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Commercial Development

If you are about to purchase a property for commercial development, you should be thinking about your obligations before, during and after development, and your options for managing and selling the development once completed, from day one...

If you are about to purchase a property for commercial development, you should be thinking about your obligations before, during and after development, and your options for managing and selling the development once completed, from day one...

It is one thing to own a property for your own use but it is quite a different proposition to acquire land and then develop it whether for your own use or someone else’s. In particular, property development takes time.  Buying the land in question will take a minimum of 6 – 8 weeks.  Obtaining the necessary approvals will also take time.  The government’s target for planning decisions is 13 weeks.  According to a 2015 report compiled by the British Property Federation and GL Hearn, a property consultancy, many of England’s biggest cities are taking an average of 32 weeks to approve planning applications.  Add to that the build time and any time required to market the property and it can easily be a year to 18 months from when you offer to buy the land in question until the time it is sold or let. You should always aim to take legal advice as early in the process as you can to avoid any pitfalls further down the line.

Purchasing Commercial Property for Development

Although the procedure on the surface is identical to that for residential conveyancing, the actual steps taken to purchase Commercial Property for Development are much more complicated.  For example, you may not want to buy the property until you can be certain that you will get the planning permission you require so you may wish to buy the property conditionally or under an Option Agreement.  Similarly the rules regarding mortgages on residential transactions are straight-forward but none of this applies to Debt and Secured Lending on commercial transactions.  In particular, you should note that in a commercial transaction one lawyer cannot act for both the buyer and their lender so there will almost inevitably be three firms of solicitors involved, two of which you will have to pay for!

Our dedicated team of solicitors, based in Witney, Oxfordshire, would be happy to answer your questions.

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Your obligations as a developer

As the developer, you will have obligations to comply with as to the standard of property that you are producing.  Obviously you will have to comply with building regulations and health and safety rules but you will also have to meet planning conditions, uphold environmental standards and keep any neighbours happy as well.  The more complicated the type of property you are developing, the more obligations you will have comply with.

A mixed use property is subject to the rules relating to both commercial and residential leases and, depending on the percentages of each type you develop, you may find that you are required to sell the freehold to the residential leasehold occupiers if they are eligible.

Your options once the development is complete

Once built, the property could be sold or leased to an occupier with the landlord’s interest then being sold to an investor or other form of property manager (unless of course you want to keep it yourself).  If you grant a Lease to an Occupier then the lease needs to be in a form that is acceptable to an institutional investor.  This is a form of lease which clearly sets out the obligations of both parties.  A lease which is not in this form may not be easy to sell on the open market nor will it be acceptable to your lender as security.

Remember that you will also need to manage the property and the management will get more complicated the more tenants there are.  You may wish to consider setting up a management company run by the tenants to make this management process easier.

If you decide to sell the newly developed commercial property, you will have to go through a similar process as to when you bought it.  This time of course you will be the seller and if you are selling the property in stages, you may find yourself having to provide the same information over and over again to different buyers.  We would always advise you to have a pack of standard documents ready to use to minimise the time and work necessary to resell the property. A good solicitor will be able to advise you as to what you should include.

The process of development can give rise to a number of problems.  Property Disputes are not rare but can be more easily resolved if you know what you are required to do and can demonstrate that you have done so.

For more information on commercial development...

Please do not hesitate to contact an Everyman Legal Solicitor on 01993 893620 for a free discussion or email natalie.hopkins@everymanlegal.com

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