Understanding everything you will need to pay
When you are buying a commercial property and get to completion day, you will be expecting to pay the purchase price and walk away with the keys. In fact there are usually other sums to take into account as well, and you may need to find more than just the balance of the purchase price. The seller will not complete the deal until they get all the money they expect. It is crucial to discuss all the financial aspects of completion with your solicitor early on, so you do not face unwelcome surprises and find that completion could be delayed.
Completion statement
Shortly before the agreed completion date, the seller’s solicitor will prepare a draft statement of the total amount the seller believes is due on completion. This must set out how the total has been calculated, so that your solicitor can check it and make sure the figures match those you are expecting to pay.
The completion statement will include some or all of the following sums:
- the purchase price or, where you have paid a deposit, the balance of the price taking that deposit into account;
- any separate sum you have agreed to pay for items being sold with the property (chattels); and
- apportioned outgoings, such as utility bills, business rates and, where relevant, fixed water charges. There are different ways to approach this and it may be better to inform all the relevant authorities on completion and ask them to send apportioned bills to both seller and buyer.
If completion has been delayed because of something you have or have not done, the seller may also add a figure for compensation to the completion statement. This is calculated at the daily rate set out in the sale contract. Your solicitor will check any compensation claimed, to make sure it is properly due.
Buying a tenanted property
If you are buying an investment property which is already let to a commercial tenant, there will be some additional items to be agreed upon and set off against the sums due from you in the completion statement.
- Apportioned rental income. This will usually have been paid quarterly in advance, so if you are completing partway through a quarter you will be entitled to some of the rent the seller has already received. The starting point is to agree on a daily rate. There are different ways to calculate this and the amount due will be slightly different depending on which method you use. This can be a negotiation point, so make sure you discuss it with your solicitor well in advance.
- Rent deposits. If the seller is holding any rent deposits paid by tenants, you will want them to be transferred to you on completion. The basis on which rent deposits are held is governed by what it says in the relevant rent deposit deed. Where possible, you will want the seller to assign to you their rights under any rent deposit deeds so that you effectively step into their shoes. Rent deposits sound simple but can be complex in practice, so your solicitor will need to check the position and advise you.
- Arrears. If the tenants currently owe rent, your solicitor will have to include drafting in the sale and purchase contract setting out who will be able to recover arrears. This is more of a contract point than a financial one, but you may agree to pay a sum equivalent to all or part of the arrears and take the risk on recovering them, in which case this will appear in the completion statement.
- Service charge. The seller will have been collecting quarterly service charge payments based on the expenditure estimated at the beginning of the service charge year, and you will want any balance not yet spent to be transferred to you on completion. You will need to carry out a reconciliation when the actual expenditure is known at the end of the service charge year and the contract will provide for balancing payments in relation to any shortfall or overpayments. You should not need to make any financial allowance for this in the completion statement.
Other money due on completion
As well as the completion statement from the seller’s solicitor, your own solicitor will prepare a financial statement setting out exactly how much money they need to receive from you in readiness for completion. As well as the net sum due from you in the completion statement, this will also cover:
- any mortgage advance you have agreed to fund the purchase, less any retentions or arrangement fees;
- any Stamp Duty Land Tax (SDLT) due on the purchase price. Your solicitor should prepare the SDLT return form and send it to you for approval before completion, because it will have to be submitted and any tax paid within 14 days. For a purchase, SDLT is calculated on ‘slices’ of the purchase price – 0% on the first £150,000; 2% on anything between £150,001 and £250,000; and 5% on anything above that. Your solicitor will want to know the money is in their client account before they complete the purchase on your behalf;
- Land Registry fees. These are calculated by reference to the purchase price, and range from £45 to £1,105; and
- legal and other professional fees, and the cost of carrying out searches as part of the due diligence.
One final point
Your solicitor is bound by strict rules to prevent fraud and money laundering and will not be able to accept cash from you. You should also expect them to ask about where your funds are coming from, and they may need to see evidence. These questions can feel intrusive, but they are an essential part of your solicitor’s duty to comply with the law and without this information they cannot act for you.
How we can help
Our expert commercial property lawyers want your commercial property purchase to go as smoothly as possible and will make sure you understand everything you will need to pay on completion, well in advance.
For further information, please contact James Steward in the commercial property team on 01832 273 506 or email [email protected].
James Steward LLB, Associate
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