Keira and Sarah-Jane have extensive legal experience in all types of commercial
SALES & PURCHASES
The process for buying and selling commercial land differs in many ways to that of residential land. The contract, enquiries and title checks are more extensive and require specialist knowledge. Sarah-Jane and Keira can advise fully on all land issues and review the details so that your purchase or sale progresses smoothly.
The development of land can be very profitable but is not without its difficulties. Matters such as planning, restrictions on the use of the land, environmental concerns and other issues are all relevant when dealing with land for development.
There are also likely to be local authority requirements relating to water, draining, affordable housing and planning conditions that will to be taken into account.
Keira and Sarah-Jane can provide a seamless serviced from the purchase of bare land, the development agreements with the local authority and other third parties up to the completion of the purchase. Once the land is developed, we can assist with sale of the entire site, or selling off the land in plots or re-financing to optimise return on investment.
We can also put into place agreements that are subject to planning or other matters.
We can also advise on the following development matters:
COMMERCIAL PROPERTY FINANCE
There are various types of property finance available to assist you when purchasing that is not going to be your main residential owner-occupier property.
There are also different ways in which a lender can protect its loan. Firstly, and most commonly, there is the fixed charge. A fixed charge is the mortgage on the property which has been identified as the security for the loan. Borrowers are not at liberty to dispose of assets (usually the property) subject to a fixed charge without the lender’s permission as set out in the mortgage contract. Usually, the fixed charge will be redeemed (paid off) when the asset is disposed of.
Lenders can also require a floating charge. This is security taken over an asset (or assets) that can change in value or quantity. For landlords and property developers operating via a limited company (not purely special property holding company) this might include cash, book debts, stock and fixtures and fittings.
The limited company can deal with floating charge assets during the normal course of business without obtaining the lender’s permission. This freedom only stops if the borrower defaults and a receiver or administrator is appointed, at which point the floating charge crystallises, i.e. it becomes fixed.
In the event of a default by the borrower (the limited company), floating charges rank behind preferential creditors, so are less popular with lenders than fixed charges. These are seen less often in purely property transactions where there is no trading business being run from the property.
A Debenture is a written agreement between a lender and a borrower which sets out details of the fixed and floating charges that the company has.
It is filed at Companies House and prevents other parties getting security against the assets in question. Debentures tend to be “all monies” which means they secure existing, present and future loan advances.
This makes them popular with lenders and unpopular with borrowers. Commercial lenders tend to use fixed and floating charge debentures as standard when lending to limited companies but the buy to let lenders don’t always which is why it is important for brokers to understand each individual providers’ stance in order to find a deal that best suits the customer.
It is important to note that if a Debenture is put in place over the company when the first property is bought (usually when the borrower is seen as higher risk) then any further properties bought by the company will also be “caught” by the Debenture.
It is crucial to take specialist legal advice before entering into a debenture over your company as this could potentially affect future property investments.
The Assured shorthold tenancy (AST) is the most common type of agreement used by landlords to let residential properties to private tenants. ASTs are typically given for a period of six months but can be for longer. After this initial agreed period, the landlord is able to evict the tenant without a legal reason provided sufficient notice is given to the tenant.
When the period of an assured shorthold tenancy comes to an end and the tenancy is not renewed, but the tenant stays in the property the tenancy will continue as a Periodic Tenancy until the landlord decides to end it. The landlord must end it by serving at least 2 months’ notice.
If the landlord takes a rent deposit, this must be kept in a regulated Tenancy Deposit Scheme. If this is not done, it can impact on the ability to evict a tenant.
There are no legal restrictions on the minimum or maximum length of an AST, although a tenancy for longer than three years will need to be executed by deed and those over seven years will need to be registered with the Land Registry.
AST agreements should contain provisions such as rent, area let, regulations and we can provide assistance in drafting this for you. We can also advise on how to end these tenancies and evict tenants if necessary.
BUY TO LET MORTGAGE
This product is the same as a residential mortgage in that it is secured against the property that you are purchasing. If you default on the mortgage payments, then the lender has the same ability to force a sale of the property to recoup their money.
Unlike residential mortgages which are calculated on the basis of the applicant’s salary, buy to let mortgages operate differently. The mortgage lender applies a rent to interest (RTI) cover calculation, meaning the borrower must be able to prove they can obtain enough rental income from the tenant to cover the interest on the mortgage.
Usually the Loan to Value (the percentage of the property price you can borrow) will be lower so you will need a substantial deposit.
They are available in company name or individual. If you purchase in a company name, you may be required by the lender to provide a Personal Guarantee.
Leases of commercial premises are complex documents that need interpretation by a commercial property solicitor. Matters such as service charge, insurance and covenants need to be fully understood by both the landlord and tenant.
The obligations contained within the lease are very specific and will affect the operation of any business at the premises. Our team can review and negotiate the best lease terms on behalf of the landlord or tenant and explain additional issues such as Security of Tenure.
