The acquisition of property or a business with an interest in property can be a complicated and daunting prospect. Extensive research and planning should be undertaken prior to purchase to ensure that the transaction proceeds to a swift and successful completion. Whilst it is not possible to provide a concise and comprehensive list of all the related considerations and pitfalls in such a short time, here are some useful things to consider prior to proceeding with a land acquisition.
Heads of Terms
Heads of Terms set out the important commercial terms agreed between the parties and are usually prepared by the selling agent.
It is important to take proper advice at an early stage from both a surveyor and a solicitor. This means prior to finalising the Heads of Terms.
It is common for purchasers to delay instructing a solicitor until the Heads of Terms are agreed. Whilst it may seem more cost effective to involve fewer advisers at this stage, it can lead to delays or transactions not proceeding at all.
Despite Heads of Terms not generally being legally binding, once they are finalised parties will usually be averse to re-negotiating them. Hence it is useful to take advice from both surveyor and solicitor with regards to whether the proposed terms can be implemented in practice and can be clearly documented.
Survey and Inspection
A surveyor must be instructed to inspect and survey the property at an early stage. This will help identify possible issues with the property, the proposed use and any development you wish to carry out. The surveyor should also be asked to comment on the value that is being attributed to the property.
Inspection will also help identify current occupants. This information should then be relayed to the acting solicitor to check that vacant possession will be given if this is what has been agreed.
Most solicitors will not visit properties as part of their due diligence process. However, it can be useful for them to do so to assist them in negotiating the documentation. This is something that should be considered as it can reduce the number of enquiries that will need to be raised, saving time and costs later on.
Due Diligence – Title and Searches
Once the Heads of Terms are in final form, the appointed solicitor will begin the due diligence process. This will generally involve reviewing title, any leases, property searches and replies to enquiries. It will also involve negotiating and agreeing the documents based on the Heads of Terms.
A review of the title and any leases should reveal the rights benefiting and affecting the property along with any covenants or restrictions to which the property is subject.
Once the title papers are available it will be important to let the surveyor have copies of the title plans and any lease plans and to confirm that the plans correctly identify the extent of the land being acquired. Errors in plans can be costly to correct if not discovered prior to legal commitment.
The Local Authority Search and the replies to enquiries should give some indication as to the permitted use of the property from a planning perspective. If a change of use is intended, advice should be sought from an architect and/or planning consultant early on. Consideration should be given to whether the purchase contract should be made conditional on planning permission being granted for the change of use. The appointed solicitor will be able to advise you further in this regard.
The main terms of a lease that are usually negotiated are: term length, rent and review frequency/basis, security of tenure, break clauses, options to renew, service charge, permitted use, alienation (assignment and underletting), restrictions on charging, alterations and obligations to repair and insure. Again these should be discussed with both surveyor and solicitor before finalising any Heads of Terms.
Consideration will also need to be given to your fit-out. With leasehold properties, a Licence to Alter will be required which should be negotiated in parallel to any new lease and agreement for lease. The landlord should usually be obliged in the agreement for lease to complete the same simultaneously with taking occupation. This will enable fit-out works to begin immediately on gaining occupation, avoiding unnecessary delays and costs.
On the assignment of an existing lease, a Licence to Assign is usually required by which the landlord will consent to the assignment of the lease to the buyer. Commonly the landlord will want assurance that the tenant can comply with the lease covenants and in particular pay the rent and service charge. The landlord may request financial information from the tenant along with a guarantor or rent deposit. It is important to have all this information readily available prior to purchase to avoid delays.
If the transaction involves the acquisition of a business such as a hotel, restaurant or shop, as well as the property considerations, it is also important for advice to be sought in respect of the business element.
Again, at a very early stage accounts should be reviewed and agreement reached as to how to treat debtors.
The requirements to transfer any operating licences should be clear.
The terms of any franchise agreements must be reviewed to ensure ability to comply with the same.
Businesses with employees may be subject to TUPE regulations and so employment advice should be sought.
Advice should also be sought on the tax implications of the acquisition from a solicitor or an accountant, particularly in relation to VAT position and whether the transaction involves the transfer of a going concern.
Without wanting to state the obvious, it is important to ensure that you know exactly how the acquisition will be funded prior to proceeding. If this is to be by way of a loan secured against the property, it will be important to have an offer of funding available at an early stage. In addition, if the property you are to acquire is leasehold, it will be essential to find out whether the lease permits charging the leasehold interest.