Before marketing a property “for sale” or “to let”, sellers and landlords alike should first cast their mind to the due diligence process, which any party looking to acquire an interest will need to undergo, albeit to varying extents. Consider having replies to Commercial Property Standard Enquiries prepared, or at least be aware of the types of enquiries they raise, and ensure that you have the information and supporting documentation readily available. In particular, in all but exceptional circumstances properties are required to have an Energy Performance Certificate, which must have an asset rating of “E” or above to enable leases to be granted. Similarly, there are legal obligations on owners and occupiers to show that any asbestos present at a property is being effectively managed. There is no avoiding such requirements, so sellers and landlords are encouraged to bite the bullet and commission EPCs and asbestos surveys well in advance, taking steps to implement any recommendations for improving energy efficiency and managing asbestos. We regularly encounter delays whilst parties arrange these at a belated stage in negotiations, with any issues identified often resulting in a price chip or further delay whilst necessary works are carried out pre-exchange. Separately, when instructing a survey (be it a building survey, measured surveys or environmental survey), the possibility of negotiating the availability of reliance letters for parties acquiring an interest in future should be considered, as these can save parties wasting time in onward transactions carrying out their own physical due diligence. And remember, you will need a Land Registry compliant plan to let a property, or to sell part of one, so make sure you have one!
Heads of terms
When negotiating, parties should consider pushing for an exclusivity period. This is largely perception management, but can be effective in focusing minds when working towards an exchange deadline. Professionals should be involved at an early stage, to flag any underlying legal or tax issues which may affect structuring, and parties should not shy away from confronting key commercial points; these will inevitably come out in the wash once legals are instructed, and will take longer to resolve, at higher cost, when communicating through lawyers. Beware the unrepresented party. It is a common misconception that it is easier to negotiate with a self-represented party, but this raises compliance issues for lawyers, and often results in hand-holding at increased cost to the opposite party. It is also a common theme that the health warnings issued to unrepresented parties leads them to instruct representation at the 11th hour, thus unravelling a transaction at the crucial moment.
Know your title
Know what dealings or works require third party consents, and submit applications for these at the earliest possible opportunity. There are often obligations on third parties not to unreasonably withhold or delay consent to the same, and reasonableness is assessed relative to the urgency of the transaction. Obtain title indemnity insurance for any known defects in advance, to avoid negotiating the terms of any policy documents, and ensure that you are able to deal with any restrictions on your title which will prevent registration of dispositions.
Consider the needs of buyers or tenants intending to take immediate occupation of a property. Request fit-out proposals at an early stage, to ensure adequate time is available for comment by building surveyors. Connectivity is king in this day and age, so also ensure that you line up wayleaves with service providers, to enable their standard 6-week lead-in time to be accommodated.
Get lenders and funders on side
Your bank relationship manager is your best friend. Ordinarily, finance institutions are under no legal obligation to grant consent to dealings or to release properties from charge, so property owners are reliant on their co-operation. When negotiating finance documents, attempt to ensure that any restrictions on title are drawn as narrowly as possible (this can be fruitless where banks insist on sticking to their standard form) to prevent having to obtain bank consent for all dispositions. Always bear in mind that the implications of failing to obtain bank consent can be serious, there being case law to suggest that there is a risk entire transactions may be unravelled on this basis.
Property deals cannot be done on a handshake
There are hoops which must be jumped through. To ensure transactions run as smoothly as possible, parties should focus on communicating effectively, knowing how their professionals can help and engaging them at the right stage. As The Boy Scouts would say, "Be prepared...".
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at March 2020.