Sale contracts for commercial premises

Sale contracts for commercial premises

The seller's solicitor is responsible for drafting the contract of sale to be approved or revised by the buyer's solicitor. It is common for the seller's solicitor to incorporate the Standard Commercial Property Conditions (or the Law Society General Conditions of Sale 3rd Edition Second Revision in Northern Ireland) in the contract of sale. The following are typical terms in a contract of sale:

Deposit

Usually, a 10% deposit is paid on exchange of contracts. The seller is generally unlikely to accept a reduced deposit as they are reserving the site in favour of the buyer. The buyer may insist that the deposit is to be held by the seller's solicitor as stakeholder and that the interest on the deposit is to be paid to the buyer on completion.

Vacant possession

To the buyer it is important that the contract provides for vacant possession of the whole of the site on completion so that there is no one occupying the property when they buy it.

VAT

The buyer may want to ensure that the contract contains an express provision on VAT. For example, a clause to the effect that the seller has not, before exchange, elected to charge VAT on the purchase price and that the seller will not do so thereafter may be included.

Non-assignability

The seller may wish to ensure that they will deal with the buyer but not anyone else whom the buyer may transfer the property to. To achieve this, a clause preventing the buyer from assigning the benefit of the contract to a third party has to be inserted.

Further, the seller may attempt to prevent the buyer from entering into a sub-sale agreement by stipulating that the seller cannot be required by the buyer to execute a conveyance or transfer of the site to someone other than the buyer. This clause does not prevent a sub-sale of the site but makes it less attractive to the buyer since stamp duty might be payable both on the conveyance to the buyer, and on the buyer's conveyance to the sub-buyer.

Insolvency of the buyer

The seller will deal with the possibility of the buyer going bust before completion of the sale by giving themselves the right to cancel the contract. This allows the seller to arrange a sale to another buyer without delay.

Rights and obligations

Express provisions should be made, where appropriate, for the grant and reservation of easements (non-proprietary rights that may exist in a property, e.g. the right to walk on someone's pathway but own nothing of their property) and the imposition of covenants (things that an occupier must promise to do or not to do, e.g. to promise to use the property for business purposes only).

Planning permission

Where the site has planning permission obtained by the seller, such benefits will usually automatically pass to the buyer. The buyer should then ensure that the contract provides for the seller to pass to them a valid licence to use the plans and specifications upon which the planning permission is based.