Using a commercial property solicitor for your commercial property lease or sale/purchase isn’t a legal requirement but it is highly advisable for a number of reasons. Commercial property law is complex and the financial stakes can be high, putting your business at risk or potentially tying you into an inflexible lease or contract.
Our commercial property solicitors look into the situations when legal advice is recommended for commercial property deals and the potential pitfalls of going it alone.
Here we’re covering:
- Legal advice when buying or leasing a commercial property
- Do you need to have your commercial lease checked?
- Which legal documents and processes will you need for a commercial property transaction?
- Consequences of not seeking legal advice
- Reasons why you may or may not decide to instruct a commercial property solicitor
- Which regulations (and/or legislation) apply to commercial property transactions in the UK?
- Negotiating the price of commercial property
- Summary
Legal advice when buying or leasing a commercial property
It’s not essential to seek legal advice when buying or leasing a commercial property but it is highly recommended, especially given the high financial value and long periods of commitment that are involved with commercial property transactions.
When buying or leasing the right commercial property, you need to be sure you’ve run all the necessary checks and surveys and investigated title to the property as well as checking the physical condition of the property and its surrounding land.
You’ll also need to decide what’s best for you in terms of buying the freehold, or only obtaining a lease. A solicitor together with your accountant/tax adviser can help you analyse your business plans and determine which is more suited to your long-term needs.
Do you need to have your commercial lease checked?
No – there’s no legal requirement to have your lease checked by another person such as a solicitor. However, we’d strongly advise seeking legal advice on a commercial lease.
There are a number of different matters and conditions covered in a lease. A solicitor’s advice can help ensure you understand these conditions, as well as their implications in practice.
By having a solicitor review your lease, you’ll be able to flag any issues early on and can resolve these before commencing the lease. For example, the lease may not clarify the service charge payable by you. Or it may require an unfair contribution towards the service charge, in light of the fact that there may be other tenants in the building who also have a commercial lease with the landlord.
Which legal documents and processes will you need for a commercial property transaction?
There are three key documents you need to be aware of when involved in a commercial property transaction; the heads of terms, the contract and the transfer deed.
The first document is the heads of terms. This will set out the basic terms of the transaction as agreed between the parties, namely the nature of the transaction (purchase of freehold or leasehold), the price, and the parties.
The second document is the contract. The contract will incorporate the standard commercial property conditions and any other specific terms as agreed between the parties. Once the contract has been exchanged, the parties are bound to complete the property transaction.
The third document is the transfer deed. The transfer deed allows you to effect the transfer of legal ownership of the property. If you are purchasing the whole of a title number you will need a transfer of whole (TR1) and if you are purchasing part of a title number you will need a transfer of part (TP1).
Other additional documents may also be needed, examples of which are set out below:
| Type of document required: | When it is required? |
| Official Search | You will need to submit a priority search if you are purchasing a registered title. You will need to submit a search of whole (OS1) if you are purchasing the whole of a title number or a search of part (OS2) if you are purchasing part of a title number. The priority search will identify any interests of third parties that may have been registered since the start of the transaction and it will also provide you with priority of registration for the title number you have purchased. Each priority search costs £3. |
| Form TA13 | You will need to request replies to Form TA13 from the seller. Form TA13 confirms a number of things including the amount due on completion, the bank details to send the purchase funds to, where the keys to the property can be collected and confirmation that any existing mortgages will be paid off on completion. |
| Form MR01 | If you purchased the property with a mortgage, you will need to submit a Form MR01 together with a certified copy of the mortgage deed to Companies House within 21 days of completion. The Form MR01 will need to be sent together with a fee of £23 if you submit the form by post or £15 if you submit the form electronically. |
| Stamp Duty Land Tax (SDLT) Return | You must submit your Stamp Duty Land Tax (SDLT) Return to HMRC together with any SDLT liability due, within 14 days of completion. HMRC will then send you a SDLT5 certificate as receipt of your submission and payment. |
| Form DS1 | If the property you have purchased was subject to a mortgage which the seller paid off out of the sale proceeds, then you will need to submit a form DS1 signed by the seller’s lender to HM Land Registry. The Form DS1 acts as confirmation that the mortgage has been formally discharged. |
| Lender’s consent | If the title remains subject to a financial charge, you may need to obtain consent from the existing lender – this usually applies in the case of a lease. The lender’s consent tends to be issued in the form of a letter signed off by the lender. |
| Restriction Certificate | If third party consent is required for any disposal of the title number you have purchased, you will need to obtain a restriction certificate from the person(s) who has the benefit of the restriction. The restriction certificate will need to be submitted to HM Land Registry. |
| Form AP1 | The Form AP1 is required to change the register. The Form AP1 is submitted to HM Land Registry together with a fee dependent on the value of the transaction. Depending on the nature of the transaction, you may also need to submit some or all of the above-mentioned documents with the Form AP1. |
Access legal support from just £145 per hour
Speak to our commercial property solicitors if you need practical legal advice on drafting, negotiating or terminating a lease agreement.
