Commercial property viewing: a checklist for investors

Are you about to view a commercial property? Consult this checklist to avoid overlooking any important details.

Inspecting a commercial property prior to purchase will flag up both issues that could affect the property’s appeal to potential lessees and problems that will need to be addressed in order for you to comply with your own obligations as a commercial landlord. This article will look both at the condition of a property and its general features.

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Thorough inspections can benefit property investors

All commercial leases should contain a ‘repairs and alterations’ clause that outlines whether the landlord or the tenant is responsible for certain repairs and aspects of health and safety management.

Many modern leases are fully repairing and insuring, which passes all such responsibilities onto the tenant. As such, some investors may be tempted to make a purchase based purely on the fundamentals, with only a cursory consideration to the actual condition of the asset.

A more thorough inspection can be beneficial, however:

  • Maintenance issues could make your property less attractive to prospective occupants. Most lessees will inspect a property thoroughly, and may even instruct a surveyor.
  • Taking on more management responsibilities yourself could make your property more attractive to tenants and allow you to charge a higher rent.
  • By bringing some issues to your tenant’s attention prior to the commencement of the lease, you may help them better fulfil their repairing obligations and reduce the need for remedial action at a later date.
  • Pre-existing issues could affect the amount by which subsequent negligence will devalue the property, and therefore how much you can claim for damages, at per section 18(1) of the Landlord and Tenant Act 1987.

In addition, certain responsibilities may fall to you by default, particularly in the case of multi-let premises with centrally controlled systems such as air conditioning and heating.

So whether health and safety responsibilities will fall to you or your tenant, always consider undertaking a thorough inspection of a property you are viewing, and be sure to take any issues that are identified into account during your purchase negotiations.

Air conditioning systems

The person who controls the operation of an air conditioning system in a commercial property is responsible for its maintenance and upkeep.

In addition, under part 4 of the Energy Performance of Buildings (Certificates and Inspections) (England and Wales) Regulations 2007, air conditioning systems with an effective rated output exceeding 12 kilowatts must be inspected by an energy assessor every five years.

  • How many individual air conditioning units are there in the property?
  • Are the units under single control?
  • What is the rated output of each system?
  • If inspections are required, when was the air conditioning system last inspected by an accredited engineer?

See DCLG’s guide to air conditioning inspections for buildings for more information.

Asbestos

The dutyholder who is responsible in main for the upkeep of a commercial property is also responsible for asbestos management, including implementing an asbestos management plan.

According to HSE, premises built before 2000 are very likely to contain asbestos and should always be presumed to unless “strong evidence” suggests otherwise.

Premises built after 2000 are far less likely to contain asbestos; however, they may adjoin other structures or existing basements or cellars that are older and might not be asbestos-free. Be sure to look out for this during your viewing.

  • When was the property built?
  • Are there any adjoining structures or existing basements, and if so, when were they built?
  • Has an asbestos survey been conducted on the property before? If so, when?

Protecting maintenance workers and occupants from asbestos is a legal requirement. If it is not fulfilled, the dutyholder could face a fine and even a prison sentence. The duties for asbestos management are outlined in regulation 4 of the Control of Asbestos Regulations 2012.

If you will be the dutyholder of the property, you may also wish to consult HSE’s Approved Code of Practice and guidance for managing and working with asbestos for more information.

Electrical safety and gas appliances, fittings and flues

Section 46(1) of the Consumer Protection Act 1987 arguably imposes a duty of care upon commercial landlords, as suppliers of a product under a tenancy agreement, to ensure the good repair and safety of electrical equipment included with the property.

Sections 2, 3 and 4 of the Health and Safety at Work etc. Act 1974 also create statutory obligations for landlords to:

  1. Provide a workplace that is safe and without risk to health (which is relevant if you engage the services of tradesmen and other individuals who will undertake work on your premises);
  2. Ensure as far as possible that people who may be affected by your business (such as tenants and visitors) are not exposed to health and safety risks; and
  3. Ensure the safety of people using non-domestic premises of which the landlord is in control (including communal areas of multi-let buildings)

This includes electrical and gas safety, and in some cases these implied duties could override lease terms or even create overlapping obligations shared by both landlord and tenant. For the avoidance of doubt, you might consider conducting electrical and gas safety checks before you let your premises, and outlining to your prospective tenant exactly what their own duty of care will be during the lease.

  • Has a risk assessment been conducted on the property and were there any significant findings?
  • When was the electrical equipment in the property last subject to an electrical safety check?
  • May I see a copy of the installation certificates?
  • Is there anything I or my tenants should know with regards to duty of care for the wiring?
  • When was the property last subject to a gas safety check by a Gas Safe certified engineer?
  • May I see copies of the CP12 certificates for each gas appliance?

