The acquisition of commercial property in England and Wales is governed by the principle of caveat emptor – let the buyer beware. The legal effect is that a buyer takes the property as they find it, with the burden being on them to investigate matters that may affect the value, use, or title of the property before contracts are exchanged. These pre-contract investigations are the process by which that examination is carried out.
This article sets out the principal areas of investigation that arise on a commercial property purchase, and the practical points that follow from each.
Title investigation
The starting point of any due diligence exercise is the investigation of title. Where the property is registered at HM Land Registry, official copies of the register and the title plan are obtained and reviewed. The investigation identifies the registered proprietor, the class of title, and any restrictions, notices, or charges affecting the property. Restrictive covenants, easements, rights of way and other third-party interests recorded against the title are considered in detail, including whether they are capable of being released, modified, or insured against.
Where the property is unregistered, the investigation involves the review of the title deeds and the deduction of title for at least the previous fifteen years. Unregistered title presents additional procedural considerations and triggers first registration of the title at HM Land Registry on completion.
Searches
A range of searches is carried out against the property and the surrounding area. The local authority search reveals planning permissions, building regulation approvals, enforcement notices and other matters held by the local planning authority. The drainage and water search identifies the position on connection to mains drainage and water supply, and the responsibilities of statutory undertakers. The environmental search identifies risks from contamination, flooding and other environmental factors affecting the property.
Additional searches may be relevant depending on the location and nature of the property. Mining searches are obtained for properties in former mining areas. Chancel repair searches are obtained in areas in which the liability may attach. Highways searches identify the adopted status of access routes. Each search response is reviewed against the transaction, and follow-up enquiries are raised where required.
Searches are not mandatory, but they are advisable in almost every transaction, and a lender will usually require them as a condition of funding. Where a search reveals an adverse entry that bears on a proposed development, the buyer should consult their surveyor and planning consultant before proceeding, so that the implications for the scheme can be properly assessed.
Pre-contract enquiries
The buyer’s solicitor will issue Commercial Property Standard Enquiries (CPSE) to the seller’s solicitor. The CPSE forms cover general enquiries (CPSE.1), enquiries for transactions involving commercial property subject to occupational leases (CPSE.2), enquiries for the grant of a new lease (CPSE.3), and other transaction-specific schedules. The replies to enquiries form part of the contractual record and may be relied upon by the buyer in the event of misrepresentation.
Where replies are unsatisfactory, evasive, or incomplete, supplementary enquiries are raised. The seller’s responses are reviewed against the contract terms, the title, and the search results to ensure that the buyer has a complete picture of the property before exchange.
Tenancies and occupational interests
Where the property is subject to occupational leases, the leases themselves are reviewed in detail. The investigation considers the rent, the term, break clauses, rent review provisions, service charge arrangements, repairing obligations, alienation provisions, and user clauses. The buyer also requires confirmation of the rent paid to date, the position on any outstanding service charge balances, and any current disputes with tenants.
Where the property is sold subject to lease, the apportionment of rents on completion is calculated and reflected in the completion statement. Where the property is sold with vacant possession, the seller is required to confirm the position on the termination of any subsisting tenancies.
Tax and statutory matters
The Stamp Duty Land Tax treatment of the transaction is assessed by reference to the consideration, the structure of the transaction, and any reliefs that may be available. Where VAT is or may be chargeable on the consideration, the seller’s VAT position is investigated and the contractual VAT provisions are negotiated. Where the transfer of a going concern (TOGC) treatment is engaged, the conditions for relief are considered carefully and reflected in the contract drafting.
Speak to Ai Law
Ai Law acts on the purchase and sale of commercial property across a range of sectors, including office, retail, industrial, hospitality, and mixed-use developments. Our commercial property team conducts due diligence to the standard required by institutional buyers, lenders, and investors.
To discuss a commercial property acquisition, please contact a member of our team.
This does not consist of legal advice and cannot be relied upon. If you need advice please contact us and we will be happy to help.