Do your homework before buying a property (Caveat Emptor!)

Posted on March 8, 2017

Beware the pitfalls if you are buying a property... and do your homework!

This article is for those considering purchasing or leasing commercial property.

Whether you are purchasing a property or entering a lease, it is essential to investigate your chosen property thoroughly before you exchange contracts to give you the best chance of a problem free and cost effective occupation.

As the buyer or leaseholder, it is your obligation to do this investigation. If you do not and take a risk on a property, which then turns out to have problems, you are very unlikely to be able to reverse the deal or get compensation. This is known as the principle of 'caveat emptor' or 'let the buyer beware'.

Duty to disclose latent defects

There are a number of exceptions to this principle of caveat emptor, the main one being the duty of the seller to disclose latent defects in title. A 'latent defect' is one that the buyer could not have discovered by any reasonable inspection of the property.

By contrast, a 'patent defect' is one that the buyer might have been able to discover from a reasonable inspection of the property, provided that the buyer would have been able to carry out the inspection if they had wanted to do so.

In practice, the distinction between a latent and a patent defect may be unclear.

Examples of latent defects

The following may be examples of latent defects in title:

a right of way, which would not be apparent from an inspection of the property;
a right of drainage;
a right for underground pipes to cross land;
a restrictive covenant;
a tenancy;
notices of rent review served on the prospective seller of leasehold property; or
a local land charge.

What can you do?

Most businesses will employ experts such as solicitors and estate agents to assist with the various stages of the transaction but there is much that you, as a business owner, director, partner or manager can do yourself. Here's a checklist to help you prepare.

Checklist for those buying commercial property

Find out what kind of searches you will need. Your solicitor will help with this question that will depend on the property itself and the location. For example, old properties might be listed or houses might be on the path of the High Speed Rail 2 (HS2). Examples of typical searches include: a commercial search; a local search (e.g. to find out from the Local Authority if anything in the locality affects the property); standard enquiries to find out about planning, building regulations, roads (etc.); other bespoke searches; or essential searches such as checking the building is connected to the water mains and ensuring that there has been no mining in the locality or pollution to the site. Some buildings carry extra liabilities by virtue of their past use: you do not want to be accepting responsibility for repairing the local church for example should the site carry 'Chancel liability'.
If you will be obtaining finance from your bank for the transaction, find out whether the bank's terms will require you to do additional searches.
Calculate or estimate the cost of the searches. Have you included that cost in your budget for the transaction?
If the search costs appear high, estimate what it might cost your business if for example, the property turned out to be structurally unsound and you had to relocate.
Are you instructing solicitors? If yes, speak to a solicitor as early as possible in the process. We can help with your early enquiries and help you to carry out the appropriate searches for your potential property.
Plan! It can take time to carry out all this research. Ensure you find out how long the searches will take before you agree to a completion date.
Once you have all the information about the property, you will be in a better position to decide whether to proceed with the sale or lease. If there are problems, you may be able to negotiate further with the seller or owner. In some cases, you may even be able to insure yourself against the potential liability unearthed.

For further information about what is involved in buying or leasing a commercial property, contact Michael Pitt on 0161 785 3500

Posted 8 March 2017

Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

This blog was posted some time ago and its contents may now be out of date. For the latest legal position relating to these issues, get in touch with the author - or make an enquiry now.