Commercial vs residential property solicitor – the differences
On the surface, the differences between a commercial and residential property solicitor sound like they will be obvious.
One deals with the kind of property we live in. One deals with the kind of property we do business in.
But – while the conveyancing process is very similar for residential and commercial properties – there are actually a few subtle yet important differences between the two:
What Does Conveyancing Mean?
The conveyancing process is the means by which ownership of a property is transferred. This involves changing the names on the property title via a legal document known as a transfer deed.
Not everyone knows that there is actually no requirement that you use a professional conveyancer or conveyancing solicitor to handle the legal aspects of this transfer. However, because all mortgage lenders insist that all parties get professional representation, it’s essentially a must.
There’s also the size of the transaction and the potential for legal issues to consider. Unless you are deeply familiar with the relevant regulations, it’s very risky indeed to try to sell or buy any property without legal advice of any kind.
The conveyancing process itself involves property searches and surveys that inform you of the condition of a property you are buying. It also includes the negotiation of contracts between buyer and seller, registering the new owner with the Land Registry, and a variety of other tasks.
What Is The Difference Between Commercial And Residential Conveyancing?
There are only a small number of differences between commercial and residential conveyancing, but they are important:
1) Property Use Type
This is the most obvious difference. Residential property conveyancing deals with sales and purchases of property intended for human habitation. This is ordinarily a single house or flat. So far, so simple.
Commercial property is a little different though. Not just because this is property intended for business use but because the person buying the property frequently wants an entire area not just “a shop”.
There is also the common circumstance of a commercial property being purchased as part of a larger business.
2) Goodwill Payments (When Buying A Whole Business)
Sometimes, a commercial property is purchased as part of the business that is already operating out of the premises. In these circumstances, the buyer may make what is known as “goodwill payments” if they want to do things like:
- Use the existing business’s name
- Access their client base or contact lists
- Keep trading under the same business name
- Retain or re-hire the same staff
- Take ownership of the stock or use the existing processes
There isn’t really an equivalent to this in residential property purchases.
3) Leaseholds And Freeholds
These are the two different ways to own property in the UK. In a freehold, you own the property, the land it sits on, and even the airspace directly above. In a leasehold, you lease often part of the property (e.g. a flat in a larger building) from the freeholder.
As of around 2005, roughly 1 in 5 residential properties in the UK were owned as leaseholds. As of 2015, this figure had shot up to around 43%.
This is likely because potential for additional profit was identified. A leasehold arrangement frequently means paying things like ground rent and service charges to your freeholder, though the laws on this are changing “to cut unfair and abusive practices” (according to the UK government).
Despite this, while there are huge numbers of leasehold residential property owners in the UK, the majority remain freeholders. This situation is reversed in commercial property.
The majority of commercial property owners are leaseholders. This situation is more beneficial in commercial situations because a business may wish to do things like expand into adjacent properties if demand increases.
4) Commercial Lease Negotiation
Because of all of the above, solicitors specialising in commercial property frequently need to negotiate a detailed lease with the freeholder of the property.
There are different kinds of commercial leases covering different types of commercial property use.
5) Property Searches And Price
Property searches are a vital way of confirming you know everything about the condition of the property you are buying. If you are buying a residential property, they aren’t usually very expensive.
Commercial property searches tend to cost a little more. This is partly because the properties themselves tend to be larger. There is also a need to conduct additional Commercial Property Standard Enquiries (CPSEs).
Find The Right Commercial Or Residential Property Solicitor
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