Preparing your commercial property for a sale or lease

Here’s a handy checklist for preparing your commercial property for a sale or lease.

VAT status

We’ve put this item first, as it is one that is most likely to extend the sale or leasing process if not addressed early on. Commercial properties are subject to special VAT rules. By default, the sale or letting of a commercial property is exempt from VAT. However, in some cases, properties may have been ‘opted in’ to VAT. Furthermore, new builds are typically NOT exempt from VAT.

Establishing whether your commercial property is VAT exempt is vital, as it can influence its sale price.

If you are unsure of the status of your commercial property, we suggest you contact your accountant or tax advisor. Should they be unable to tell you the VAT status of your commercial property, you can contact HMRC (though you should note that the response time from HMRC for such queries is often a month or more).

Capital allowances

You should disclose details of any capital allowance claim(s) you or any previous owner of your commercial property has made. Much like VAT status, capital allowances may impact the sale contract of a commercial property. Either because the purchaser will be able to make a claim, therefore saving them money down the line, or because they won’t be able to due to previous claims and thus will not be gaining that benefit from your commercial property.

We suggest you discuss capital allowances relating to your property with your accountant or tax advisor before beginning your sale or leasing process. In some cases, it may behove you to make a capital allowances claim on your property before selling it.

Energy Performance Certificate (EPC)

Before you put your commercial property on the market, you must ensure you have a valid EPC. An EPC will grade your commercial property from A (best) to G (worst) based on its energy efficiency. For an EPC to be considered “valid”, it must be in date and have a grade of an E or better (note: this minimum grade is likely to increase in the coming years).

If you do not currently hold an EPC for your commercial property, you should take the time to commission one and allow for time to carry out any work required to secure the minimum required grade. Should you fail to produce an EPC when you sell or let your commercial property, you may incur a fine of between £500 and £5,000 (this figure increases based on the value of your commercial property).

Service reports and surveys

Before marketing your commercial property for a sale or lease, there are several reports and surveys that you should have up-to-date documentation for:

• Asbestos survey and management plan: Many buildings built before 1999 still contain asbestos within their structures. It is a requirement that commercial buildings be assessed for its presence. Should asbestos be found in your commercial property, a management plan will need to be made in order to ensure the safety of anyone using or working within the commercial property. Failure to comply with asbestos regulations can lead to imprisonment and/or an unlimited fine.
   
• Gas and electricity service reports: Up-to-date safety certificates should be producible if your commercial property is connected to gas and/or electricity.
   
• Legionella risk assessment: It is the responsibility of the person or persons in control of a commercial property’s premises to carry out a risk assessment on the property to assess the risk of exposure to legionella. Depending on the systems serving your commercial property, you may need to supply proof that such an assessment has been carried out. Please refer to the Health and Safety Executive’s website to determine what responsibilities you may have: https://www.hse.gov.uk/legionnaires/index.htm
   
• Air Conditioning Service Report: If there is an air conditioning system in your commercial property, you will need to produce a recent survey report of the system.

Planning decisions

Evidence of planning decisions which authorise the construction and use of the commercial property will be required as part of the sale or leasing process. If, for example, the use of the commercial property is subject to certain conditions, then adequate evidence that those conditions have been satisfied will be required of you.

Building regulations

Approvals and certificates relating to any construction, extensions, or other general alterations or installations that have taken place on or to the property will be required evidence.

Guarantees and warranties

It is not uncommon for warranties or guarantees to be in place for aspects of a commercial property, such as roofing or a heating system. Additionally, many commercial property sales or leases include plant or machinery contained within the commercial property. You should prepare documentation of these guarantees and warranties before marketing your commercial property so potential purchasers can be made aware of the specifics of each guarantee or warranty. These could influence the sale price of your commercial property.

Buildings insurance

For sales of commercial properties, it is common for the buyer to take out their own insurance policy following the exchange of contracts. However, when leasing a commercial property, your buildings insurance policy will remain in place, and your buyer or tenant will need to see evidence of said policy. This evidence should be provided in the form of a copy of the current building’s insurance schedule and policy.

Leases and tenancy agreements

If you are:

• Selling or letting a leasehold property, or
• Selling or letting a property subject to an existing lease

You should make copies available of said lease agreement(s) in addition to the following:

• Rent deposit documents/deeds
• Licences to carry out alterations
• Licences to assign or sub-let
• A copy of the Rent Review Memorandum (if one exists)
• Any transfer deeds or deeds of assignment, and
• Contact details for any current tenants

Service charge accounts

Up-to-date accounting information should be supplied if your commercial property is situated on a serviced estate and is leasehold and/or subject to leases. In addition, a copy of the current service charge budget and three years of historical accounts will be required.

Third-party contact details

Contact details for any third parties associated with your commercial property should also be provided. The third parties could be your mortgage lender’s relationship manager or a landlord/managing agent if the commercial property is part of a managed estate.

Contact our commercial property solicitors

Our commercial property solicitors offer expert advice and can be a valuable asset to you if you're thinking about selling or leasing a commercial property.

We have offices in Brighton, Eastbourne, Hastings, London, Uckfield and Ulverston, and we work with landlords and tenants across the UK