The government have taken various steps over the last few years to discourage investment in residential properties but the measures taken do not affect commercial properties. A common misconception is that commercial property investment is more difficult or expensive to manage. In fact, there is less regulation in many areas and commercial property can be simpler to invest in and manage than residential property.
Of course the most important consideration with any investment is ensuring that the asset is good value and establishing the likely return on your investment. Whilst it is often easier to establish your likely return on investment with a commercial property since tenants are often on longer leases, finding comparables on which to base a valuation can be difficult. You should arrange a valuation at the earliest opportunity and instruct your solicitor to check any lease is on normal commercial terms.
The cost of ownership of a property isn’t only its purchase price. The other costs to consider on acquisition are:
Legal, surveying and accountancy advice
Stamp Duty Land Tax: SDLT is currently due on a purchase of commercial property valued at more than £150,000.The SDLT on the portion up to £250,000 is 2% and a sale price above that incurs 5%. SDLT has been replaced with Land Transaction Tax in Wales.
VAT (applicable on some properties depending on whether the seller has made an ‘option to tax’)
Fees associated with arranging a commercial mortgage
Fit out costs/refurbishment
Setting up facilities, including establishing IT, arranging utility contracts
The ongoing costs of owning a commercial property might include:
- Repairs and maintenance
- Services, including fire alarms, security and cleaning
- Local authority charges
- Compliance with laws
- Management/legal/accountancy/surveyor’s fees
Some or all of these costs are usually passed to the tenant. Difficulties can arise however during periods in which a property is vacant. For example business rates, which are the equivalent of Council Tax, are usually paid by the tenant. Empty property rates relief can only be claimed by a landlord for a limited period whilst a property is empty.
Lastly, a seller must provide you with an Energy Performance Certificate (EPC) which sets out how energy efficient a property is. An EPC is valid for 10 years, and ranks a property from ‘A’ (most efficient) to ‘G’ (least efficient). It is currently unlawful to let a commercial property that does not have a minimum efficient rating of E. An owner would therefore need to undertake work to improve the energy efficiency of a property before letting it.
If you are looking for legal advice on buying, selling, or letting commercial property contact Farleys’ experienced commercial property team on 0845 287 0939 or contact us by email.