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Sale of Commercial Property
Sale of Commercial Property
The sale of commercial property typically means selling office premises, retail units or shops, manufacturing factories and industrial units as well as industrial or development land. It usually involves selling the freehold of the premises or a very long lease. You may be selling the property as an individual, a partnership, a company or possibly as a self investment pension fund (sometimes called a SIPP).
In most circumstances the sale of a commercial property will be a business transaction and, like all business transactions, it is important to ensure you secure the right price.
It makes sense to employ a specialist commercial property solicitor to handle any sale. They will ensure the smooth running of the transaction, handling any issues and enquiries from the purchaser’s solicitor while also negotiating mutually satisfactory terms for the contract. Ultimately, it’s about helping you complete your sale as smoothly, efficiently and professionally as possible.
They will guide you through the commercial property purchase process from end-to-end, starting with the pre-contract phase through property investigation and exchange to the final completion and hand over of title
Some large commercial transactions are run differently so that the onus of investigation is shifted to the seller whose lawyers will prepare a Certificate On Title for the buyer and the buyer’s lender if any. The Certificate may be supported with warranties from the seller.
This process will involve:
- The Seller’s solicitors agreeing a form of Certificate on Title with the buyer/buyer’s lender.
- The Seller’s solicitors obtaining all necessary information to complete the Certificate on Title. This will be done through a combination of enquiries of the Seller, title and other searches and examination of deeds and other documents.
- The Seller’s solicitors delivering the Certificate on Title and possibly negotiating warranties to be given by the Seller on the accuracy of the information in the Certificate on Title and that it continues to be up to date to the point at which the transaction completes.
The buyer’s solicitor or conveyancer will need to check that the financing of the purchase is in order. If a loan is being taken from a bank, the bank will need to be satisfied as to the adequacy of the security it will be taking.
Exchange of contracts
For the contract to be valid, it must satisfy the statutory requirements contained in the Law of Property (Miscellaneous Provisions) Act 1989.
When contracts are exchanged for the sale and purchase of property, the beneficial interest in the property passes to the buyer with effect from exchange provided that the contract is specifically enforceable. The legal estate in the property remains vested in the seller until completion. The seller is said, for certain purposes, to hold the legal estate on trust for the buyer pending completion. It is, however, a special type of trust, the obligations being based on a constructive trust.
Once contracts are exchanged, the buyer has an insurable interest in the property and risk in the property passes to the buyer. Exchange of contracts therefore marks the point at which the buyer should insure the property.
Pre-completion searches and arrangements
The buyer’s solicitor or conveyancer carries out pre-completion searches and confirms the practical arrangements for completion with the seller’s solicitors.
Preparing the transfer
If not already in an agreed form, the buyer’s solicitor or conveyancer drafts the transfer in accordance with the contract and sends it to the seller’s solicitor or conveyancer for approval. Once in agreed form, the buyer’s conveyancer prepares the engrossment and arranges execution by the buyer.
The buyer’s solicitor or conveyancer arranges for the transfer to be signed in readiness for completion and sends it to the seller’s solicitor or conveyancer for execution by the seller.
On completion, the buyer’s solicitor or conveyancer will need to arrange for completion monies to be transferred to the seller, to receive the executed transfer and all the necessary title documents, and to ensure that any charges affecting the property, which should have been discharged on completion, have indeed been discharged.
On completion, the seller’s solicitor or conveyancer will need to ensure that the executed transfer and all necessary title documents are handed over to the buyer’s solicitor and that any charges affecting the property which should be discharged prior to completion, are discharged. The seller’s solicitor or conveyancer will also need to check that completion monies from the buyer are received and that any document that needs to be executed by the buyer and handed to the seller has been received.
If the property is registered land, the legal estate remains vested in the seller until registration has been completed. Once registration has been completed, the effects of registration are backdated to the date of the application for registration.
If the property is not registered land, the legal estate passes from the seller to the buyer on completion.
Stamp duty land tax
The buyer must file a Land Transaction Return (using Form SDLT 1 and any applicable supplemental forms) to notify HM Revenue & Customs (HMRC) of the transaction. On receipt of the return, HMRC will issue a certificate, which must be sent to the Land Registry with any application for registration of the transaction.
The buyer is responsible for registration of the conveyance/ transfer/assignment at the Land Registry, although in practice their solicitor or conveyancer is likely to do this.
If the property is unregistered, the transfer will trigger compulsory first registration.
If the property is registered, the transfer will be a registrable dealing.
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