There has been a sharp decline in commercial sales in Ireland due to the pandemic. Now could be a valuable opportunity for a business to acquire a new premises for good value.
Commercial premises can be sold via auction or by way of private treaty.
If you are availing of a commercial loan contact your solicitor and engage them to act upon your behalf and advise them of the property that you intend giving the bank as security for the loan and give them a copy of your letter of loan offer.
Your solicitor will need to carry out a full investigation of title of the property that you intend giving to the bank as security and prepare the loan documentation.
Planning and maps
It is advisable to instruct an engineer to check that there are no planning issues in relation to the property, for example, that an extension added to the property has the benefit of planning permission and complies with that planning permission. It is important to ensure that the boundaries of the property are correct and that there is no one adversely encroaching on to the property.
Your solicitor will need to check that there is no litigation or disputes in relation to the property. Carrying out a full due diligence of the property can help avoid any future unforeseen problems arising that you may have been unaware of such as illegal extensions or additions to the property, difficulty in accessing the property, the existence of a Compulsory Purchase Order over the property etc.
You should attend to any planning queries you may have before execution of contracts. If the property needs a Right of Way to allow one to access it, then it is important to ensure it is registered and if not, that the vendor takes steps to ensure its registration. In the event that a property enjoys a Right of Way that is not registered, there is a deadline of November 30, 2021 for registration to take place and the significance of that deadline will depend on the facts of each case.
Tenants
It may sound obvious but it is important to check that there are no tenants in the property. Some people buy property at auction without ever viewing the property beforehand. Tenants in a property have statutory rights, and the appropriate notice periods need to be served providing them with the correct time period to vacate. It is critical that a lease is examined before buying. There is little point buying a premises only to find out too late that the tenant has the right to stay for another few years. It is equally important to view the property on more than one occasion to ensure that there is no one ‘squatting’ in the property.
Management company
A purchaser should assess how well managed a property is particularly if they are purchasing a unit in a business park or estate. It is common that business parks or blocks are not well managed and in some instances may not have common areas transferred or a management company in existence. Enquiries should be made as to whether common areas are transferred, if not, when are they expected to be transferred.
Another important consideration to take into account is who is running the common areas and more importantly that they are insured. Managing agents may be appointed but without a formal management company structure with equal voting rights, larger unit holders or the developer may hold sway over smaller units. Managing fees can be high and this cost must be factored into budgets when acquiring a property. If buying a whole property that does not have common areas transferred, one should factor the cost of having them transferred as there is a legal obligation to do so under the Multi Unit Developments Act, 2011.
Condition of the property
The doctrine of “caveat emptor” (“buyer beware”) applies to the physical condition of the property. The purchaser must satisfy themselves as to the boundaries and condition of the property. This is why a purchaser must have a full structural survey carried out prior to signing the contract. The vendor is not under a duty to disclose any physical defects in the property.
The purchaser’s solicitor needs to check that the purchaser can acquire good marketable title, that the title being provided is contracted for in the contract for sale and that the property in the contract is properly and adequately identified in the title documents. Carrying out a full structural survey may represent excellent value for money if it saves you thousands in the long term, for example, if the property is subsiding etc.
There may be smaller issues with a property that can easily be rectified, such as heating problems or poor ventilation but it is best to be aware of these problems and the costs associated with rectifying such problems, before signing the contract so at least you have made an informed decision.
As this is a commercial mortgage, the bank will appoint their own solicitor to represent their interest in the transaction. You may also be responsible for the banks solicitor’s fees. The Borrower has to pay the cost of his or her own solicitor and normally the cost of the bank solicitor.
This usually is €2,000 plus VAT if the bank solicitors are carrying out an investigation on title or €1,000 plus VAT if the purchaser’s solicitors are certifying title. In addition, the Purchaser has to pay their own solicitor for acting in the purchase. Some solicitors would charge a flat fee while others will charge a percentage of the land price. In addition, you will also have to budget for outlays which include Land Registry fees, Stamp Duty, search fees. The Stamp Duty rate on commercial property is currently 7.5%.
In addition to you entering into a Deed of Charge with you bank, it is common that a lender may also insist upon a guarantee by a third party to be answerable for the default of another and in that instance, it vitally important that the proposed guarantor, if applicable, obtains independent legal advice as to the nature and effect of venturing into the guarantee.
Once you execute contracts you will be bound to purchase the property and it is important that you carry out your due diligence in advance of signing to ensure you will be satisfied with the property for years to come.
Karen Walsh, is a solicitor in Walsh & Partners, Solicitors, 17, South Mall, Cork.