Generally most commercial property purchases follow a similar process as follows:-
Heads of Terms
You and the seller are likely to have agreed the key terms of the transaction, including for example the purchase price. If you are using an estate agent/selling agent, these terms will likely be set out in a document titled ‘Heads of Terms.’
Once appointed, the Heads of Terms will be sent to yours and the seller’s respective solicitors so they can liaise with each other and raise any questions arising from the Heads of Terms.
Your solicitor will be sent a contract package from the seller’s solicitor. This will usually include a draft contract, title documents, the Energy Performance Certificate (EPC) and the seller’s replies to Commercial Property Standard Enquiries (CPSEs). CPSEs are a standard set of enquiries used to draw out detailed information about a commercial property.
Once your solicitor has received the contract package, they will carry out due diligence on the property (which can often take a few weeks). This involves your solicitor reviewing the draft contract, investigating the title to the property and reviewing the seller’s replies to the CPSEs. They will be checking that the seller is legally able to transfer the title to the property to you and that there are no defects in the title that would adversely affect your interests.
At this stage, your solicitor will usually also submit searches to various authorities.
Nothing your solicitor does will verify the physical condition of the property. A buyer takes a property in whatever condition it is in on completion with no recourse against the seller for any defects so it may also be necessary for you to instruct a surveyor, environmental auditor and a valuer (as appropriate) to investigate the physical property so that you are fully aware of its condition. If you are seeking a mortgage to finance the purchase, your lender is likely to require a valuation as the lender/bank will need to be satisfied as to the adequacy of the property as security for their loan.
Where there is to be a mortgage, your solicitor will review the terms of the lender’s mortgage offer and any other security documentation provided and will need to take steps to comply with the lender’s requirements.
Once your solicitor has reviewed the contract package, search results and survey/valuation, they will usually raise further enquiries with the seller’s solicitor.
Report on Title
Once your solicitor is satisfied with the information they have obtained following their due diligence, negotiations will then take place between both parties’ solicitors to agree and finalise the contract and transfer deed.
Once these are agreed, your solicitor will report to you. This ‘Report on Title’ will identify whether there are any matters of concern for you to be aware of. A similar report will also be prepared for the lender. If you are happy to proceed at this stage, then you will usually sign the contract, transfer deed, mortgage papers (if applicable), and any other necessary documentation in readiness for exchange. If a deposit is being paid (usually 10% of the purchase price), your solicitor will also request this from you.
Yours and the seller’s signed parts of the contract will then be exchanged by the solicitors, usually over the phone. This will be followed by an exchange of the signed contracts via post. Up until exchange, you and the seller are free to walk away from the transaction or renegotiate terms. However, on exchange, the buyer and seller are contractually committed to the transaction and a date for completion will be set.
On exchange, your solicitor will pay your deposit to the seller’s solicitor. If you are borrowing, your solicitor will request funds from your lender. Your solicitor will also request the balance of money required to complete from you (including any expenses due such as Stamp Duty Land Tax (SDLT) and Land Registry fees) by sending you a completion statement.
It is important to note that normally once the contracts are exchanged, any risk in the property will usually pass to the buyer and you should therefore insure the property from exchange.
Your solicitor will carry out pre-completion searches at the Land Registry just prior to completion. If necessary, your solicitor may also need to seek an undertaking from the seller’s solicitor so that any charge/mortgage presently affecting the property is discharged prior to completion.
Your solicitor will send the balance of the purchase monies required to complete to the seller’s solicitor on completion. The transfer deed (and mortgage if applicable) will then be completed and you will be able to collect the keys to the property. Normally the keys are with the agent.
Post Completion Matters
Following completion your solicitor will file an SDLT return if due and will register the transfer (so that legal title in the property passes to you as buyer), and legal charge (if applicable) at the Land Registry. Following receipt of confirmation of registration from the Land Registry your solicitor will send you a copy of the up-to-date register of title and copies of any important documents for your records.
If you are looking to purchase a commercial property or would like some assistance with the above, contact a member of our commercial property team today on 0845 287 0939 or get in touch by email for comprehensive and up-to-date legal advice.