The Why
If businesses are buying a freehold property, they’ll often be doing it party as a way to store value. The business could have been running for some time, building up a cash reserve that can be used to buy freehold real estate either in the businesses name, or as part of the directors’ pension fund. Often, this happens when a business has a fairly stable head count and doesn’t expect their needs to change much in the longer term. Or the property might be bought as a straight up investment for other businesses to occupy. And for some clients, a freehold purchase is a mixture of both – for example if a director’s own business occupies part of the property and rents the other areas to third parties. This is a common way for businesses to benefit from a store of value, as well as giving the flexibility to expand in the future.
On the opposite end of the spectrum, you have businesses who need extra flexibility but might not have substantial cash profits. These are usually younger businesses (but not always) looking to lease space while they grow, knowing their needs for the space might change in the future. Their available resources and plans for change mean that taking on a long-term freehold liability might not be right for them.
This presents us with two different models of property ownership, with two very different sets of considerations. Freehold owners of commercial properties will normally want to own the property indefinitely, whereas a leasehold owner might only be planning to occupy the building for five years or so. Traditionally, surveyors have been poor at considering this difference when providing pre acquisition advice, but modern customers now expect surveyors to recognise the differences in ownership and tailor their reports accordingly. Which, luckily, we can!
The Freehold Owner
Freehold owners will generally be looking for issues over the whole life of the building. They will want to know what capital and operational costs a building will present to them now and in the future, especially where there’s an investment angle to a freehold purchaser. This type of buyer might be interested in how ongoing and capital costs can be spread across tenants through things like service charges and dilapidations payments. So unsurprisingly, a really thorough assessment of the building fabric is a high priority for them, along with an analysis of the statutory position of the property from an occupier’s and a landlord’s perspective.
When putting together a report for this type of client, the surveyor will want to know how they plan to use the property so that they can target their advice accordingly. If there are any leases in place, the surveyor should be able to give a high-level summary of these and what they mean in practice. Things like advice about property repair in the long term will be included, and there will be a lot of discussion afterwards to make sure the buyer understand everything.
The Leasehold Owner
Leaseholders, on the other hand, tend to have much shorter interests in a property. So they are going to be more interested in the costs of operating the property throughout their occupation time, rather than the whole lifetime of the building. Here surveyors will discuss how the buyer intends to occupy and use the property so that they can provide the right advice on the practicalities of using the property and any legislative impact.
There’s also another big consideration for leasehold clients, which is the lease end. It’s something often overlooked by surveyors, who will try to impose a full commercial building survey on these types of clients even if it doesn’t really help a leaseholder. At Harrison Clarke we understand that, which is why we offer a leaseholder survey to ensure the lease end isn’t overlooked.
With lease end comes the potential for a dilapidations claim from the landlord. In a commercial lease you don’t get the same wear and tear provisions as you do for a residential tenancy, and it’s important that occupiers understand this. Surveyors should try to help them understand what their lease means in terms of the costs that’ll arise over the course of the lease term and the lease end. The trade off for this is that the for the extra detail on dilapidations, the survey doesn’t go into as much deep detail about the condition of the building fabric, since that advice wouldn’t be as relevant for the occupiers.
If a surveyor really wants to add value, they should be providing leaseholders with advice on how to reduce or mitigate their lease liabilities. The solicitor involved should be looking for these opportunities too, but a surveyor is uniquely placed to understand how the lease wording will impact occupation and the cost of it, especially since they’ve not visited the property. We find that by helping clients reduce their liabilities, we can help them save tens or even hundreds or thousands of pounds across the course of a lease. If you haven’t already, you should ask your surveyor if they regularly provide input into revised lease wording following a survey. If they don’t, they might not be right to provide advice on a leasehold property.
When you’re approaching a surveyor to do a survey for you, at the very least we recommend you provide them with the Heads of Terms (although the travelling lease is preferable if available). This allows them to do some high-level research, which can be used to guide the conversation and make sure they offer you the right survey.
How Much Does it Cost?
The cost of having a survey done can vary considerably. From just over a thousand pounds, all the way up to five or six figures for much bigger, more complex assets. For example, your surveyor might recommend separate reporting on particular issues like asbestos, M&E or geoenvironmental, for more complicated properties. But in all instances, your surveyor should consider how they can add value or provide a return on your investment. In the case of freehold surveys, this often comes through renegotiation of a purchase price.
How Long Does it Take?
Most surveys we complete only need a single surveyor, and they’re able to inspect a property within one working day. In this sort of case, we would normally look to turn a report around within about one working week of inspection, sometimes a little more. Larger surveys can take much longer to arrange and pull together, especially when we need input from other advisers that might delay reporting. But each surveying firm will work to different timescales so it’s always worth discussing timescales with your surveyor.
If your business is taking on new premises and you need a survey of your property from a surveyor that isn’t just ticking a box, we’d love to help. At Harrison Clarke, we believe in adding value for our clients, and our team of friendly specialist surveyors are always on hand to discuss things with you. Just give us a call for a free, no-obligation chat.
For more expert advice on surveying and property matters, check out our range of informative videos on our website or YouTube channel. Harrison Clarke Chartered Surveyors is here to guide you every step of the way!
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