Having a Pre-Acquisition Survey or Pre-Lease Assessment conducted on a commercial property can go a long way to informing and protecting commercial entities from unexpected liability for repairs.
But what are the next steps in the event that a Survey Report finds a long list of potentially costly problems?
In the event that defects are found during a survey of a commercial property, there is no set formal process to follow as a way forward.
What you decide to do will depend on your role in the transaction and what you stand to lose / gain from it going ahead and the strength of the property market, and the alternative options that are available at the time – often it comes down to negotiations!
Here we take a look at what options are available to prospective leaseholders and purchasers of commercial property.
Prospective Leaseholders
Where issues are identified prior to signing a lease, leaseholders should be aware that by proceeding, they are likely to be taking on the responsibility and costs for any immediate repair work required, alongside any issues that may develop down the line or during the term of the lease. To avoid this, there are some common routes to negotiation…
- Agree a rent-free period to account for the cost of undertaking repair works
- Proceed with the lease but under the agreement that the landlord repairs certain aspects at their own cost
- Propose that the identified elements of repair and maintenance be specifically excluded from your lease obligations
There are pros and cons to each approach and the professionals involved in the lease negotiations – including your Chartered Surveyor and Solicitor – should be able to advise you on the best route of negotiation depending on the circumstances.
Landlords
As the landlord, you are ultimately in control of negotiations as you can pull the plug on the deal at any time and relist the property on the market. If the property is in particularly high demand, you may opt to do this. However, once a deal is part-way down the line, most landlords will want to avoid such delays, and will therefore be willing to look at some form of negotiation, such as the routes detailed above.
Prospective Buyers & Prospective Tenants
Finding a commercial property that suits a business’ needs, in the right location, with access, parking, transport links, and of a suitable size and cost can be a tall order. Becoming aware of relatively minor maintenance or repair issues that a property requires may therefore do little to deter you once you find the right property. Nonetheless, an awareness and being able to plan for any repairs required is very useful.
Where any more significant defects or issues are identified, it may be sensible to reconsider your options or try to negotiate with the vendor or Landlord. Commercial property owners will often have a list of contacts in place that they regularly use to undertake works, and it may therefore be possible to arrange that repairs are undertaken prior to completion, either at the Landlord’s cost or at a shared cost to both parties.
Until contracts have been signed, there is usually no legal obligation for the sale or letting to take place. Depending on the advice of your surveyor, it could be that the best commercial decision is to pull out of the deal.
Sellers
How you choose to respond to the results of a negative survey will depend on many factors, including the current market conditions and how severe the issues identified are.
If you are willing to negotiate, it may be more financially favourable to have the works (or certain aspects of it) undertaken by your own network of contractors. One advantage of this is that even if the sale ultimately falls through, you can be confident a further survey wouldn’t find such issues. Many landlords will want to avoid this hassle, and may agree to a ‘fair’ discount on the agreed price.
Where the leasehold is being purchased as part of a wider deal including a business sale, it may be that you will need to be prepared to negotiate in order for the deal to proceed.
Although the circumstances in each case vary, what is clear is that the advice of a Chartered Building Surveyor – not only in identifying the issues initially, but to advise on the ways to proceed – can be key.
To speak to a member of our team about our range of Commercial Building Surveys, please get in touch.
