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Buying Commercial Property - Ten Top Tips

1.    You need to understand yield and what happens to rents and yields since this determines how and when you should decide when to sell. In considering yields you need to know whether you want income or capital growth.

2.    Always use an appraisal for due diligence. The appraisal can be in any form but should set out the criteria you wish to use in making a decision as to whether to buy or sell and what type of property and in which location.

3.    It is vital to understand the true cost of funding. Bank arrangement fees, indemnity policies, stamp duty land tax, legal fees and valuer’s charges are only some of the figures to incorporate in your calculations.

4.    Always agree detailed heads of terms with selling agents and remember that the agent acts not for you but for the seller. The principle of “buyer beware” applies unless an agent is acting for you, you will need to rely on your solicitor’s advice and not the selling agent’s assurances. Typical heads of terms will cover such items as the purchase price, what deposit is to be paid, the position regarding VAT, whether the contract to buy should be made conditional on planning for change of use. It is advisable to make the selling agent work for his money. Always clarify early on in a transaction who is paying for the legal fees, how you will go with arrears of rent due from the occupational tenant if any and other matters such as apportionment of service charges.

5.    You should also consider what conditions you want in the contract, whether it be subject to planning, vacant possession, assurances as to boundaries, whether the property is freehold or leasehold and whether you are prepared to pay 10% deposit or less. You may also wish to consider lock-out provisions in order to so far as possible ensure the seller sells only to you whilst you incur the expense of due diligence.

6.    How will you buy the property, as an LLP, company, partnership? Always remember whichever vehicle you use to buy the property your funder may require guarantees.

7.    Stamp Duty Land Tax at 4% above £500,000 you need to speak at an early stage with the seller and with your solicitor to consider mitigation of Stamp Duty Land Tax. If you leave it until after you have made your offer and then ask for mitigation the seller is likely to want any share of any savings.

8.    If you are buying at auction you must understand the nature of them. The fall of the hammer is final. A non-returnable deposit of 10% is required and completion must take place usually within 30 days.

9.    Whether buying at auction or on the open market always find out as much as possible about the property. Are there any planning restrictions, any restrictions imposed by restrictive covenants, what changes do you intend to make and will these infringe on neighbouring properties’ rights. Is there a need to make any changes to comply with disability or discrimination legislation?

10.    Always have a survey carried out and a valuation. Values can in fact change throughout the transaction and therefore value is essential.

11.    Always use Kelly & Co. We like to be involved at an earlier stage rather than later and we can help with all the tips set out.

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