Property
Part 4 - setting up a business in the UK
How property is owned in the UK
Property in England and Wales is usually either:
Freehold property is the absolute property of its owner, subject to any financial charges and title covenants which may affect how the property is used or may give third parties rights over it.
Leasehold property is held on a lease granted by the freeholder, or a superior landlord who is itself a tenant. The lease is for a period of years and is generally subject to the payment of rent and to the performance of obligations or covenants contained in the lease.
Note: the position in Scotland is different and is not covered in this guide. The UK government are also looking at making Commonhold (a relatively new form of ownership) the de facto ownership method in the future.
How planning controls work
Planning permission must be obtained from the relevant Local Authority before:
- Changing the use of a property (subject to some exceptions)
- Any erection, substantive alteration, extension or development works
- Erecting any sign
Other planning controls can apply if development is proposed within a conservation area and/or if listed buildings are affected. Planning applications and planning decisions are public documents. This means that it is important to consider competition from other operators if you submit an application before contracts are exchanged. Our team of experienced planning consultants can give you advice on the full range of planning queries.
Other controls
The development and use of buildings are governed by other statutory controls which regulate the quality and form of construction. Comprehensive building regulations regulate all aspects of the detailed design and construction of a building, including its internal arrangement.
Property fees, taxes and charges
The buyer of a property has to pay the following: Stamp Duty Land Tax (SDLT) on commercial property. Rates are payable on the proportion of a property price which falls within each band.
SDLT on commercial freehold property:
| Property or lease premium or transfer value | SDLT rate |
|
Up to £150,000 |
Zero |
|
The next £100,000 (the portion from £150,001 to £250,000) |
2% |
|
The remaining amount (the portion above £250,000) |
5% |
SDLT on leasehold property works differently. Here, the net present value (NPV) is based on the total rent over the term of the lease. SDLT is not payable on the rent if the NPV is less than £150,000:
| Net present value of rent | SDLT rate |
|
£0 to £150,000 |
Zero |
|
The portion from £150,001 to £5,000,000 |
1% |
|
The portion above £5,000,000 |
2% |
If a property is elected for VAT purposes, SDLT will be payable on top of any VAT charged. Note: There are different rates for the purchase of residential property.
After completion of a transaction, completion documents will generally have to be registered at the Land Registry.
A fee is payable to the Land Registry for doing this.
Business rates are payable by occupiers of most non-domestic properties. The tax is set by the government and business rates are collected by local authorities who use the rates to fund the cost of local services.
Business rates are worked out based on a property’s ‘rateable value’. A UK surveyor will be able to advise on rates.
Depending on the use, proposed use or development of a property there are a number of steps that you should consider. These include:
- A structural survey
- Searches - depending on the locality of the property
- An environmental survey
- A valuation report
- Any lender’s requirements
On exchange of contracts a deposit (usually 10% of the purchase price) will be payable. The balance of the purchase price is typically payable on completion.
The liabilities of tenants depend on what is negotiated between landlords and tenants. It will also depend on whether tenants take a lease of the exterior or the interior of the premises.
Generally speaking, occupational tenants will be responsible for the following costs:
- Rent - if the term of a lease is for more than 5 years the rent is likely to be reviewed at the end of the 5th year on an ‘upwards only’ basis to open market rent. Sometimes it is reviewed annually in line with inflation (the Retail Prices Index)
- Repair - tenants will be responsible for the full repair of the premises. It is important for tenants to carry out a survey before taking premises
- Insurance - it is usual for landlords to insure the building/centre and recover all/a proportion of the costs from tenants.
- Service charge (if the property is part of a building, centre, parade or retail park) - it is important to negotiate basic exclusions from the service charge and if possible negotiate a cap on the service charge at the outset
- Outgoings - tenants are responsible for utility costs (electricity, water etc.) and other outgoings
Landlord’s consent will be required for:
- A structural survey
- Alterations
- Signage
- Disposals, whether by selling the lease or granting a sublease
- Any change of use from the use permitted by the lease
On disposal (by way of selling a lease) the tenant is usually require to guarantee the new tenant’s obligations under the lease (subject to certain release provisions).
A tenant acquiring an existing lease is unlikely to have the opportunity to renegotiate the terms of the lease and will need to accept the terms of the existing lease. Landlord’s consent will be required for the transfer of the lease. The lease usually specifies grounds on which the Landlord may refuse consent to the transfer of the lease.
Underleases often take longer to negotiate. This is because the consent of the Head Landlord will be required to the subletting and to the form of underlease.
Tenants of business premises may have the right to renewal of the lease at the end of the term (subject to exclusion of this right by the parties).
Landlords want to ensure that tenants are of sufficient financial standing to pay the rent and associated payments. They also need to ensure that tenants can comply with their obligations under the lease.
If tenants are of insufficient financial standing landlords may request security, usually in the form of:
- A bank guarantee (or letter of credit for overseas companies)
- A parent company guarantee/guarantee from another substantial company
- Payment of a rent deposit (usually an amount equivalent to 3/6 months rent)
Any release provisions should be agreed at the outset between landlord and tenant.
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Partner & Head of Intellectual Property
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