Contents
THE COMMERCIAL CONTEXT............................................................................................................................................................................................................... 2
Buying Commercial Property Jointly ............................................................................................................................................................................................. 2
Obtaining Property Finance ........................................................................................................................................................................................................... 3
Searches + Enquiries ...................................................................................................................................................................................................................... 4
ENVIRONMENTAL ISSUES .................................................................................................................................................................................................................... 6
Environmental Risk Management ................................................................................................................................................................................................. 7
Contaminated Land........................................................................................................................................................................................................................ 8
Approaches To Dealing With Contaminated Land ................................................................................................................................................................. 11
Nusiance....................................................................................................................................................................................................................................... 14
Environmental Damage Regulations ........................................................................................................................................................................................... 16
Climate Change And Energy Performance ................................................................................................................................................................................... 18
Asbestos ....................................................................................................................................................................................................................................... 20
Japanese Knotweed ..................................................................................................................................................................................................................... 20
VAT .................................................................................................................................................................................................................................................... 22
MATTERS OF CONTRACT ................................................................................................................................................................................................................... 24
Types Of Contract ........................................................................................................................................................................................................................ 25
PLANNING PERMISSION .................................................................................................................................................................................................................... 28
When Is Planning Permission Needed ......................................................................................................................................................................................... 29
Permitted Development .............................................................................................................................................................................................................. 32
Types Of Planning Permission ..................................................................................................................................................................................................... 34
Applications To The Lpa For Planning Permission ....................................................................................................................................................................... 37
Appeals Against Adverse Planning Conditions ............................................................................................................................................................................ 40
PLANNING OBLIGATIONS + COMMUNITY INFRASTRUCTURE LEVY.................................................................................................................................................. 42
Planning Obligations / S.106 Agreements ................................................................................................................................................................................... 42
Community Infractructure Levy ................................................................................................................................................................................................... 44
PLANNING ENFORCEMENT................................................................................................................................................................................................................ 47
Certificates Of Lawful Use Or Development (CLEUD).................................................................................................................................................................. 47
Right Of Entry ............................................................................................................................................................................................................................... 48
Planning Contravention Notice ................................................................................................................................................................................................... 49
Breach Of Condition Notice ......................................................................................................................................................................................................... 49
Enforcement Notice ..................................................................................................................................................................................................................... 50
Stop Notice + Temporary Stop Notice ......................................................................................................................................................................................... 52
Injunctions ................................................................................................................................................................................................................................... 53
APPEALS AGAINST ENFORCEMENT NOTICES ............................................................................................................................................................................... 53
CONSTRUCTION PROJECTS ................................................................................................................................................................................................................ 55
Forms Of Procurement ................................................................................................................................................................................................................ 56
Duties Owed To Third Parties ...................................................................................................................................................................................................... 60
AGREEMENTS FOR LEASE .................................................................................................................................................................................................................. 63
DRAFTING + NEGOTIATING COMMERCIAL LEASES ........................................................................................................................................................................... 67
Insurance...................................................................................................................................................................................................................................... 71
Rent Suspension ..................................................................................................................................................................................................................... 74
LEASE OF PART ............................................................................................................................................................................................................................. 76
Service Charges....................................................................................................................................................................................................................... 77
Rent Review Clause ................................................................................................................................................................................................................ 80
, THE COMMERCIAL CONTEXT
COMMERCIAL PROPERTY – property that is not designed or used for residential purposes, or for primary industries
such as agriculture and mining. There are 4 main types:
1. Offices (single office buildings and business parks) Total capital value of UK commercial
2. Retail (individual shops, shopping centres, retail warehouses property at the end of 2018 = £951 billion:
and supermarkets) → Retail = £321 billion (34%)
3. Industrial (factories, warehouses and distribution centres) → Offices = £291 billion (30%)
4. Remaining properties used for: → Industrial = £257 billion (27%)
a. Leisure (pubs, restaurants, hotels) → Other = £83 billion (9%)
b. Sport
c. Education
d. Utilities and healthcare (hospitals + nursing homes)
Who buys commercial property:
Occupiers About 45% is bought by owner-occupiers, who need land and buildings to conduct their
businesses from.
