Buying business premises

1 Overview
2 Buying your own premises: advantages and disadvantages
3 Costs relating to buying and operating premises
4 Making an offer for a property
5 Using a surveyor when buying premises
6 Using a solicitor when buying premises
7 Concluding contracts on a property

1. Overview

Businesses looking for premises will usually choose to rent, but there are a few specific circumstances when you may want to consider buying the premises instead.

Buying a property can give you more freedom and flexibility but it's important to consider the financial and legal aspects, including contracts. Finding commercial premises to buy with vacant possession can be difficult though and commercial mortgages tend to be over a shorter term, so repayments can work out higher than rental costs.

2. Buying your own premises: advantages and disadvantages

Buying a property gives you the freedom to use and alter it as you wish - subject to planning regulations or any conditions imposed by the bank. There are many advantages to buying a property. As you are in control, you can:

  • have more flexibility over the management or repair of the building
  • profit from the building when you sell it, if it gains in value
  • let the property in the future and receive another income stream
  • move when you wish - you won't be tied to a fixed-term contract
  • forecast your costs with more certainty - particularly if you have a fixed-rate mortgage

However, there can also be disadvantages. Buying a property could:

  • Tie up a lot of your capital, which could instead be used to set up and invest in your business. It may be difficult to recoup the capital quickly, or at all, if you decide to give up the business when there is a downturn in the property market.
  • Leave you with negative equity or the threat of repossession if you cannot keep up with mortgage repayments.
  • Cost you a lot of time if you need to make alterations or do some building work.
  • Make you responsible for the safety of the building - for example, you need to keep up to date with and implement regulations for fire precautions and health and safety, though bear in mind that some leases also require this.
  • Commit you to ongoing costs - this includes business rates.

Read guidance on business rates and estimate your bill.

3. Costs relating to buying and operating premises

When you buy a commercial property, you'll have to budget for:

  • fees for the surveyor and solicitor and any other professional advisor you have engaged
  • VAT (not in every case, and if you're registered for VAT you may be able to claim it back) and Stamp Duty Land Tax
  • fees for making searches or enquiries with the local authority or Companies House 
  • alterations and fitting it out

Ongoing costs

You will also need to consider the ongoing costs:

  • Business rates are based on what the property would rent for at a given date. The Scottish Assessors Association (SAA) is responsible for these valuations and revises them every five years.
  • Local authority charges for services including waste collection and parking.
  • Insurance.
  • Repairs and maintenance.
  • Running costs - eg lighting, heating and charges for services like cleaning or security.
  • Commercial mortgage payments - if you can't afford to purchase the property outright.

Read guidance on business rates and estimate your bill.  

Energy Performance Certificate (EPC)

All sellers - or construction firms in the case of new buildings - are now responsible for providing prospective buyers with an EPC with an energy rating. An EPC can give you a good indication of a building's energy efficiency and the likely energy costs.

In particular, air conditioning systems and boilers can have a significant effect on your overall energy bills. You can make considerable savings by keeping these well maintained and having them regularly inspected by a qualified engineer.

If you have air conditioning systems installed, you will need to check whether an air conditioning energy inspection is required. A valid energy assessment may already exist for any installed systems - ask for this to be handed over by the seller. Air conditioning energy inspections are required for equipment greater than 12kW and must be carried out every five years.

Business Improvement Districts

Six pilot areas in Scotland have been designated Business Improvement Districts. These are partnerships between local businesses which deliver environmental improvements and enhanced services through a supplement to business rates. This can increase ongoing costs but may be worth it for the additional services or improvements it offers.

Capital allowances

It is worth investigating whether your business can claim capital allowances towards the cost of renovating or converting your business premises. Businesses in designated disadvantaged areas can claim the Business Premises Renovation Allowance (BPRA). BPRA gives businesses 100 per cent capital allowances on the costs of renovating or converting business properties that have been vacant for more than one year. To qualify, the expenditure must be incurred before 1 April 2017 for businesses within the charge to Corporation Tax or 6 April 2017 for businesses within the charge to Income Tax.

Regardless of whether your business qualifies for capital allowances, you'll need to assess carefully how much you can afford. Speak to your bank manager to find out how much the bank may lend and check what security it will require.

4. Making an offer for a property

If you are satisfied that the price is fair, you can then make a conditional offer to the agent. This means telling the agent that you want to buy the property for a particular price, provided that certain conditions are met, such as:

  • a satisfactory building survey
  • being able to raise the finances
  • planning permission for any alterations is granted

If the vendor is happy with the price you propose, the offer will be accepted. If not, you may want to negotiate further to reach a mutually agreeable figure.

If you have applied for a mortgage, you will need to have a written offer from the lender before committing yourself to buy.

5. Using a surveyor when buying premises

A surveyor will carry out a survey which assesses the value and structure of the property you want to buy. It is wise to have a full structural survey carried out, so that there are no nasty surprises later. A full survey will reassure any mortgage lender that the property is a sound investment.

Surveyors - and solicitors - can also help you with:

  • deciding if the building suits your purposes
  • negotiating the contract
  • making sure that the business rates are fair
  • advising you if you want to alter or improve the building
  • negotiating the right level of insurance cover and, if you ever have to make a claim, they will work with the loss adjuster

6. Using a solicitor when buying premises

Choose a solicitor who specialises in commercial property law. They will help you understand exactly what's in the contract and what your responsibilities will be if you sign it. A good solicitor will:

  • make sure the seller has a good title to pass on to you - in other words, that everything about the ownership of the property is in order
  • negotiate and obtain the best terms for the contract
  • carry out searches to check if there are any problems with the property
  • satisfy your bankers or other lenders that the property is a good investment
  • complete your purchase as quickly as possible

7. Concluding contracts on a property

You will be ready to conclude contracts with the person selling the property when:

  • both sides are happy with the contract
  • the surveyor or solicitor has made all the necessary checks and searches on the building
  • any planning permission has been granted
  • you have raised the necessary money

Once you have concluded contracts, the purchase becomes legally binding.

If you are paying part of the purchase price up front - known as a deposit - you do this when you conclude contracts. You are then ready to complete the purchase and become the owner of the property. Prior to completion, make sure you have adequate insurance in place. On the completion day, your solicitor will hand over the purchase price - paid by the mortgage company or lender - to the seller's solicitor. Your repayments to the lender begin.

The last things to do after completion are to:

  • pay Stamp Duty Land Tax
  • register your ownership with the Registers of Scotland

Your solicitor receives the deeds to the property - papers giving details of the property and the owner. The deeds are then sent to the lender.

Business Gateway can give you advice on business property. Call us on 0300 013 4753.

Contact your local Business Gateway office.

Your local office will be able to answer your questions on this or any other business subject. 

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