Frequently asked questions
What is commercial property?
Commercial property relates to buildings or land that is used to generate profit. This can range from office buildings to retail outlets, from warehouses to land to host marketplaces. The distinction is important when looking at how the property is bought, the fees and taxes involved, as well as the way that purchases and lease clauses are made.
Property interest types in England and Wales
The type of ownership and the legal rights over a property can significantly affect its value and the attractiveness of it as a commercial property opportunity, depending on your needs. Property will usually be either freehold or leasehold property.
Other types include licenses, contractual arrangements that do not give the licence holder an exclusive right to the property; options and pre-emptions, which are rights to buy or rights of first refusal on a property; and easements – which are rights over another person’s property such as a right of way or rights to use pipes and cables.
What is freehold property?
Freehold property is an interest in land that is not limited by time. The owner has overall control of the property and the land itself. However, could be restricted by third-parties in certain cases.
What is leasehold property?
By contrast, leasehold property is a time-limited interest. A commercial lease will outline the contractual relationship between the landlord (either the owner of the freehold or the current tenant) and the new occupier or tenant. Commercial leases are now on average for a duration of eight years but this is by no means a standard practice. In some cases, a 999-year long leasehold interest can be obtained.
A commercial lease is acquired either by being granted a new lease of the property, either by the freeholder or an existing tenant (known as a sub-lease or underlease). You can also obtain the commercial lease by acquiring an existing tenant’s lease.
Is it better to buy a commercial property outright, look for leasehold property or rent?
For most businesses, particularly in city centres, purchasing a commercial property outright will not be a realistic option financially and therefore will choose to obtain a commercial lease.
Freehold commercial properties are bought as an investment in the hope to either develop it or use it as an asset that will appreciate over time, be it through investment and development, or through the rising price and demand for commercial property in the area.
For those choosing to lease, the question then turns to the duration of the commercial lease and the current furnishing of the property. If you are uncertain of the longer picture, a short commercial lease or a lease that allows you flexibility to leave early, alongside a well developed and furnished/serviced property might suit you more.
Businesses looking for a long-term permanent home might instead waiver flexibility and look to a longer lease with more shared responsibilities between the landlord and themselves to create a better long-term partnership.
What costs do I need to budget for?
In addition to the purchase price, or rent and service charges if it is a leasehold property, your budget should include the following:
legal costs – varies on the type and value of the transaction, you can ask one of our commercial property solicitors by calling 0115 988 6706.
agent’s fees – approximately 1-2% of purchase price plus VAT
valuation or survey fees – approximately 1-2% of purchase price plus VAT
conveyancing disbursements (i.e. searches) – cost and number of searches will vary upon the nature of the transaction
registration fees – a maximum of £920
Stamp Duty Land Tax – exact rate depends on nature and value of the transaction
Your budget should also include the cost of any additional work that may need to take place to make the building functional for your business, or to ensure it is in a lettable condition. It will also be your responsibility to sort insurance and utilities, as well as pay for business rates.
What are the key areas covered in a commercial lease?
In a commercial lease, the main topics which are addressed include the basics such as lease length, the amount and schedule of rent and other payments to be made by the tenant, as well as the roles and responsibilities of both parties of the lease. This includes repairs and decoration, ralterations, and service charges.
Lease provisions are not heavily regulated or standardised in England and Wales, with the Code for Leasing Business Premises a voluntary code.
Who is responsible for repairing and maintaining our leasehold property?
Your responsibilities will depend on the conditions set out in your commercial lease. For short-term leases, you could only be responsible for internal decoration, with maintenance and repairs being the responsibility of the landlord.With a long-term commercial property lease, these are often more extensive and could be responsible for all repairs and maintenance. Alternatively, you may only be liable for internal repairs and maintenance, while the landlord maintains the structure.
What should I do if my landlord isn’t carrying out their commercial lease responsibilities?
Our commercial property solicitors and litigation team are experts in identifying if a breach of the commercial lease has taken place, and what course of action you should take. This may not be legal action, but rather alternative dispute resolution is often considered the more amicable and cost-efficient solution.
Speak to a solicitor. An initial free enquiry will help you decide what course of action to take. A negotiated resolution is often the best option but if necessary you may want to take legal action.
How long does a commercial property lease take to complete?
On average, commercial property leases take 6-8 weeks inclusive from the date the draft lease is prepared, to completion of the lease.
What is the role of a commercial property solicitor for a Landlord leasing a property?
After an initial meeting we will draft the lease and send this to the Tenant’s solicitor, together with the supporting documents that are applicable for your commercial property
We will prepare replies to standard enquiries
We will deal with the requirements of the Landlord and Tenant Act 1954 if applicable
Lastly, we will complete the lease and collect the necessary funds e.g. rent and service charge, to send to you
What costs and fees are involved in leasing a property, for Landlords?
For Landlords, you can expect to pay for official copies of the register of title to the property and our costs for dealing with the lease on your behalf. These costs will depend on the length of the term of the lease and how much rent will be paid each year.
What costs and fees are involved in leasing a property, for Tenants?
You may decide that property searches are required, which cost approximately £450+VAT. If the lease requires registering at the Land Registry, the Registry charges a fee for this (approximately £40, but this depends upon the annual rent).
For higher value rents there may also be a liability for Stamp Duty Land Tax, but if this is the case we would advise you of this at the outset.