→ Some will buy or take a long lease = certainty and freedom to deal with property.
→ Some take a ‘rack rent lease’ = occupation cost is paid quarterly over the period of the
lease by way of rent.
Investors The remaining 55% is bought by investors, who buy property to let.
There are 2 ways to invest in commercial property:
1. Directly – buying a property in your own name/name of a group company, letting it
out, taking responsibility for managing it and selling it when no longer required.
2. Indirectly – buying shares or units in a company that invests in a range of commercial
and residential property.
Developers Buying a property that is not being used to its full potential, constructing new buildings, letting
some of the new buildings to tenants, and then selling the completed development at a higher
price.
BUYING COMMERCIAL PROPERTY JOINTLY:
In larger developments, due to the economic risks, they will usually be a joint venture between 2 or more parties.
✓ Joint ventures enable the costs and potential risks, and profits (if any), of a development scheme to be
shared.
✓ Enables landowners and those without the necessary skills to undertake property development
competently.
Structuring a joint venture:
Contractual joint The parties enter into a contract setting out the terms of their agreement. This will include
venture each parties financial commitment and duties.
✓ This is very flexible and responsive to the parties individual needs.
✓ The joint venture contract arrangement is ‘tax transparent’, so each party is
responsible for paying income tax on profits and CGT on capital gains, so gets the
direct benefit of any tax deductions and reliefs.
✓ The parties are in a mere contract together, so it’s less likely that one party will be
liable for the actions of the other.
✓ No need to transfer property if one party already owns the property (so no SDLT)
There is no separate legal entity, so there is unlimited liability for any losses.
Special purpose This is a limited company set up for a particular purpose (e.g. development of a particular
vehicle companies site). It may be a subsidiary of just one company, but it can be a jointly owned subsidiary.
(SPV)
, Shareholders have all usual rights and can use preference shares. In case of default,
arrangements will be governed by company law.
✓ Separate legal personality – so the shareholders in the SPV will have limited liability
– so the economic risk is caped at a quantifiable amount.
✓ On completion of the development, it is possible to transfer ownership of the
property by selling shares in the SPV company, rather than transferring the property
itself. This means stamp duty is charged at 0.5% on shares, rather than the usual 5%
on property.
Double taxation - the SPV itself will be assessed to corporation tax on rental income
and capital gains, and the shareholder companies will pay corporation tax on
dividends.
Administrative expense of annual accounts being filed.
Traditional The joint venture partners enter into a partnership agreement to purchase the property.
unlimited liability ✓ Very flexible and can suit the individual needs of the partners.
partnership A partnership is a legally recognised structure, so is governed by the Partnership Act 1890.
→ A charge to SDLT will arise when property is transferred from a 3rd party to the joint
venture partners.
→ The partnership arrangement is ‘tax transparent’, so each party is responsible for
paying income tax on profits and CGT on capital gains, so gets the direct benefit of
any tax deductions and reliefs. There is also no requirement to file the accounts.
Each partner has unlimited liability and be wholly liable for the debts and
obligations of the partnership.
SDLT on transfer of property.
Each partner has authority to bind the partnership and co-partners – requires a
large amount of trust.
Limited liability A hybrid between a partnership under the PA 1890, and a limited company under the CA
partnership 2006.
Similar features to a partnership, but partners have limited liability, and the LLP is a
separate corporate body.
Offers flexibility and tax transparency for its members.
✓ Flexible and can be tailored.
✓ Separate legal personality – so limited liability.
✓ Tax transparent (as above)
✓ Agreement is private.
Administrative burden of filing accounts.
