Buying a commercial property to rent out
- kpayne28
- Oct 1
- 4 min read
When a commercial property is bought solely for the purpose of renting or leasing to another business, there are a range of factors to consider. In our previous Guide to buying a commercial property, we looked at financial and legal considerations. In this article, we explore what you need to know when buying commercial property to rent out to other businesses.
How to find commercial property to rent
Purchasing business premises to rent or lease out is usually an investment decision. Therefore, it’s important to identify the right type of building, location and budget to ensure a good return on investment. Always check your business plans with a qualified and registered accountant before committing to a purchase (our solicitors can recommend trusted contacts). Many buyers engage the services of a business broker to help them finance the purchase.
It's essential to conduct some market research in various areas to check and compare the viability of different business buildings and sites. Create a shortlist from a usability and price perspective to help you narrow down your choices. You can also use trusted property portals, agents and listings to help you assess the suitability of a commercial property.
When it comes to location, it’s wise to choose a commercial property in an area with easy transport links. This is particularly useful if you are looking to buy large industrial premises, such as a factory. If you want to attract businesses with employees, they will need a convenient way to travel to work, so consider nearby bus, train and road routes.
Understand the permitted use of a commercial property
When you are looking to buy a commercial property, it’s important that you understand the different property classifications. If you intend on renting or leasing part or all of the building to other businesses, you need to be clear on the permitted use of the property. In the UK, property classes for commercial buildings were simplified in 2020 - please see our previous blog for the different commercial property classifications.
Carry out due diligence before buying business premises
It’s important to carry out careful due diligence before committing to a commercial property purchase. You will need to instruct a commercially minded property solicitor to investigate the Title deeds, Land Registry Searches, planning permissions, any leases, environmental surveys, and building condition reports. It is vital to uncover any issues before proceeding.
Your commercial property solicitor will liaise with the seller with regards to Commercial Property Standard Enquiries (CPSEs). These are industry-standard, pre-contract enquiries for commercial property transactions, prepared by the London Property Support Lawyers Group and endorsed by the British Property Federation. There are seven CPSE forms that may need completing, depending on the type of transaction.
Follow RICs guidance (The Royal Institution of Chartered Surveyors) to check the structural integrity of the building, as well as regulatory compliance and energy efficiency ratings. This will give you an idea of potential maintenance issues, which may need to be include in a lease covenant in terms of dilapidations.
What are dilapidations in property?
When you rent or lease part or all of a building to a tenant, there are usually repair covenants in the lease that relate to the building condition. Dilapidations is the term used that refers to breaches of repair covenants in a commercial lease. Specifically, this is where a tenant fails to return the property in the required state, or to carry out agreed repairs.
How dilapidations work:
Landlord's actions
As a commercial landlord, you might issue a Schedule of Dilapidations, which is a formal document detailing the tenant's obligations relating to building maintenance. This would then be used at the end of the lease term to recover any losses from the tenant. Typical issues might include disrepair to the structure, failure to decorate, or the need to remove alterations made by the tenant.
Tenant's obligations
The tenant is contractually required by the lease to carry out any specified repairs or, in some cases, pay the landlord for the cost of those repairs.
Disputes
Disputes can arise in relation to the scope of repairs and who is responsible for the cost. Therefore, it’s important that tenants are made fully aware of any repair covenants and obligations in the lease from the outset.
As a commercial landlord, you should engage a Chartered Surveyor to advise on potential dilapidations before the lease or schedule. For advice, ask our commercial property team.
Finding a suitable commercial property mortgage
The process for obtaining a commercial property mortgage is more complicated than applying for a residential mortgage. Lenders may require a deposit between 20% and 40% with a loan period averaging 3 to 25 years. There are two types of commercial mortgage - Business mortgage and Commercial investment mortgage.
Your commercial property purchase will be subject to Stamp Duty Land Tax at 2% for properties valued between £150,000 and £250,000, and then 5% over this amount. For more guidance on commercial mortgages and Stamp Duty, please see our previous blog Guide to a buying a commercial property.
Specialist commercial property solicitor in Leicester
Always use an experienced commercial property solicitor when you’re buying business premises. As a commercial landlord, it’s important that you fully understand the Leasehold and Freehold Reform Act, carry out due diligence, and all lease covenants.
At Salusbury Harding & Barlow, our experienced property team can help you buy or sell commercial property. We can negotiate the sale, draft agreements and leases, and advise you on property development and land use. We will carry out all required searches and check any planning permissions, consents, compliance, financial and legal documents.
Our commercial property solicitors act for a range of landlords, advising on legislation, leases and contractual matters. We will liaise with your buyer or seller in relation to any questions relating to Standard Commercial Property Enquiries (CPSEs). Our aim is to help you make an informed decision, and we always explain everything in plain English.
For guidance on buying a commercial property, get in touch or email: c.gooch@shbsolicitors.co.uk to arrange a face-to-face or telephone appointment.
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