Key Takeaways
- With commercial property the principle of buyer beware applies, so the responsibility to investigate sits with you, not the seller.
- Due diligence covers title, searches, planning and use, the physical condition of the building and, where there are tenants, the leases you would inherit.
- Tax matters too, including VAT and Stamp Duty Land Tax at non-residential rates.
- Energy efficiency rules now affect lettability, so an EPC below E is a real risk on an investment buy.
Buying commercial property is one of the largest commitments a business or investor makes, and unlike a consumer purchase, the law offers very little protection if something turns out to be wrong. The rule is buyer beware. The seller is not obliged to volunteer most problems, so it falls to you and your advisers to find them before you commit.
That investigation is called due diligence. Done properly, it tells you exactly what you are buying, what you can do with it and what it will cost to own, and it gives you the leverage to renegotiate or walk away if something serious comes to light.
This checklist runs through the key areas a buyer and their solicitor should cover, from title and searches to planning, condition, tenancies and tax, so you can move forward with confidence and avoid inheriting a problem that should have been the seller’s.
If you are buying commercial premises, our commercial property solicitors offer a free 30-minute consultation.
Why due diligence matters so much
Unlike buying goods as a consumer, where you have statutory protection, buying property is governed by the principle of buyer beware. The seller answers the enquiries you raise but is under no general duty to disclose defects. If you do not investigate and a problem surfaces later, the cost and the risk are usually yours. That is why due diligence, led by your solicitor and your surveyor, sits at the heart of a commercial purchase.
Title: what you are actually buying
Your solicitor obtains official copies of the registered title and plan from HM Land Registry and checks what you would actually own. The key things to establish are:
- Whether the tenure is freehold or leasehold, and if leasehold, the lease terms, including rent, repairing obligations, alienation and break clauses, and any onerous terms such as upward-only rent reviews.
- Restrictive covenants that limit how the property can be used or developed, which are usually revealed in the title. Our guide to restrictive covenants in commercial property explains how these are dealt with.
- Easements and rights, such as rights of way and rights to run services, both those that benefit the property and those that burden it.
- Any gaps in title or missing rights, where indemnity insurance may be needed to cover the risk.
Searches and enquiries
Searches reveal what the title does not. The usual baseline includes:
- A local authority search, covering planning history, building regulations, nearby road schemes and any financial charges.
- An environmental search, which is important for any site with an industrial past, to flag contamination and possible clean-up liability.
- A water and drainage search, together with location-specific searches such as flood risk, mining or chancel repair where they apply.
Alongside the searches, your solicitor raises the Commercial Property Standard Enquiries, known as the CPSEs, which are the industry-standard pre-contract questions used across England and Wales. The seller’s written replies cover everything from boundaries and disputes to notices, services, VAT and any tenancies. Replies that later prove to be wrong can give rise to a misrepresentation claim, so they repay careful scrutiny.
Planning and permitted use
Confirm the property can lawfully be used the way you intend. Most commercial premises fall within Use Class E, which covers a broad range of business, retail and service uses, but a change of use may still need planning permission or prior approval. Check the planning history for conditions on matters such as opening hours, signage, parking or extraction, look for any enforcement issues, and find out whether listed building or conservation area constraints apply. If your plan is to convert or redevelop, as covered in our guide to converting commercial property to residential use, that brings planning considerations of its own.
The building itself
Legal due diligence will not tell you whether the building is sound, so commission a survey suited to the property:
- A building survey assessing the structure, fabric and condition, and the likely cost of any repairs.
- Specialist checks where needed, such as mechanical and electrical systems and an asbestos survey, given the duty to manage asbestos in non-domestic buildings.
- For larger or mixed-use buildings, the building safety obligations that now apply, including the safety records that must pass to the buyer of a higher-risk building.
Tenancies: what you inherit
If you are buying tenanted property as an investment, the leases come with it, and you step into the landlord’s shoes. Review:
- Each occupational lease, including the rent, the term, the rent review pattern, the service charge and the repairing obligations.
- Whether tenants have security of tenure under the Landlord and Tenant Act 1954, or whether their leases are contracted out, which affects whether and when you could recover the premises.
- The rent roll, any arrears, the rent deposits held and the financial strength of the tenants.
Tax: VAT and Stamp Duty Land Tax
Budget for tax from the outset, because it can add a significant sum to the cost of a purchase.
On VAT, check whether the seller has opted to tax the property, because if they have, VAT is charged on the price. Where you are buying a tenanted investment, the sale may qualify as a transfer of a going concern, so that no VAT is due, but only if the conditions are met. On Stamp Duty Land Tax, commercial property is taxed at non-residential rates, charged in bands, with nothing on the first £150,000 and then 2 percent and 5 percent on the higher portions of the price.
Energy efficiency and other running costs
The property’s Energy Performance Certificate matters more than it used to. Under the Minimum Energy Efficiency Standards, a non-domestic property in England and Wales generally can’t be let with an EPC rating below E, and that minimum is expected to rise further later this decade. If you are buying to let, a rating of E or below signals future expenditure and a risk to lettability, sometimes called the brown discount. Factor in business rates and insurance too, and remember that an overseas seller must be registered on the Register of Overseas Entities before it can transfer the property to you.
Speak to a commercial property solicitor before you buy
Commercial property due diligence is detailed and unforgiving, and the issues that matter most, a defective title, a planning restriction, an onerous lease or an unexpected tax bill, are rarely obvious from the particulars. The earlier your solicitor is involved, the more leverage you have to put problems right or renegotiate before you are committed.
At Osbourne Pinner, our commercial property solicitors act for buyers and investors on the full due diligence process, from investigating title and raising enquiries through to reviewing leases, advising on tax and getting you safely to completion.
Please note that this article is for informational purposes only and does not constitute legal advice. We always recommend speaking to a qualified solicitor for advice tailored to your specific circumstances.
We offer a free 30-minute consultation to discuss your situation. You can speak with us via video call or visit our offices in Harrow, Canary Wharf, Piccadilly Circus or Manchester. To arrange your consultation, call 0203 983 5080, email [email protected] or complete the form below.