OBTAINING PROPERTY FINANCE:
Share Capital Where the buyer is a company, it may issue further shares to raise additional capital to
invest in property.
May not be popular with current shareholders – may result in reduced dividends as
shareholding is diluted, affecting voting power and capital rights.
Additional regulations if the company is publicly listed.
Forward Funding An institutional investor finances the development from the outset, acquiring the land and
paying construction costs. The developer is paid a fee and once completed and let, is paid a
profit share.
Equity Funding An investor and developer form a joint venture company to acquire the development site
and undertake the development. The investor takes preference shares to ensure a priority
return on the investment.
Sale + Leaseback The freehold interest in the property is sold, and immediately following completion, the
buyer leases it back, usually at market rent.
Debt Finance Borrowing from banks or ‘alternative credit providers’ such as insurance companies or debt
funds.
Where the debt is large (e.g. over £50 million), the debt package will often consist of a
senior debt, provided by a single lender or syndicate of lenders, and a mezzanine debt,
provided by a different lender.
, SEARCHES + ENQUIRIES:
Local land The usual form should be submitted to the local authority together with a fee. A plan should be
search and attached to the local authority can identify the land concerned. It may be necessary to search a
enquiries wider area than just the land being purchased.
(CON29 / Most commercial transactions will raise the optional enquiries in CON290 in addition to the
CON290) usual CON29 enquiries.
→ In reviewing the replies, particular attention should be given to information relating to
planning and access to the site over adopted highways.
Planning The developer needs to know whether planning permission currently exists, or whether there
matters have been any past applications which have been unsuccessful.
→ It also needs to know what type of land use is currently indicated for the area, as well
as any existing or proposed tree preservation orders.
Drainage It is important to establish how foul and surface water currently drains to public sewers, so that
(CON29DW) it can be estimated whether the current drainage system will cope with the developed site, or
whether new drains will need to be constructed.
→ Vacant land – unlikely to have drains serving it and will need to know location of
closest public sewer where the connection of new drains can be made
Highways The developer needs to know:
(CON29 / → If immediate access to the site can be obtained from a public highway.
Highways → Every pavement and verge, as anything not publicly owned may become a ransom
Authority) strip if access is needed.
→ Confirm there are no proposed highways in vicinity of site which would adversely
affect development.
Railways Network Rail’s website has information about the implications of overground railways
(CON29/NLIS) bordering or crossing properties.
It is also possible to raise enquiries about possible implications of underground rail networks
in close proximity through the National Land Information Service (NLIS).
Utilities Development may be impeded or made more expensive if there is electricity, gas or
telecommunications equipment in, on, or under the property.
Contaminated The buyer of the land may become liable to pay excessive clean-up costs in relation to
land contaminated land.
Commons CON290 optional enquiry 22 should always be made if acquiring a rural site. An inner- city site
registration is unlikely to need the search, however, if unsure, the search should be made.
(CON290)
Rights of way + The property might be affected by rights of way – it is possible to search the local authority’s
access (Natural map and register of application to obtain details of footpaths, bridleways and byways.
England)
Enquiries of the Pre-contract enquiries of the seller will be raised, with additional enquiries is appropriate.
seller (CPSE)
Flood searches Usually, a commercial flood report will be needed, as other methods are not satisfactory
searches.
Government Flood Re Scheme – ensures flood cover is available for residential properties, but
doesn’t apply to commercial properties.
Survey and It is advisable to commission a survey of the land. An inspection should always be conducted
inspection before exchange of contracts in order to:
(a) Assist in establishing ownership of, or responsibility for boundary walls, hedges and
fences;
(b) Discover the existence of public or private rights of way evidenced by footpaths, stiles
or breaks in hedges;
(c) Spot the presence of overhead electricity power lines which may prevent or impede
development;
(d) Discover rights of persons in occupation of the land;
(e) Ensure that adjoining landowners do not enjoy the benefit of easements of light or air
which may impede the development.
