First Time Investor in Real Estate: Top Five Property Law Considerations

It can feel like quite an uphill learning curve, being a first-time investor in commercial property. Here are a few of the issues that will be considered by your property lawyers as part of the due diligence: 

1. Title
   1. Does the Seller have a right to sell the property? 
   2. Are there any rights over the property which might impact on your proposed use of the property? 
   3. Are there any restrictions on the use of the property? 
   4. Are there any third-party consents that are required to the sale of the property? 
       
2. Planning Permission
   1. Does the property have planning permission for the current use? 
   2. Does the property have planning permission for the original erection of the property and any subsequent alterations? 
   3. Are there any enforcement notices, showing that the seller has not complied with planning laws? 
   4. Is the property a listed building? Is the property within a conservation area? If so, what are the implications for any proposals that you have for the property? 
       
3. Environmental Issues 
   1. Is there any risk that the property might be assessed as contaminated land? Or has it already been listed as contaminated land? If the property is or might be assessed as contaminated land, could you be liable for any clean up costs? 
   2. What is the risk of the property flooding? If there is a high risk of flooding, what are the implications in obtaining insurance? 
   3. What is the current EPC rating? If this is an F or below, this could prevent you letting the property? 
       
4. Highways
   1. Does the property adjoin the public highway? If there is a gap between the property and the public highway, could that land be owned by a third party? If it might be owned by a third party, are there any rights over this land or is there a potential that the third party could prevent access to the property? 
       
5. Tenancies
   1. Assuming the property is let – is the property fully let? If the property is not fully let, then there will not be a full service charge recovery and you will need to fund the shortfall. 
   2. Are the leases outside of the protection of the Landlord and Tenant Act 1954? If they are not outside the protection of the Landlord and Tenant Act 1954, how might this impact any plans that you might have for the property? The Landlord and Tenant Act 1954 provides protected tenants with the right to remain in occupation after the lease expires and the right to request a new lease. 
   3. Do the leases include a full repairing obligation on the tenants? If not, what is the impact to you when the tenants yield up their premises at the end of their tenancies? Are you going to be inheriting premises which are in disrepair, which you will then need to pay to put in full repair before reletting? 
   4. What is the service charge recovery? It would be usual for the tenants to repair the internal non-structural parts of their premises; but for the freeholder to repair the external, structural and common parts of the property and recover the cost of so doing through a service charge regime. Can you recover all the costs that you incur in repairing the structure, external and common parts of the property? Or, are some tenants service charge liabilities capped and if so is there a potential for a gap in service charge recovery? As above, any gaps in service charge recovery will need to be funded by you. 
   5. What are the rents under the leases? Can the rents be reviewed? 
   6. What are the lengths of the leases? What are abilities for the leases to be terminated early by either the tenant or the landlord? Is there a risk that a tenant could leave in the imminent future affecting the property's income stream? Are you able to bring the leases to an end, if you would like to secure vacant possession to carry out any plans you might have? 

By addressing and understanding these points at any early stage, you can avoid costly surprises later.