Click on a question below to expand to answer:
Q
The Selling Agents Particulars state that the property has 'B1' use: what does this mean?
The proposed use of any premises - freehold or leasehold- must be authorised under planning legislation. Where there is to be a change of use, planning permission must be obtained. However an application for planning permission does not need to be submitted where the change is within a category or 'class' of the Town and Country Planning (Use Classes) Order 1987. These classes are often adopted in practice and B1 includes, for example, uses as offices which are not primarily open to visiting members of the public.
Q
How often should the rent be reviewed and which party decides how much it should be?
The frequency of rent reviews depends greatly on the state of the property market and the economy at the time the lease is granted, as well as upon the trend within comparable leases in the locality. Both parties should obtain the expert opinion of a valuer.
The method of determining the new rent needs to be set out within the lease. Often parties first mention the Retail Price Index but although this will keep the rent in line with inflation, it does not relate to property values. Most frequently rent reviews aim to impose the open market rent prevailing at the time of the review and so the arbitration services of a valuer will be engaged. The precise terms or factors to be valued also need to be set out clearly, for example, are tenant's improvements to be disregarded?
Q
How do Service Charges work?
The Service Charge payable for a given year is based on an estimate of costs, so property owners will pay an estimated Service Charge on-account. Once the actual costs incurred during the Service Charge accounting year have been calculated, they are set against the estimated costs to establish whether there was a surplus or deficit of funds.
The difference between the actual and estimated costs represents the Service Charge adjustment. This is then added to each property owner’s Service Charge account in the form of a credit, where there is a surplus of funds for the year, or a debit if there is a deficit of funds. It is normally a covenant within each Lease that the Service Charge adjustment is paid on demand.
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Q
What is a 'Balancing Service Charge/Year end adjustment?
There is often an adjustment to the service charge after the year end as it is unlikely that the estimate will equal the amount expended during the year. This adjustment can be a credit if there is an over estimate or a debit if there is an under estimate.
Q
What is the difference between ‘freehold’ and ‘leasehold’?
If you purchase a freehold property, you will own the home and the land it is built on. There may however be a freehold company who owns the estate areas, such as communal car parking or garden areas. If you buy a leasehold property you are actually buying the rights to live in a property for a set period of time. You won’t actually own the structure, or the grounds it is situated on. Most flats are leasehold.
Q
How much will it cost to acquire a commercial property (additional to the purchase price or rent)?
Apart from your solicitor's fees and VAT, there will be some additional expenses just as there are when buying a home. There will usually be fees for making enquiries/searches of the local authority, etc. There may registration fees (if a company is entering into a mortgage or if the property is freehold or held on a lease over 21 years). There may be VAT and Stamp Duty to be paid. Current information on Stamp Duty thresholds can be found on the HM Revenue & Customs website – www.hmrc.gov.uk
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Q
What payments other than rent is a Tenant obliged to make?
The Lease must be read carefully to check what financial commitments are involved. Usually the Tenant is obliged to pay towards the insurance of the building and if the premises form part of a larger building, the Tenant will most likely have to contribute towards the maintenance and running of that building. The financial implications of other obligations e.g. to repair or display signs etc should not be overlooked.
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