THE COMMERCIAL CONTEXT............................................................................................................................................................................................................... 2
Buying Commercial Property Jointly ............................................................................................................................................................................................. 2
Obtaining Property Finance ........................................................................................................................................................................................................... 3
Searches + Enquiries ...................................................................................................................................................................................................................... 4
ENVIRONMENTAL ISSUES .................................................................................................................................................................................................................... 6
Environmental Risk Management ................................................................................................................................................................................................. 7
Contaminated Land........................................................................................................................................................................................................................ 8
Approaches To Dealing With Contaminated Land ................................................................................................................................................................. 11
Nusiance....................................................................................................................................................................................................................................... 14
Environmental Damage Regulations ........................................................................................................................................................................................... 16
Climate Change And Energy Performance ................................................................................................................................................................................... 18
Asbestos ....................................................................................................................................................................................................................................... 20
Japanese Knotweed ..................................................................................................................................................................................................................... 20
VAT .................................................................................................................................................................................................................................................... 22
MATTERS OF CONTRACT ................................................................................................................................................................................................................... 24
Types Of Contract ........................................................................................................................................................................................................................ 25
PLANNING PERMISSION .................................................................................................................................................................................................................... 28
When Is Planning Permission Needed ......................................................................................................................................................................................... 29
Permitted Development .............................................................................................................................................................................................................. 32
Types Of Planning Permission ..................................................................................................................................................................................................... 34
Applications To The Lpa For Planning Permission ....................................................................................................................................................................... 37
Appeals Against Adverse Planning Conditions ............................................................................................................................................................................ 40
PLANNING OBLIGATIONS + COMMUNITY INFRASTRUCTURE LEVY.................................................................................................................................................. 42
Planning Obligations / S.106 Agreements ................................................................................................................................................................................... 42
Community Infractructure Levy ................................................................................................................................................................................................... 44
PLANNING ENFORCEMENT................................................................................................................................................................................................................ 47
Certificates Of Lawful Use Or Development (CLEUD).................................................................................................................................................................. 47
Right Of Entry ............................................................................................................................................................................................................................... 48
Planning Contravention Notice ................................................................................................................................................................................................... 49
Breach Of Condition Notice ......................................................................................................................................................................................................... 49
Enforcement Notice ..................................................................................................................................................................................................................... 50
Stop Notice + Temporary Stop Notice ......................................................................................................................................................................................... 52
Injunctions ................................................................................................................................................................................................................................... 53
APPEALS AGAINST ENFORCEMENT NOTICES ............................................................................................................................................................................... 53
CONSTRUCTION PROJECTS ................................................................................................................................................................................................................ 55
Forms Of Procurement ................................................................................................................................................................................................................ 56
Duties Owed To Third Parties ...................................................................................................................................................................................................... 60
AGREEMENTS FOR LEASE .................................................................................................................................................................................................................. 63
DRAFTING + NEGOTIATING COMMERCIAL LEASES ........................................................................................................................................................................... 67
Insurance...................................................................................................................................................................................................................................... 71
Rent Suspension ..................................................................................................................................................................................................................... 74
LEASE OF PART ............................................................................................................................................................................................................................. 76
Service Charges....................................................................................................................................................................................................................... 77
Rent Review Clause ................................................................................................................................................................................................................ 80
, THE COMMERCIAL CONTEXT
COMMERCIAL PROPERTY – property that is not designed or used for residential purposes, or for primary industries
such as agriculture and mining. There are 4 main types:
1. Offices (single office buildings and business parks) Total capital value of UK commercial
2. Retail (individual shops, shopping centres, retail warehouses property at the end of 2018 = £951 billion:
and supermarkets) → Retail = £321 billion (34%)
3. Industrial (factories, warehouses and distribution centres) → Offices = £291 billion (30%)
4. Remaining properties used for: → Industrial = £257 billion (27%)
a. Leisure (pubs, restaurants, hotels) → Other = £83 billion (9%)
b. Sport
c. Education
d. Utilities and healthcare (hospitals + nursing homes)
Who buys commercial property:
Occupiers About 45% is bought by owner-occupiers, who need land and buildings to conduct their
businesses from.
