People should not take the matter of selling commercial property lightly. Commercial property is real estate that people use for business purposes. Selling commercial property takes time, and people need to consider many things before pursuing this task.
At the end of the day, one must be well-prepared when tackling such things. Importantly, commercial property includes big businesses like malls, industrial estates, manufacturing shops, and more. In this article, we will discuss some tips, and include general advice on selling commercial property.
Why Do People Invest in Commercial Property?
In Property law, people consider selling commercial property as a sound investment. While initial investment costs for a commercial building and associated costs with customisation for tenants are higher than residential real estate, the overall returns are also significantly higher.
Moreover, some common issues that residential tenants face aren’t present when dealing with company leases.
Additionally, like in the UK, commercial property investors can use the triple net lease (NNN). A triple net lease is a lease agreement on a property where the tenant promises to pay all the expenses of the property, including real estate taxes, building insurance, and maintenance.
When considering residential properties, the investor has to look at several factors including the emotional appeal of a property and potential tenants. On the other hand, a commercial property investor can simply rely on the income statement that shows the value of current leases.
Managing Your Costs While Selling Commercial Property
For starters, try proving your investment has a high-cost base since the higher the cost base, the less the net capital gain. The net capital gain is the difference between the property’s cost base and sales price.
If this is the case, you’ll be paying less tax for it. In achieving this you need to make sure to keep receipts of all deductible expenses. If you make any improvements to the property, you can deduct those costs, and in turn add it to the investments overall cost base.
Factoring the costs given below might also help you in your sales modelling to stay ahead:
- Legal Fees
- Advertising Fees
- Agent Commissions
- Break costs paid to the bank
Checking Tenancy Schedules
A buyer would want to make sure that the property’s income is significant and stable so as to benefit from it daily. Therefore, the commercial property’s remaining lease terms should be for a long period of time. Ideally, the lease terms would should last for at least two years. If this isn’t the case, you have two options:
- Begin negotiations with your tenants to extend their lease term; or
- Establish the tenant’s willingness to stay in the property early (this way, you can give buyers confidence that the investment’s cash flow will continue).
What Happens After Selling Commercial Property?
The Heads Of Terms set out the main factors of the transaction when selling commercial property. Now, you must consider price, the extent of the land to be sold, timeframes, solicitors, and any special conditions that are going to be applied to the sale.
Once you and the buyer agree on the Heads of Terms, you can send it to solicitors. The solicitor will formally act on your behalf when selling commercial property. If you have registered the property in the Land Registry, your solicitor will be able to obtain the documents online.
Your solicitor then will send the contract package to the buyer’s solicitor. Contract packages usually include:
- The draft sale contract;
- Title documents;
- Energy performance certificate; and
- Commercial Property Standard Enquiries (CPSEs).
CPSEs are general property enquiries that people raise while you are selling commercial property. Your solicitor will then assist you with the CSPE replies, but it is necessary to verify all answers as this will be a basis for the buyer.
Due Diligence Process
Once the buyer’s solicitor receives the contract package, he/she executes a process of due diligence. The buyer’s solicitor will conduct necessary searches and raise any findings if deemed necessary.
Since the buyer’s solicitor will rely on search results from various bodies, this transaction process may take longer than expected. Moreover, they may request for for additional information like business rates information from you.
Once the buyer’s solicitor is happy with the data obtained from due diligence, he/she will negotiate and agree on the terms of the sale contract. The transfer deed from the buyer’s solicitor will also be registered at the Land Registry and will pass the legal title to the buyer.
Contracts will be exchanged, once you and the buyer have signed your respective parts of the sale contract. A deposit of 10 percent is usually due from the buyer upon exchange and the buyer may lose the deposit if they fail to complete this.
Final Steps Of Selling Commercial Property
If you have a loan secured against the property, your solicitor will secure a final redemption figure from your lender so your solicitor knows the exact amount that will be required before releasing the mortgage.
Upon completion, the balance of the purchase monies is sent to your solicitor, your mortgage will be released and you will be sent any remaining sale proceeds. The transfer deed and legal title are then passed to the buyer once conditions are met.
Legal Advice For Selling Commercial Property
As we’ve explored in this article, selling commercial property is not an easy task. It involves lengthy procedures which can get quite complicated if not handled properly.
Property lawyers have in-depth technical knowledge about buying and selling property – be it commercial or residential. This is why it is advisable to seek legal guidance from property lawyers who have a wealth of experience in this area.
At JB Solicitors our licensed commercial property experts are here to assist you in your commercial property needs. They have dealt with various cases which allow them to provide market-leading advice in these matters.
Connect with us today as we offer fixed-fee prices for all our services.