, the landlord will generally repair and maintain the common areas and structural elements of the building, of which the leased property forms part, but will recover the costs they incur in doing so from the various tenants of the building proportionately by way of a service charge.

Before entering into a commercial lease, it is sensible for a tenant to request a Schedule of Condition to be annexed to the lease. This is a photographic schedule of the property, which is prepared shortly before completion of the lease. The standard of repair and condition of the premises, as evidenced in these photographs, is the standard to which the premises will need to be returned to the landlord at the end of the lease term. This limits the tenant’s repair obligation and ensures they are not responsible for repairs to the property which predate their lease.

3. Money matters: how is your property going to be funded?

If you can’t afford to purchase the commercial property outright, you will need to finance it.

There are several options for financing a commercial property, including:

Commercial mortgages

• This is similar to a residential mortgage and requires a deposit and monthly repayments with variable or fixed interest rates.
• A commercial mortgage deposit is usually around 30% of the property’s value, and repayment plans range between one and 30 years.
• Interest rates for commercial mortgages tend to be higher than residential ones due to the higher risk involved for the lender, so make sure you can afford the repayments.

Loans

The most common types of loans for buying commercial property are:

• A bridging loan: a short-term loan which can be used to purchase a property until long-term finance, such as a mortgage, can be acquired.
• A secured loan: this can be used to purchase a property outright or used as a deposit for a commercial mortgage.

You can read more about commercial property finance here.

Don’t forget Stamp Duty Land Tax (SDLT)

As with residential purchases, commercial property over £150,000 is also subject to SDLT. Click here to view the current SDLT rates.

4. Do your diligence

Buying a commercial property requires extensive due diligence that goes well beyond a basic title check. It’s important not to overlook this part as, if any legal issues arise after completion, they can be costly to fix and can even render the premises unfit for your intended purpose.

A commercial property solicitor can carry out due diligence on your behalf and investigate:

• The title: this verifies that the seller has legal ownership and checks for any restrictions, easements, or covenants that might limit how the property can be used. For example, restrictive covenants might prevent certain types of business operations.
• Planning permissions: this checks that the property has the appropriate planning consent and that any alterations were authorised. If you’re planning to change the use (such as converting a warehouse to an office space), this will require further planning permission.
• Environmental searches and surveys: these check for environmental liabilities, such as contaminated land, asbestos, or flood risks. Any of these can result in extra costs for you as a tenant, so knowing the lay of the land (excuse the pun) from the outset is vital.

5. Don’t forget running costs

Depending on the type of lease you have, it’s important to include running costs in your budget and planning. Typical running costs for commercial property include:

• Buildings and contents insurance
• Maintenance and repairs, e.g. plumbing and decoration
• Cleaning services
• IT support
• Waste management
• Security
• Business rates/Local Authority charges
• Utility bills

Contact our commercial property lawyers

Whether you are buying your first commercial property or your fifth, specialist legal advice can make the difference between a smooth transaction and a complicated headache.

Our expert commercial property solicitors provide straightforward, practical advice tailored to you and your business. Call us on 0117 325 2929 or fill out our online enquiry form.