→ Some will buy or take a long lease = certainty and freedom to deal with property.
→ Some take a ‘rack rent lease’ = occupation cost is paid quarterly over the period of the
lease by way of rent.
Investors The remaining 55% is bought by investors, who buy property to let.
There are 2 ways to invest in commercial property:
1. Directly – buying a property in your own name/name of a group company, letting it
out, taking responsibility for managing it and selling it when no longer required.
2. Indirectly – buying shares or units in a company that invests in a range of commercial
and residential property.
Developers Buying a property that is not being used to its full potential, constructing new buildings, letting
some of the new buildings to tenants, and then selling the completed development at a higher
price.
BUYING COMMERCIAL PROPERTY JOINTLY:
In larger developments, due to the economic risks, they will usually be a joint venture between 2 or more parties.
✓ Joint ventures enable the costs and potential risks, and profits (if any), of a development scheme to be
shared.
✓ Enables landowners and those without the necessary skills to undertake property development
competently.
Structuring a joint venture:
Contractual joint The parties enter into a contract setting out the terms of their agreement. This will include
venture each parties financial commitment and duties.
✓ This is very flexible and responsive to the parties individual needs.
✓ The joint venture contract arrangement is ‘tax transparent’, so each party is
responsible for paying income tax on profits and CGT on capital gains, so gets the
direct benefit of any tax deductions and reliefs.
✓ The parties are in a mere contract together, so it’s less likely that one party will be
liable for the actions of the other.
✓ No need to transfer property if one party already owns the property (so no SDLT)
There is no separate legal entity, so there is unlimited liability for any losses.
Special purpose This is a limited company set up for a particular purpose (e.g. development of a particular
vehicle companies site). It may be a subsidiary of just one company, but it can be a jointly owned subsidiary.
(SPV)
, Shareholders have all usual rights and can use preference shares. In case of default,
arrangements will be governed by company law.
✓ Separate legal personality – so the shareholders in the SPV will have limited liability
– so the economic risk is caped at a quantifiable amount.
✓ On completion of the development, it is possible to transfer ownership of the
property by selling shares in the SPV company, rather than transferring the property
itself. This means stamp duty is charged at 0.5% on shares, rather than the usual 5%
on property.
Double taxation - the SPV itself will be assessed to corporation tax on rental income
and capital gains, and the shareholder companies will pay corporation tax on
dividends.
Administrative expense of annual accounts being filed.
Traditional The joint venture partners enter into a partnership agreement to purchase the property.
unlimited liability ✓ Very flexible and can suit the individual needs of the partners.
partnership A partnership is a legally recognised structure, so is governed by the Partnership Act 1890.
→ A charge to SDLT will arise when property is transferred from a 3rd party to the joint
venture partners.
→ The partnership arrangement is ‘tax transparent’, so each party is responsible for
paying income tax on profits and CGT on capital gains, so gets the direct benefit of
any tax deductions and reliefs. There is also no requirement to file the accounts.
Each partner has unlimited liability and be wholly liable for the debts and
obligations of the partnership.
SDLT on transfer of property.
Each partner has authority to bind the partnership and co-partners – requires a
large amount of trust.
Limited liability A hybrid between a partnership under the PA 1890, and a limited company under the CA
partnership 2006.
Similar features to a partnership, but partners have limited liability, and the LLP is a
separate corporate body.
Offers flexibility and tax transparency for its members.
✓ Flexible and can be tailored.
✓ Separate legal personality – so limited liability.
✓ Tax transparent (as above)
✓ Agreement is private.
Administrative burden of filing accounts.
