Law guide: Property

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Sales contracts for commercial premises

Sales contracts for commercial premises

Contents

Sale contracts for commercial premises

The buyer's solicitor is responsible for initially drafting the contract of sale to be approved or revised by the buyer's solicitor. This can be done by producing a draft offer, which is adjusted in draft until in agreed terms. The buyer's solicitor then issues a formal offer on behalf of the buyer, which is then accepted by the seller's solicitor on behalf of the seller. These are referred to as concluded missives and they form a binding contract between the seller and the buyer. Alternatively, and this is the usual process in sale in open competition, the buyer's solicitor submits a formal, usually conditional offer on behalf of the buyer. The seller's solicitor issues a counter offer, called a qualified acceptance, which refers to the offer and makes amendments to it. The buyer's solicitor can then accept or issue their own qualified acceptance. This process continues until there is an acceptance, which results in concluded missives.

The following are typical terms in a contract of sale:

Vacant possession

To the buyer, it is important that the contract provides for vacant possession of the whole of the site on completion, so that there is no one occupying the property when they buy it.

VAT

The buyer may want to ensure that the contract contains an express provision on VAT. For example, a clause may be included to the effect that the seller has not, before exchange, elected to charge VAT on the purchase price and will not do so thereafter.

Non-assignability

The seller may wish to ensure that they will deal with the buyer, but not anyone else whom the buyer may transfer the property to. To achieve this, a clause preventing the buyer from assigning the contract to a third party has to be inserted.

Further, the buyer may attempt to allow it to enter into a sub-sale agreement by stipulating that the seller can be required by the buyer to execute a conveyance or transfer of the site to someone other than the buyer (If the seller does not permit this, it does not prevent a sub-sale of the site but makes it less attractive to the buyer since stamp duty might be payable both on the conveyance to the buyer, and on the buyer's conveyance to the sub-buyer).

Insolvency of the buyer

If the buyer goes bust before completion of the sale, the seller will have no automatic right to cancel the contract. Only if the purchase price is not paid, can the seller rescind the contract.

Rights and obligations

Express provisions should be made, where appropriate, for the grant and reservation of servitudes (additional proprietary rights that may exist in a property, e.g. the right to walk on someone's pathway but own nothing of their property) and the imposition of burdens (things that an occupier must promise to do or not to do, e.g. to promise to use the property for business purposes only).

Planning permission

Where the site has planning permission obtained by the seller, such benefits will usually automatically pass to the buyer. The buyer should then ensure that the contract provides for the seller to pass to them a valid licence to use the plans and specifications upon which the planning permission is based.

Deposit

Deposits are not usually paid on conclusion of missives, but the seller can negotiate for a deposit if in a commercial position to do so.