The Health and Safety Executive (HSE) website contains more information on both gas and electrical safety.

Energy performance

A property’s energy performance can affect how attractive it is to potential tenants. It will also affect the bills you pay during void periods and, should you include bills in the rent you charge, periods when the premises are occupied by a tenant.

In addition, you will need to make an energy performance certificate available to any prospective tenants if you are renting or selling your commercial premises, and display it inside the premises under certain conditions.

Most importantly, section 43(1) of the Energy Act 2011 will come into force on April 1 2018, making it illegal to let any commercial or residential property with an EPC rating of F or G.

  • When was an energy performance EPC last obtained for the property?
  • May I see a copy of the current EPC?
  • Have you received estimations for any of the recommendations for improvement outlined in the EPC?

See www.gov.uk for more information on EPCs in commercial properties.

Fire safety

The Regulatory Reform (Fire Safety) Order 2005 places a statutory obligation for ensuring fire safety upon either the owner of a commercial premises or whomever has control over the premises in connection with a business, trade or other undertaking.

This means that the responsibility for fire safety will often be shared by the landlord and tenants of a commercial building, with the former being in charge of common areas and shared fire safety equipment such as building-wide fire alarm systems.

As with all health and safety matters, an exhaustive lease agreement is the easiest way to delineate responsibility, and it can be useful to ascertain as best as possible whether any specific issues may need to be addressed prior to purchase.

  • When was the last fire risk assessment undertaken?
  • May I see a copy of the fire risk assessment?
  • Where are the escape routes to places of safety?
  • Are fire alarms installed on every floor, and are they controlled centrally or on separate systems?
  • Does the structure include fire-resistant doors and walls, and if so, where are they situated?

Heating

The energy performance of a building can be significantly impacted by the efficiency of its heating and hot water systems. This can affect how attractive it is to potential tenants and how expensive it is to run during voids or other periods when the landlord is responsible for bills.

  • Is the heating system more than 15 years old and is its capacity in excess of 20 kilowatts?
  • When was the system last assessed by a heating engineer?
  • Have any improvement works such as added insulation, renewable energy supplies, sequencing and zone controls or thermostats been considered, and if so, what quotes have been provided for performing the work?

In addition, regulation 3 of the Heat Network (Metering and Billing) Regulations 2014 imposes an obligation upon heat suppliers (in this case, landlords) to notify the National Measurement and Regulation Office (NMRO) about any relevant heating systems that they operate.

  • Is there a communal heating system that services two or more separate parts of the premises?
  • Where are the individual heating systems located?
  • Which buildings or areas do they service?
  • Are heat meters installed on the premises and, if not, has it been assessed whether doing so would be cost-effective?
  • Has the cost of localising heating systems been assessed where applicable?
  • Was NMRO informed of all of the information required under regulation 3 of the 2014 Regulations by 30 April 2015?

More information on how to comply with the new regulations can be found on www.gov.uk.

Water supply

The Private Water Supplies Regulations 2009 requires local authorities to carry out risk assessments on private water supplies (those not provided by statutory suppliers) and private distribution networks. In the case of a multi-let building that is serviced by a single supply or network, the landlord is likely to be responsible and have a duty of care for everyone who will use the water; likewise with communal areas of multi-let properties.

  • Is the building supplied by a private water supply or a private distribution network?
  • How many separate supplies service the building?
  • When did the local authority last conduct a risk assessment on the water supply, if applicable?

General property features should also be considered

‘Clean shell’ condition

Certain business tenants, such as those in the hospitality and retail industries, may prefer a ‘clean shell finish’ in order to be able to fit out the premises as they require. This can widen a property’s appeal but can also make it prohibitively expensive for some prospective occupants, so it is important to find a balance.

  • Are utilities such as electricity, gas and water capped off but ready to be connected?
  • Does flooring need to be installed or walls plastered?

Planning permission

  • Has the appropriate planning permission been requested and granted for the intended use of the property?
  • Are there any potential restrictions on the ability of the occupant or occupants to run their business, such as limitations on noise emissions?
  • Does the premises comply with all current requirements relating to access to and use of buildings?

Previous occupation

  • Is the building currently, or has it previously been, occupied?
  • If so, does the previous owner intend to remove any of the chattels, fittings and fixtures that currently remain in the property?

Security

  • Is there perimeter fencing?
  • Do all external doors have locks?
  • Are all external windows double-glazed and lockable?
  • Are there security lights?
  • Is there a security alarm system?

Next steps after viewing your property

If you have conducted your property viewing and are ready to move forward with a purchase, get in touch with our advisors using the number above or apply now for a commercial mortgage.

This information should not be interpreted as financial advice. Commercial mortgage rates are subject to change. Speak to our advisors for a mortgage illustration.

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