OBTAINING PROPERTY FINANCE:
Share Capital Where the buyer is a company, it may issue further shares to raise additional capital to
invest in property.
May not be popular with current shareholders – may result in reduced dividends as
shareholding is diluted, affecting voting power and capital rights.
Additional regulations if the company is publicly listed.
Forward Funding An institutional investor finances the development from the outset, acquiring the land and
paying construction costs. The developer is paid a fee and once completed and let, is paid a
profit share.
Equity Funding An investor and developer form a joint venture company to acquire the development site
and undertake the development. The investor takes preference shares to ensure a priority
return on the investment.
Sale + Leaseback The freehold interest in the property is sold, and immediately following completion, the
buyer leases it back, usually at market rent.
Debt Finance Borrowing from banks or ‘alternative credit providers’ such as insurance companies or debt
funds.
Where the debt is large (e.g. over £50 million), the debt package will often consist of a
senior debt, provided by a single lender or syndicate of lenders, and a mezzanine debt,
provided by a different lender.
, SEARCHES + ENQUIRIES:
Local land The usual form should be submitted to the local authority together with a fee. A plan should be
search and attached to the local authority can identify the land concerned. It may be necessary to search a
enquiries wider area than just the land being purchased.
(CON29 / Most commercial transactions will raise the optional enquiries in CON290 in addition to the
CON290) usual CON29 enquiries.
→ In reviewing the replies, particular attention should be given to information relating to
planning and access to the site over adopted highways.
Planning The developer needs to know whether planning permission currently exists, or whether there
matters have been any past applications which have been unsuccessful.
→ It also needs to know what type of land use is currently indicated for the area, as well
as any existing or proposed tree preservation orders.
Drainage It is important to establish how foul and surface water currently drains to public sewers, so that
(CON29DW) it can be estimated whether the current drainage system will cope with the developed site, or
whether new drains will need to be constructed.
→ Vacant land – unlikely to have drains serving it and will need to know location of
closest public sewer where the connection of new drains can be made
Highways The developer needs to know:
(CON29 / → If immediate access to the site can be obtained from a public highway.
Highways → Every pavement and verge, as anything not publicly owned may become a ransom
Authority) strip if access is needed.
→ Confirm there are no proposed highways in vicinity of site which would adversely
affect development.
Railways Network Rail’s website has information about the implications of overground railways
(CON29/NLIS) bordering or crossing properties.
It is also possible to raise enquiries about possible implications of underground rail networks
in close proximity through the National Land Information Service (NLIS).
Utilities Development may be impeded or made more expensive if there is electricity, gas or
telecommunications equipment in, on, or under the property.
Contaminated The buyer of the land may become liable to pay excessive clean-up costs in relation to
land contaminated land.
Commons CON290 optional enquiry 22 should always be made if acquiring a rural site. An inner- city site
registration is unlikely to need the search, however, if unsure, the search should be made.
(CON290)
Rights of way + The property might be affected by rights of way – it is possible to search the local authority’s
access (Natural map and register of application to obtain details of footpaths, bridleways and byways.
England)
Enquiries of the Pre-contract enquiries of the seller will be raised, with additional enquiries is appropriate.
seller (CPSE)
Flood searches Usually, a commercial flood report will be needed, as other methods are not satisfactory
searches.
Government Flood Re Scheme – ensures flood cover is available for residential properties, but
doesn’t apply to commercial properties.
Survey and It is advisable to commission a survey of the land. An inspection should always be conducted
inspection before exchange of contracts in order to:
(a) Assist in establishing ownership of, or responsibility for boundary walls, hedges and
fences;
(b) Discover the existence of public or private rights of way evidenced by footpaths, stiles
or breaks in hedges;
(c) Spot the presence of overhead electricity power lines which may prevent or impede
development;
(d) Discover rights of persons in occupation of the land;
(e) Ensure that adjoining landowners do not enjoy the benefit of easements of light or air
which may impede the development.
