As with any major purchase, the devil is in the detail when it comes to investing in commercial property. For the prospective purchaser, thorough pre-purchase investigations will pay dividends several times over. There are four main areas that need careful attention: the pre-purchase report into the property; the contract of purchase; tax considerations; and whether or not the property is classified as a ‘transfer of a business as a going concern’ (TOGC).
Careful assessment of the leases to ensure they will provide you with a secure, predictable income is probably the most important part of your solicitor’s job. Your solicitor should be looking for upwards only rent reviews, where relevant; and an assurance that you, as landlord, will get a clear rent, a pure profit from the property and that the tenant will pay all the costs. In other words you need to know that any outgoings are kept to a minimum in order to maximise your rental income. Specifically you will want to know about:
- the rent
- any ongoing or future hidden rent free periods
- any oddities in the rent review clause
- any service charge shortfalls
- any exclusions from the tenant’s repairing obligation
- any residual construction liabilities arising from a new or recently constructed building
- any break clauses in the leases which weren’t known at heads of terms stage.
The investment sale and purchase contract is a rather particular animal and there are specific things to look out for including: