How to Purchase Real Property

While many businesses choose to lease commercial property in order to retain flexibility and minimize large outlays of cash, there are still times when it makes sense for a company to purchase property. For example, if your company will be required to make substantial improvements to tailor its commercial property to meet its specific needs, or if the ideal property is for sale rather than rent, it may be appropriate or necessary to buy. In addition, there are times when purchasing property will not only fit the needs of your business, but will also be a good investment. Purchasing real property, however, will always constitute a large and long-term financial commitment, and so should be considered and carried out carefully.

Before looking for property, you must first determine both the short and long term needs of your business. Failure to do so could cause you to invest in commercial property that is either insufficient to handle your future business requirements, or inconveniently located to serve those requirements. Also take into account planning laws and other use restrictions that will be required to operate the business, and make certain that any property you make a bid on will not preclude any of your present or contemplated activities.

One of the trickiest aspects in balancing the present requirements and future needs of your business is determining the budget for your property purchase. Spending too much, and burdening the company with large monthly mortgage payments, could put serious strain on the business. But not allowing room for expansion may require an expensive move in the future.

One limiting aspect that may be beyond your control is the amount a bank is willing to lend. In order to avoid wasting time viewing and bidding on a property for which you will be unable to obtain financing, it makes sense to get a “loan approval in principal” prior to making an offer. The lender will first assess your company’s assets and financial condition, and then determine how large a loan it would approve and on what conditions.

Keep in mind that the loan amount needs to cover not just the purchase price, but all the other fees and expenses involved in buying property, as well as any construction and improvements that will need to be made to ready the property for use in your business. It is also important to determine at this stage what percentage of the purchase price the bank will require your company to pay in cash, and make sure you have an adequate reserve to cover that amount.

Once you have your business requirements and budget sorted out, you can begin viewing properties. After identifying a desirable location and property, contact the seller’s agent to arrange a viewing. Examine the property as carefully as possible, noting defects and improvements that will need to be made and factored into the real cost of the property.

If the property is acceptable, you can make an offer through the seller’s agent. The offer should not only include the purchase price, but also the date when you can take possession (”the completion date”) and any special contract conditions. In addition, it will include standard conditions such as mutual agreement on a contract and the buyer’s receipt of an acceptable survey. This means that if your survey uncovers a problem with the property, you can either amend or withdraw the offer.

The seller may require you to pay a booking deposit of a few thousand euro, which is refundable if you are unable to agree on a contract. Keep in mind, however, that this fee does not obligate the seller to complete the sale at the agreed upon price.

After the booking deposit is paid, the seller’s agent will forward the sales details to the company’s solicitor and the seller’s solicitor for preparation of the contract. At this stage, you can proceed with a survey of the property, which will be required by the lender to secure the mortgage but should be undertaken for your own protection as well. Be aware that the lender’s purpose is to make sure the value of the property will cover the loan. However, you want to make sure that the value of the property will cover the total amount you are investing, and that the property is in the proper condition to serve your business requirements. If the survey reveals that this is not the case, then you need to determine the cost of repairs and improvements, and possibly renegotiate the purchase price accordingly. It is highly recommended that the survey be carried out by an experienced professional surveyor.

If the survey report is satisfactory, the bank will issue a formal loan offer (if it has not already issued an offer which is subject to the receipt of a satisfactory survey) that includes details such as the amount, term, interest rate, repayment terms, and other conditions such as insurance sufficient to cover repayment of the loan.

While all this is happening, the purchaser’s solicitor will prepare the Contract for Sale agreement and deliver it to the seller’s solicitor. Contracts for Sale typically include the following provisions:

  • Title
  • Encumbrances (if any)
  • Title guarantee (if any)
  • Completion date
  • Purchase price
  • Deposit
  • Balance
  • Conditions
  • Completion procedures
  • Fixtures and other included property
  • Apportionment of property expenses, rent due, etc.
  • Representations and warranties

For the buyer to be obligated to complete the purchase, the seller must transfer the property in the same condition it was in at the time the contract was signed. The buyer, on the other hand, accepts the property in the state it is in at that time. So you should do an additional inspection just prior to signing the contract to make sure nothing has changed since the survey, as well as perform an inspection just prior to completion to make sure nothing has changed since the contract was signed.

At the time the contract is signed, you will be required to pay a deposit, normally 10 percent of the purchase price. This is non-refundable if you walk away from the purchase without cause or breach the agreement. But if the seller cancel’s without cause, you will receive the deposit back.

The completion of the purchase will normally take place 3-6 weeks after the contract is signed. In the interim, your solicitor will perform the appropriate due diligence to make sure you will receive a good marketable title to the property. Then just prior to the completion, the bank will issue the loan check or allow the funds to be drawn down to the purchaser’s solicitors’ account to be held to the order of the bank until completion occurs.

At the formal completion, your solicitor will check to insure that the title and all of the other completion documents have been delivered and are in satisfactory form. The payment balance will then be released and the keys and title deed delivered to you.

After you sign the Deed of Transfer, and the property is transferred to your company, your Solicitor will proceed to stamp the deed and mortgage and register them in the Land Registry or Registry of Deeds, as appropriate. Legal ownership to the property passes to you on completion of the purchase, but registration may take a minimum of several months. You don’t have to worry, however, because you are the legal and beneficial owner of the property when the title is transferred at the completion.

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