Buying freehold

Buying freehold property can be an effective way of owning your business premises – if you have the funding available. Outright ownership puts you in control of your premises, allowing you to occupy them indefinitely, use them as security for borrowings and so on. 

At the same time, buying property freehold is a substantial investment and an expensive process. Owning a property also brings responsibilities and potential liabilities. Buying freehold commercial premises is a major commitment that you need to get right. 

Do freehold business premises suit you? 

Buying freehold premises may not suit your business. Even if you have the funding available, you need to consider whether you have a better use for the cash and whether you want to invest in commercial property. While owning your premises may be a good investment, prices can also fall. 

Although owning your own premises brings some flexibility, your freedom to use the building will still be restricted by planning permission and building control regulations. You’ll also be taking on all the responsibilities for managing the premises that a landlord might have if you were leasing or renting. 

If you do want to make a freehold purchase, choosing premises that suit your needs is essential. You need to think long-term, anticipating how your needs are likely to change and what the prospects for the neighbourhood are. You also need to decide how much time and money you are prepared to put into repairing and altering the premises. 

Commercial freehold purchase costs 

Extra costs can add substantially to the purchase price of a freehold property. Stamp duty land tax (SDLT), professional fees and land registry fees can add several per cent to the price. Depending on the circumstances, VAT may also be charged on part or all of the price (as well as fees). Additional upfront costs will include any repairs and alterations, and any prepayments (such as insurance) 

If you are arranging a commercial mortgage you will need to have a substantial cash deposit available – typically at least 25 per cent of the price. Commercial mortgage rates vary from lender to lender, but may be higher than equivalent residential mortgage rates. 

The freehold purchase process 

Before committing to a purchase, you need a property survey to check the condition of the premises. A full structural survey is a worthwhile investment and may justify a price reduction. You may also need extra building surveys to cover your potential liabilities as an owner – for example, an asbestos survey to check for any asbestos in the building. 

On the legal side, your property lawyer will carry out property searches and other legal checks as part of the conveyancing process. Your lawyer can also advise you on the most effective way to structure the transaction and help negotiate the purchase. Only when you are completely satisfied should you exchange contracts, committing you to the purchase. A 10 per cent deposit is typically required on exchange, with the balance payable on the agreed completion date when you take possession of the property.