Selling Commercial Property: What to Consider | Legal Clarity

When selling a commercial property you will need a good understanding of the legislation regarding commercial property sales. You’ll also want to identify the average commercial property sale price in your area and when the best time to sell is.

This blog will explore everything you need to know about selling commercial property to ensure a smooth sales transaction.

Costs of selling a commercial property

There are a number of costs you will need to consider when selling a commercial property, such as:

• The solicitor fees - When selling a commercial property, solicitors usually carry out conveyancing and will charge a fee. 
• The agent's fees - Most selling agents will also charge a fee to market the property for sale. 
• The finance redemption fees - If you have a mortgage on your property and you pay it off early you may also need to pay a redemption fee. You should check with your lender whether you’re liable for this.
• Tax - If you’re selling an investment property you should check with your financial advisor what your tax liabilities are for example, Capital Gains Tax.
• Any removal costs - You will need to arrange removal costs for any equipment and furniture you have within the commercial property you’re selling.

How to sell commercial property

You may be wondering, ‘how can I sell my commercial property?’. One of the first steps is to identify any issues or things that need improving before the sale. Whether you make these changes will depend on how you’re marketing the property.

For example, if your property is not in great condition you may wish to sell at a lower price to take into account the fact that the condition isn’t great. 

You will also need to carry out legal requirements like ensuring you have an EPC and gas certificates etc. 

Prepare buyer information

When pulling together information for your sale you will want to gather the following:

• Your title deeds and plan - Electric copies should be held at the Land Registry if a property is registered, or you will need to locate your physical documents. If you have a mortgage over the property, and your property is not registered at the Land Registry your deeds may be held by your lender.
• Lease agreements - Any copies of agreements and relevant licences, consents and rent schedules should be provided to the buyer.
• Your Energy Performance Certificate (EPC) - This must be provided to all potential buyers. Check out our blog on EPC’s to make sure your property meets the requirements. 
• A property information and management pack - Typically when you’re selling a larger property or a property managed by a management company you may be required to provide a property information pack. This includes details regarding service charges, ground rent, maintenance responsibilities and any other relevant information.
• VAT documents - This should include a VAT certificate or evidence of an opted or exempt status.
• Your compliance documents - This will include documentation on asbestos management, fire risk, electric and gas safety and risk assessments. 
• Your insurance documents and any other associated documents -  This includes  renewal notices or the certificate of insurance.

Market your commercial property

When selling a commercial property, showcasing it on multiple channels is key to getting noticed. You can market the property through online listings, building signage, industry magazines, social media and email campaigns. Gaining help from a commercial estate agent will help this process run smoothly. 

Negotiate the price and terms of the commercial property sale

Negotiating the terms and price of a commercial sale is common and usually involves both the buyer and seller making compromises. 

Before entering the negotiating process, it’s a good idea to have a negotiating strategy ready so you can go into it knowing what you want to get from it and the compromises you’re willing to make.

Consider hiring a commercial property solicitor

Selling a commercial property without a solicitor can be possible, but it does come with risks. 

Working with a solicitor during the process of a commercial sale ensures your interests are protected. At Legal Clarity we’ll work with you to ensure your sale complies with legal obligations. We’ll also work with you to structure and negotiate the sale so that the deal you have agreed meets your commercial objectives. We will also ensure that any lender's requirements are met and that any consents required for the sale are obtained. 

Despite working with a solicitor being an extra cost in the sales process, it’s a cost that can help protect your interests and ensure the overall process runs smoothly, making it a wise investment. 

Important legal considerations

During your commercial sales process there are a few things you need consider, such as:

Heads of terms

These are usually created during the negotiation stage and are used to capture the key aspects of the deal agreed between parties. While heads of terms aren’t legally binding they help provide a framework for subsequent legal documentation. The heads of terms documentation tend to include information like:

• The details about parties, their legal representatives and respective agents.
• The description of the property or land being sold.
• The agreed price and deposit.
• Any rights to be granted over retained land or reserved over the property or any restrictions on the property’s use.
• Any specific conditions that must be met before the sale can proceed. For example, obtaining planning permission.
• The allocation of costs between parties.
• The expected timeline for the completion of the transaction.
• The VAT position.

It is a good idea to get a solicitor and tax advisor to review the heads of terms to ensure that any deal objectives can be met both legally and what tax consequences they will have. 

Due diligence 

Buyers will conduct due diligence where they will uncover any potential liabilities. The seller of the property has an obligation to disclose relevant information regarding the property if requested. It’s crucial that the buyer isn’t misled, as this can lead to a potential claim against a seller.

The commercial Property Standard Enquiries (CPSE) will request details regarding:

• The property's title and ownership.
• Planning compliance.
• Environmental matters.
• Service charges and utilities.
• Boundaries and rights of way.
• VAT and taxation.
• Insurance coverage.
• Disputes.
• Issues with flooding or contamination. 

They may also make specific enquiries depending on the nature of the transaction and your property.

Sale Contract

A sale contract for a commercial property is a legally binding agreement outlining the terms and conditions of the sale. It typically includes the following key elements:

• The parties involved, including full names and addresses of the Seller and Buyer together with confirmation of their legal capacity (e.g. individuals, companies, partnerships or charities).
• The property details including the full address and legal description of the property by reference to the Land Registry title number (if registered). 
• The agreed purchase price and payment terms. 

• Confirmation of whether or not VAT is payable on the sale/purchase price.
• Details of the title being transferred and will incorporate encumbrances from the title.

• The standard conditions of sale may be incorporated into the contract and would require review.
• The completion date would be specified in the contract.
• Whether or not the property is being sold with vacant possession or subject to existing tenancies.
• Whether or not there are any special conditions such as any fixtures and fittings included in the price or if the sale is conditional upon additional factors such as funding, planning permission or third party consents. 
• Details and remedies available if one party is in breach.
• Details of any dispute resolution processes for resolving disputes.
  

The price and payment schedule

Many commercial property transactions will require deposits. 

If there is a split exchange and completion, it is common for the buyer to provide a 10% deposit for the purchase price.

Additionally, if alternative payment methods have been agreed for example, a payment schedule the agreement detailing when and how the purchase price will be settled must be clearly documented to avoid misunderstandings. 

For example, if payments are being made in a series of instalments over a defined period of time, a payment schedule should be created defining how much will be paid on each instalment, the due dates and any penalties or interest charged on late payments. 

Selling the property when you have tenants

If you’re selling a property with tenants it is a good idea to ensure that you have a schedule of tenants, the details of the letting document they occupy the premises under together with details of rental payments and dates. It may be that you have a managing agent who can provide this information for you. 

It would also speed up the sale process if you have details of any leases and ancillary documents uploaded to a data room together with other information required so that potential buyers can see, from an early stage, what information a seller can provide and it should ideally ensure issues are raised at an early stage of the transaction. We can assist you with this process. 

FAQs

Can a landlord sell a commercial property during a lease?

Yes, but notice must be given to inform the Tenant once the sale has completed so that the Tenant knows who they need to pay their rent to. Consideration must also be given as to how to deal with the transfer of rent deposits, claims for arrears and claims for dilapidations.

How long does it take to sell a commercial property?

The legal aspects of selling a commercial property can take a couple of months or more. It all depends upon the type of property, the buyer's requirements, the lender's requirements and how organised the seller is.  

If you’re looking to sell a commercial property, get in touch with us today to see how we can support and advise you on your commercial property sale.