Whenever we are instructed to sell a commercial property on behalf of a client we often get asked: “What happens next?”. Below we’ve set out the 10 key steps to explain the process of selling a commercial property.
10 Step Guide to Selling a Commercial Property
1. Heads of Terms agreed between parties/agents
The Heads of Terms set out the main points of the transaction when selling a commercial property. Although usually stated to be “subject to contract” and not legally binding, they are referred to for the legal drafting and should be accurate. Now is the time to consider price (including any VAT), the extent of the land to be sold, any rights to be retained, timescales, which solicitor to appoint and any special conditions which are to apply to the sale. You’ll also need to ensure the property has an Energy Performance Certificate (unless the property is exempt from having one).
2. Solicitors instructed
Once the Heads of Terms have been agreed between you and the buyer, these will be sent to the appointed solicitors. You will need to formally appoint your solicitor to act on your behalf when selling a commercial property. Your solicitor will usually send you his or her terms of business, ask for your identification documents and any money on account.
3. Title documents obtained
Assuming the property is registered at the Land Registry, your solicitor will be able to obtain the electronic title documents online.
4. Contract drafted and title information prepared
Your solicitor will send to the buyer’s solicitor the contract package. The contract package will usually include the draft sale contract, the title documents, the energy performance certificate and replies to Commercial Property Standard Enquiries (CPSEs). CPSEs are general property enquiries raised when selling a commercial property. Your solicitor will usually assist you with the CPSE replies but you will be required to verify the answers and all answers must be accurate as the buyer is entitled to rely on these.
5. Buyer’s due diligence
Once the buyer’s solicitor has received the contract package – a process of due diligence is carried out by the buyer’s solicitor. The buyer’s solicitor will review the title and conduct any necessary searches, they will usually raise any necessary enquiries with your solicitor. Due diligence can be the longest stage of the transaction when selling a commercial property, lasting a few weeks. The buyer’s solicitor will be reliant on search results coming from various bodies including the water company, the environment agency and the local council.
During the due diligence process, you may be asked for additional information about the property (such as business rates information, whether the property is VAT elected, if the property is subject to any occupational leases, asbestos report). Again, all information supplied should be accurate as the buyer is entitled to rely on the information given.
6. Documents agreed
Once the buyer’s solicitor is happy with the information gleaned from the due diligence, the terms of the sale contract will be negotiated and agreed.
The transfer deed (which is usually drafted by the buyer’s solicitor in the first instance) would also be agreed. The transfer deed will be registered at the Land Registry (on completion) and will pass legal title to the buyer.
At this point, you will be asked by your solicitor to sign the agreed form of contract and maybe even the transfer deed ahead of completion.
7. Redemption figure obtained
If you have a loan secured against the property, your solicitor will contact your lender and ask for a settlement figure (as any loan secured on the property must be settled on completion). Your solicitor will check that your sale proceeds will exceed the amount of money due to your lender.
8. Contracts exchanged
Once you and the buyer have signed your respective parts of the sale contract and the buyer has placed his or her solicitor in funds for the deposit, contracts will be exchanged. A deposit of 10% is usually due from the buyer on exchange and the buyer will lose this if he or she fails to complete.
Exchange is usually a telephone call between solicitors, who follow up the call by exchanging the contracts formally in the post. On exchange, the sale is now legally binding and a completion date is set. Your solicitor will then send the transfer deed to you for signature if they have not already done so.
9. Pre-completion
If you have a loan secured against the property, your solicitor will obtain a final redemption figure from your lender, so your solicitor knows exactly what money will be required to discharge the mortgage on completion. Once your solicitor has this information, he or she will give undertakings to your buyer’s solicitors that the mortgage will be discharged on completion.
10. Completion
On completion, the balance of the purchase monies are sent to your solicitor, your mortgage will be discharged and you will be sent any remaining sale proceeds. At completion, the transfer deed will be completed and the legal title in the property passes to the buyer. You will be asked to hand over all keys to the buyer as the process of selling a commercial property is complete.
Your solicitor will send your signed transfer deed and any deeds relating to the property to the buyer’s solicitor.
BHW has a commercial property department who regularly advise clients on selling a commercial property. Beverley Merrell is the head of the department and can be contacted on 0116 281 6221 or beverley.merrell@bhwsolicitors.com.