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When you're buying commercial property for your business expansion or relocation, there’re strategies that you can use to secure the most favourable deal possible.
In this article, we discuss the tactics that can be employed to obtain the most outstanding value from your investment so that your purchase proves a great asset for many years to come.
Local market conditions and bargaining power
One of the keys to negotiation is focusing not only on the property but also on the local market conditions and the parties' respective bargaining positions.
Your local commercial property market experiences fluctuations, with periods of buoyancy and times of lesser activity. Similarly, the position of local commercial landlords varies, as they may enjoy strong demand and favourable circumstances during certain periods while experiencing reduced demand and less advantageous conditions during others.
The key here is to have knowledge of your local market. If you notice that local commercial agents are struggling to find buyers or that ‘to let’ or ‘for sale’ signs have been up for a long time, it may be a sign that landlords are feeling the squeeze from a combination of:
- Vacant units
- A shift in demand for unit type (e.g. reduction in demand for office space since the pandemic)
- Mortgage interest rate rises
- Rent defaults and arrears
- Ongoing maintenance requirements
- Rising energy costs
Owing to the above, the "distressed landlord" concept can manifest itself as much in commercial property as it can in residential.
The above factors create a vicious circle for commercial property owners, where the property shifts from being viewed by them as an asset towards being viewed as a liability.
This can provide a prime opportunity for a ready, willing and able purchaser to pounce and secure a great deal that may not have previously been available.
The owner may prefer a sale at a reduced price if they’ve little prospect of finding a good commercial tenant at a viable rent in the short to medium term.
The power of cash
Embracing the power of cash can truly boost your chances of landing a fantastic deal in the property market. Whether you’ve got the advantage of being a cash buyer or have a healthy deposit ready to go along with lending in place, it significantly strengthens your position.
In the world of real estate, cash holds the crown as the king of negotiation. It gives you an undeniable advantage, making you a formidable player who can confidently seize lucrative opportunities.
Property negotiation tips
To give yourself the optimum chance of securing a good deal, you need to know both the strengths and weaknesses and then use this as leverage to negotiate the value of a commercial property.
There’s little point in only looking at the upside for your business. Yes, the property may be in the ideal location or just what you were looking for in terms of size, appearance, etc.
However, the takeaway point is that you can get the right deal by focusing on the property's failings, not its strengths. These failings can form a vital backdrop to your negotiations by shaking the seller’s confidence in the attractiveness of their asset.
So, for example, if your survey shows adverse underlying issues, then make these known to the seller, as they’ll no doubt affect its value or desirability.
Likewise, if you’re looking at a retail unit, and the overall footfall is low, or its features are not naturally conducive to retailing, highlight this nonetheless, even though the proposition might still make sense for your particular business.
In other words, you’ll have to look to open market factors even where there’re specific circumstances as to why that property is right for you. Of course, this must all be done in a balanced, courteous and professional manner.
Also, taking expert professional advice on all aspects of the property buying process will give you a head start amongst other interested parties.
Seek expert legal advice
As you navigate the complexities of purchasing a commercial property, you must have the right support and guidance to make informed decisions.
Whether you’re managing a large portfolio or looking at a one-off deal, having the right legal support can help you understand your rights and obligations and guide you on the best course of action.
LawBite’s team of experienced lawyers can provide comprehensive legal assistance for all your commercial, corporate and employment matters. If you’re looking to purchase premises, a LawBite commercial property lawyer will be able to help you negotiate the terms of your purchase agreement and provide support with due diligence
About the author
Ashley Gurr is a commercial and contract lawyer at LawBite. Ashley has over 15 years of experience in private practice helping SMEs and in-house for an international consultancy group advising on commercial agreements and a multi-national utility giant in a contract strategy role.
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