The repairing obligations within a commercial lease can be onerous to tenants and need to be examined carefully. Landlords need to be sure that at the end of the lease, the property is returned in the correct condition. This balancing of needs is something that we can provide expert advice on.
A house in multiple occupation ( HMO ) is a property rented out by at least 3 people who are not from 1 ‘household’ (for example a family) but share facilities like the bathroom and kitchen. It’s sometimes called a ‘house share’.
Depending on the type of HMO you have, you may need a licence from the local authority.
With effect from 1st October 2018, ‘The Licensing of Houses in Multiple Occupation (Prescribed Description) (England) Order 2018’, replaces ‘The Licensing of Houses in Multiple Occupation (Prescribed Descriptions) (England) Order 2006’ (S.I. 2006/371) came into force.
Its effect is that mandatory licensing will apply to HMOs that are below three storeys (as well as to those of three or more storeys) where the property:
• is occupied by 5 or more persons; and
• is occupied by persons living in two or more separate households; and
• who share an amenity such as a kitchen, toilet, bathroom or lounge.
If the property consists of a mixture of self-contained flats and flats where the tenant has to exit their flat (usually through a communal area) to make use of an amenity, then this may require an HMO licence.
So, if you have a 3-bedroom HMO for example, you will not need an HMO licence. However, you will still need to be aware of the Article 4 Direction which some, but not all, local authorities have adopted.
The Article 4 Direction refers to change of use Classes for HMO’s. It means that properties, within the specified area, need to obtain planning permission if they wanted to convert a Class C3 dwelling house into a Class C4 HMO. This means even if there are only 3 people living in the HMO, you will need planning permission for the change from a private dwelling house (one family) to the HMO.
In addition to the planning/licencing obligations, Landlords of HMOs must make sure that:
• proper fire safety measures are in place, including working smoke alarms
• annual gas safety checks are carried out
• electrics are checked every 5 years
• the property is not overcrowded
• there are enough cooking and bathroom facilities for the number living there
• communal areas and shared facilities are clean and in good repair
• there are enough rubbish bins/bags.
The HMO landlord is responsible for any repairs to communal areas of your home and also for repairs to:
• the structure and exterior of the house – including the walls, window frames and gutters
• water and gas pipes
• electrical wiring
• basins, sinks, baths and toilets
• fixed heaters (radiators) and water heaters
Since October 2018, councils now also have a minimum room size.
This general overview is not exhaustive, and you should fully research being a landlord of an HMO before starting any project. This is a complex area of law and we have expertise in this area.
BUY TO LET
Buy to let traditionally involves investing in property with the expectation of capital growth with the rental income from tenants covering the mortgage costs and any outgoings.
The property is purchased by the landlord and then let out to tenants, ideally on an Assured Shorthold Tenancy Agreement.
Investing in a buy to let property is not the same as buying your own home. You need to consider the area you are purchasing in, the factors that affect rent, tenant demand and numerous other matters which will affect your return on investment (ROI).
The government has recently made the buy to let market less attractive, but if the right property is obtained, this model can still work.
It is important to think of your investment as medium to long-term and consider decorating to a high standard to attract tenants quickly.
Ensure that you take tax advice from an accountant as income tax will be payable on the rents received after deducting allowable expenses. Currently allowable expenses include mortgage interest, repairs, agent’s letting fees and an allowance for furnishings. The rules are constantly changing, and it is important to consider this when deciding whether to invest in a buy to let property.
Don’t purchase anything with serious maintenance problems (it is worth investing in a good quality survey) or cut corners with tenancy agreements and other legal documentation. .
Commercial bridge loans are a flexible loan arrangement intended to provide short term financing until an exit strategy, like a refinance or sale, can be executed.
Commercial bridge loans act as interim funding, facilitating the purchase of commercial real estate and completion of rehabs or upgrades, but not acting as permanent financing. A commercial bridge loan provides financing to purchase a commercial property that’s in need of significant renovations or upgrades.
They can also be used by borrowers not yet able to qualify for permanent financing.
Bridge loans typically have repayment terms of between 6 months and 3 years, after which the property is either sold or refinanced with permanent financing.
Most company borrowers will be required by their lender to provide director Personal Guarantees, especially if the company has been formed purely to as a vehicle to purchase the property and has no other assets.
The personal guarantee provides another level of security for the financial institutions or lenders to protect themselves when providing loans. If the loan is not repaid to the lender by the company, then the company directors’ personal assets may be at risk as they become liable for the relevant business debt that is covered by the guarantee.
It is extremely important to obtain legal advice before signing any guarantees, so you are sure of the scope of them, the repayment terms and when they can be enforced. The guarantor takes on the same liability for the loan as the company and the lender can usually pursue the guarantor as if the loan was made with them directly.
0333 050 6925
Complete Property Deal, 22 St Johns North, Wakefield, WF1 3QA
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