In the current climate, the property market (both commercial and residential) appears to be heading into territory not seen since the financial crash in 2008, with transactions becoming abortive or falling into abeyance until there is more certainty in the market.
If you are a business owner, however large or small, you may be looking to raise finance from your bank in order to support your business through this challenging period and it is likely that your bank (or any other lender) will ask that they take a first or second legal charge over any commercial property that you, your business or pension scheme owns.
There are several options available when looking to buy or sell commercial property and raising finance, which we set out below:
- Taking a loan from your bank. You may be considering obtaining a loan from your bank to assist you in the current circumstances. When obtaining such a loan, your bank will take what is known as a first or second charge over your property to secure the debt. As you may or may not know, the Government has issued advice stating that banks should not ask for personal guarantees from business owners and directors of companies or ask that private residential properties act as collateral security for any loan granted below the value of £250,000 in the current circumstances. However, the Government has not put any cap on the interest rates that a bank may charge its customers nor has it restricted the banks from being attaching onerous early repayment charges to loans granted in this period.In the first instance, we would suggest that you contact your Relationship Manager to discuss your requirements and what product they can make available.
- Pension Scheme. It may be the case that you have a SSAS or SIPP pension scheme that has sufficient funds or is in a position to borrow from a bank to allow it to purchase any property from which your business operates. This may be appealing where you or your limited company already owns your business premises as your pension scheme could purchase your business premises and lease it back to your business. Whilst this would create an ongoing liability for the length of any lease, it would provide your business with a cash injection without obtaining bank funding. As your pension scheme would be controlled by you, you would have the ability to renew the lease at the end of its term and ensuring that your business has a premises from which to operate.You should check with your scheme administrator to confirm what the scheme’s requirements are and if such a transaction would be possible but such schemes are usually prevented by HMRC from including residential property such as a buy to let residential property.
- Leases with option to purchase or a right of pre-emption. If you are looking to grant a lease to a prospective tenant, they may not want to commit to a significant outlay but they may want the flexibility to buy the property in the future – being an option to purchase – or to have the right of first refusal if you look to sell the property in future – being a right of pre-emption. This would provide you with a means to generate income from an otherwise vacant property or parcel of land. However, this would mean that if you wanted to sell your property or land you would do so subject to the option to purchase or right of pre-emption in favour of your tenant, which may deter a buyer.
- Auctions. It may be the case that the commercial property market begins to gather pace again after the Covid-19 pandemic but initially it may not be as buoyant as it once was. You may therefore want to consider listing your commercial property in an auction. Several auction houses have held auctions towards the end of March and are due to hold auctions again in May and in later months throughout the year. These auctions may be held on an online only basis for the foreseeable future but demand has been strong particularly for good quality properties where there is a sitting tenant who has a long term lease.
At Bromleys we have the expertise and knowledge to assist you with all manner of commercial property related transactions and matters and we want to assist any client, whether it be an existing client or a new client, as best as we can during the current difficulties and beyond.
Call our dedicated Corporate and Commercial helpline on 0161 694 4143 for assistance.