When Should I Commission Searches For My Commercial Property Transaction?
The short answer is always! When you purchase, or as a tenant, lease your commercial property, it should be worth considering commissioning a selection of searches. Even if you are purchasing your property by way of an auction, it is still crucial to remember to examine the searches fully. The extent of searches recommended by your solicitor is of course contingent on the nature of the transaction.
You should note that if you are financing part of your transaction, certain searches are compulsory, as they are often imposed by virtue of the lender’s terms and conditions. For example, the Local Authority Search and Drainage Search, and if applicable, a Mining Search could be mandatory to satisfy the lender’s requirements, and for certain providers, a full set of searches is required. Even if you are a tenant leasing a commercial property, it is still important to consider commissioning searches, even if it is not mandatory.
Searches are often commissioned at the start of a transaction, as they can take more than 4 weeks to complete from the date of the request. Concluding reports may recommend further searches to be undertaken which is dependent on the locality, and level of potential risk identified, should this be applicable for the property in question. Your solicitor will advise should any further action be required considering the search reports.
It is noteworthy that all the searches listed are a type of paper-based search and do not require any physical inspection of the property. The search provider then emails the search results directly to your solicitor, and your solicitor will then of course let you have a copy of the same.
Local Authority Search:
This search is conducted with the Local Authority responsible for the property and looks into a variety of important factors such as:-
- Road Proposals;
- Adoption of the Highways;
- Planning Permissions;
- Environmental Health Matters;
- Compulsory Purchase Orders;
- Tree Preservation Orders;
- Enforcement Notices.
This search only considers the specific property you are purchasing. It does not enquire as to development in the vicinity of the property, such as adjacent vacant land or your proposed neighbour’s plans.
This search confirms whether a road is adopted, and therefore who is responsible for maintaining the local highway. It also provides specific confirmation as to the extent of the adopted highway so that you can be certain that the adopted highway extends to the boundary of the property you are purchasing, or the land over which you may have a right to cross.
A Highways Search may also be required by your lender as this search could demonstrate something in force which prevents access to a property such as a ransom strip. A ransom strip could be a small piece of land which has been inadvertently retained when selling a larger piece of land, such as when a developer sells several new builds. Should a ransom strip be present, this could lead to a costly and protracted right of way dispute and could therefore have a detrimental impact on the value of the property, which is of course a red flag for a lender. Additionally, if the lender needs to exercise their power of sale, an issue with access to the property will cause them difficulty in selling the property.
The Highways Search provides a clear map around the property in question with defined boundaries. In contrast, the Local Authority Search is a generic search and only touches on road adoption and as such may not provide a sufficient level of detail to meet a client and/or lenders requirements. The Local Authority Search also does not provide a map and therefore affords far less clarity for a transaction.
Draining and Water Search:
This search reveals important points such as whether the water and drainage services at the property under investigation, including whether the property is connected to the mains water supply and mains drainage.
It would be unhelpful if it transpires the property you wish to purchase does not have a water supply, as this is likely to be fundamental to run your business!
Coal Mining Search:
This search is only relevant to known coal mining areas in the country. Our standard set of searches will in turn confirm whether a Coal Mining Search is necessary.
Should the property be in an area which was previously mined, an indemnity policy may be essential, which will protect the property to its full value. As a condition of the loan, the lender may require this indemnity policy to be commissioned.
Environmental and Flood Risk Search:
When a contaminated site is found, the Local Authority can require certain persons to take remedial action. Such liability falls primarily on those who cause the contamination. However, if that person cannot be found, liability could fall on the current owner or occupier of the land. This could of course be extremely expensive!
This search also identifies whether the property in question may potentially be affected by factors such as flooding, subsidence, or landslip. The search provides information on these factors together with information regarding air quality, landfill sites, waste sites or contaminated sites near the property.
Concluding remarks:
In any commercial property acquisition, we will provide you with a full picture of the property in question, through the searches and further due diligence. We will outline all the potential risks to you, and consider how we can mitigate any risks identified, through indemnity policies if applicable. It is then for you to decide whether you still wish to proceed with your transaction now that you are informed of all the potential risks.
If you have any questions regarding anything covered in this article, please call us on 02476 231000 or email enquiries@askewslegal.co. Please note that this article is for information purposes only and does not constitute legal advice.
