Commercial property acquisition is a serious commitment for landlords, investors and business owners. To ensure your investment is sound, it is important to work with an experienced commercial real estate solicitor who will carry out comprehensive enquiries.
The key elements of real estate due diligence in corporate acquisitions include:
- Checking the legal title
- Making enquiries of the seller and commissioning searches
- Ensuring legal compliance in areas such as planning, energy efficiency and fire safety
- Checking the details of any tenancies
- Going through service charge accounts and management information
Legal title
When checking the legal title, your solicitor will ensure that the real estate is correctly defined in the deeds and plan and that ownership accords with the name of the seller in the contract. They will also ask the seller to confirm that any restrictive covenants have been observed.
The solicitor will check that there is nothing in the title to prevent the real estate from being used in the way that you wish, and that any necessary easements, such as a right of way, are in place.
Where a charge currently exists over the real estate, the solicitor will ask the seller’s solicitor to provide an undertaking to redeem this.
Pre-contract enquiries
The seller’s solicitor will provide replies to standard commercial real estate enquiries. Issues covered in these include:
- Confirmation of where the boundaries are and who maintains these
- Details of rights and restrictions affecting the real estate
- Information relating to utilities, including which ones are connected to the real estate
- Copies of planning consents and building regulations approvals
- Replies to questions about environmental issues, including whether the premises have flooded and any known contamination
- Details of any existing tenancies
- The VAT situation, where real estate is elected for VAT and the purchase is a Transfer of a Going Concern
- A fixtures and fittings list detailing what is included in the sale and what is not
The solicitor will go through this information in detail and return to the seller’s solicitor with a substantial list of enquiries.
Planning, energy efficiency and fire safety
Your solicitor will ask the seller’s solicitor to provide all necessary planning consents, including for any alterations that have been made, along with building regulations approval.
They will also check the latest Energy Performance Certificate rating, advise on any implications, depending on the rating achieved, and ask for a copy of the Fire Risk Assessment.
Tenancies
Where real estate is sold with tenancies, the solicitor will check these thoroughly, including the terms and conditions relating to:
- The length of the tenancy
- Whether there is a rent deposit
- Whether there is a guarantor in place
- Whether the tenant pays the rent on time
- The tenant’s credit history
- How the tenancy can be ended and whether it includes break clauses
- Liability for repairs and insurance
- Whether subletting or assignment of leases is permitted
- The rent review mechanism
- Security of tenure
Management information
Where a management company or managing agent is dealing with the real estate, your solicitor will ask for a full range of management information, including:
- Management accounts
- Buildings insurance policies
- Details of any arrears owed to the management company or managing agent
- Details of any disputes
- Details of any breach of the terms of a lease
- Information on any anticipated large items of expenditure
- Details of money held to pay for these
- How the management company or managing agent will be making the real estate compliant with the Minimum Energy Efficiency Standards (MEES) and where the money will come from for this
How 3CS can help
If you need to speak to an experienced commercial real estate solicitor, our real estate team will be happy to help.
For advice and guidance, please get in touch.
