Frequently asked questions
I have bought vacant Property before; though have not bought one subject to the occupation of a commercial tenant. Is there any additional due diligence that I should be considering?
Yes, further work and due diligence will be required. You will need to instruct a solicitor who has knowledge of landlord and tenant matters. If the property that you wish to acquire has a tenant occupying under a lease, you will take the property subject to that lease. Therefore, you need to be familiar with what obligations you will have as the Landlord and what obligations the tenant has towards yourself, such as payments of rent, repairing obligation etc. If the property is subject to numerous leases you will need to understand what the landlords obligations are in respect undertaking works to any common parts.
It is necessary to be fully aware of the contents of the lease(s) and any supplemental documents such as rent deposits deeds, licence for alterations etc. before exchanging contracts. Your solicitor would prepare a report which would, for example, highlight any restrictions that may be imposed and which could restrict yours plans for the property. For example, if you wish to develop the property the lease may not provide for a Landlord break clause or may have a number of years still to run. Your proposals to develop may be hindered in this respect. Further, you will wish to ensure that the tenant has the means to meet his obligations and comply with the payments of rents and service charge and other monies due under the lease. You will also need to ask yourself if you can meet your financial obligations, if for example, a tenant vacates, how quickly can you let the property, is there competition for the type of property you wish to let, what is the likely rents you maybe able to recover if the property is vacant. Indeed, if it is a multi-let property and a tenant vacates you will still have obligations to the other tenants of the property to provide certain services, you will need to meet any shortfall of service charges payments from your own pocket if part of the property is vacant.
It may be possible to reduce your liability for payment of Stamp Duty. Of course we are neither accountants nor tax advisors and indeed we would recommend that you approach your accountant in this respect. Nonetheless, if you buy a property from a company which is the company’s only asset as an alternative to buying the Property is for you to acquire the shares in that Company. Stamping of shares carries a lesser Stamp Duty fee than the transfer of properties.
I am looking to acquire a number of commercial properties which are all let – can I ensure that all tenants take my standard form of lease?
This will depend greatly upon the terms of the tenants existing lease. If the tenants lease still has a number of years unexpired and there is no opportunity for the landlord to seek early determination then the lease will remain in force. If the lease is not protected by the Landlord and Tenant Act then upon the term of the lease expiring there is the opportunity for the form of lease to be changed.
If the Tenant has a lease protected by the Landlord and Tenant Act the tenant will have a right to remain in occupation. Whilst a new lease should be entered into upon expiry of the term dealing with changes of rents, term etc and where necessary modernisation to take account of changes in the law, the fundamentals of the lease must be no more onerous and in substantially the same form as the tenants existing lease.
The issue of VAT and property is very complex and we always strongly advise that a specialist tax accountant is instructed to deal with such matters. That said, if commercial properties are sold with the benefit of ongoing leases the property could be deemed a ‘property rental business’ and could be treated as a Transfer of a Going Concern. This would mean that if you are registered for VAT and also waive the VAT exemption on the Property no VAT would be payable on the purchase price. It would be a question for your accountant to advise whether you could and should waive the VAT exemption – there a number of consequences as a result of waiving the VAT exemption on a property which may not be suitable for your business.