Consequences of not seeking legal advice
Not seeking professional legal advice can result in a number of severe consequences, some of which we have detailed below:
Failure to submit the correct documents within the stipulated deadline
- if the SDLT Return is not submitted or if the liability is not paid on time, HMRC will issue a late financial penalty;
- if the Form MR01 is not submitted within the 21-day deadline, your company may be required to immediately repay its full indebtedness to the lender. The lender themselves are also exposed to risk because the mortgage remains unsecured. If the Form MR01 was submitted but with incorrect details, the only way to remove the incorrect information from Companies House is via a court order or by an application to the registrar.
- if the information on the Form AP1 is incorrect, HM Land Registry may raise requisitions which will be time sensitive and if not actioned in time, the AP1 application will be cancelled in its entirety.
Agreeing lease terms that are more favourable for a landlord and less favourable for you as tenant
A commercial property solicitor will be able to ensure that the lease is negotiated in your favour with terms to best protect your position as tenant. Some examples are:
| Break clauses | Depending upon the length of the lease term, a tenant will usually require a break clause to allow them to terminate the lease before the full term comes to an end. |
| Rent increases | A lease will often include rent reviews, which allow a landlord to review and potentially increase the annual rent during the lease term. A rent review clause should always be drafted in line with open-market rent. Ideally, a tenant should pair a rent review with a break clause; this allows the tenant to terminate the lease in the event that a rent increase as a result of a rent review is too high for their business to pay. |
| Use | A lease will stipulate what you can use the Property, e.g. offices, retail, etc. Ideally, the lease should also allow some flexibility for a change of use subject to landlord’s consent, which must not be unreasonably withheld or delayed. This will bring more flexibility for your business and it will also make the lease more desirable to future buyers. |
| Repair obligations | In most cases, a tenant is responsible for the repair and maintenance of the whole of the property, including structural and non-structural. Usually, a tenant is required to keep the property in good repair and condition. Ideally, a tenant should limit their repair obligation to a schedule of condition, which will document the physical condition of the property as at the date of completion of the lease and the tenant will not be required to put the property into any better state or repair or condition than as evidenced by that schedule of condition. |
Checking the title register for the property
A solicitor will be able to review the title deeds and report to you on any potential red flags, e.g. a restriction on disposition which requires a signed certificate or a restrictive covenant restricting a particular use or activity on the property.
Reasons why you may or may not decide to instruct a commercial property solicitor
Solicitors are highly qualified and experienced in their specific field. More often than not, business owners will decide to instruct a solicitor to deal with legal matters. However, there are a few reasons why you may choose not to instruct a commercial property solicitor. We have set out some for and against examples below:
| For | Against |
| Complexity: If the transaction is particularly complex, you may prefer to instruct a solicitor who can help you navigate the deal and negotiate terms to work in your favour. | Cost: Depending on the complexity of the transaction, the cost of a commercial property solicitor may take you over budget. |
| Value: High value transactions carry an element of risk for your business. As such, you may decide to manage that risk by seeking advice from a solicitor who is best placed to advise your business. | In-house expertise: You may have an in-house lawyer in your business who can deal with legal matters for you. |
| Due diligence: Most commercial property transactions require detailed due diligence procedures to be carried out pre-completion. A solicitor will be able to raise suitable enquiries for you in order to reveal everything you need to know about the property before committing to completion. | Risk: Your business may have an amount and/or type of risk that it is willing to take on in order to achieve certain strategic objectives. If for example, if you are transferring a property from a company director to the company, you may not require a solicitor to deal with pre-contract due diligence as the director will already have a degree of knowledge of the property. |
| Compliance and regulations: There are many rules and regulations that apply to commercial property, for example, fire safety, asbestos, energy performance ratings and employee transfers. You are strongly advised to seek legal advice on all of these matters as your business will assume all liability following completion. | |
| Dispute resolution and litigation: By dealing with a transaction without a solicitor, you run the risk of making errors in the way you handle the transaction which can expose your business to potential future litigation claims. |
Which regulations (and/or legislation) apply to commercial property transactions in the UK?
There’s a wide range of legislation which applies to commercial property transactions. This includes (but is not limited to):
- The Landlord and Tenant Act 1954 – security of tenure
- The Law of Property Act 1925 – requires conveyance to be done by using a deed
- Land Registration Act 2002 – regulates the registration of proprietary interest
- Land Charges Act 1972 – regulates the registration of charges on unregistered land
Negotiating the price of commercial property
When you’re buying a commercial property, it’s important to take a holistic approach when valuing the property. This will require taking consideration of all the results from property searches such as the physical inspections, the results of your survey, the commercial property seller’s enquiries, and other searches conducted, such as a highway search and desktop environmental search. Any issues or concerns raised from these searches can be used to bring down the purchase price because they usually reduce the value of the property. Having a solicitor who is well experienced in commercial property transactions, and capable of considering all the relevant factors is extremely helpful and may help you (in conjunction with your surveyor) negotiate a better price than you’d otherwise negotiate.
Summary
Navigating the complexities of commercial property transactions can be a daunting task, especially for those without legal expertise. While it is not mandatory to seek legal advice, the potential benefits far outweigh the costs. By engaging a commercial property solicitor, you can ensure that your interests are protected, your rights are upheld, and that you make informed decisions that align with your long-term business goals.
