How does commercial conveyancing differ from residential conveyancing?

Before establishing the differences in processes, it is important to consider what residential and commercial conveyancing is.

Conveyancing is the legal process of transferring an interest in property or land from one party to another party. The pitfalls and peculiarities much of the associated legislation and practices means that, ordinarily, the parties to the transaction instruct legal professionals to deal with the process.

The conveyancers solicitors’ primary role in the process is to review the legal documentation to ensure that the legal obligations of each party is met when going through the transaction. They also review the title documents to the property to ensure the suitability of the property for a buyers’ needs.

What are the differences?

Before the differences, it is important to realise that there are far more similarities than differences. At the core of each process, there is:
  • Party A wishing to sell an interest in their property
  • Party B wishing to purchase that interest in the property on offer
  • An agreement on the terms of the transaction and relationship is reached
  • The legal formalities are commenced (the conveyancing process)
  • The suitability of the property for party B is ascertained
  • The interest in the property passes from party A to party B on completion

Commercial conveyancing

While there are a lot of similarities at the heart of each process, there are some key differences too.

Freehold/Leasehold distinction

Whilst there are a vast number of leasehold residential properties in the UK, the vast majority of residential properties are still freehold properties. In commercial conveyancing, the majority of conveyancing transactions involve a business moving into leasehold premises, pursuant to paying a rent to a landlord that owns the freehold of the property.

Extent of rights required

As a result of the above, it is often necessary to consider the rights required of a commercial tenant in more depth than those in a residential transaction; as the majority of rights (save for new build properties) have already been established through transactions of the freehold residential property over time.

These can include a number of rights, including but not limited to:
  • Rights to use a shared car park
  • Rights to use the stairwells and elevators in a shared commercial unit
  • Rights to use shared facilities
  • Rights to keys/keycodes
  • Rights to building’s utilities
  • Rights to end the lease
  • Rights to decorate and install further items
  • Rights to advertise

Bargaining power/position of the parties

In residential transactions, generally by the time a file is created here, the terms of the agreement between the parties have established:
  • The price has been agreed
  • The rough timescales have been considered
  • Occasionally a bit of negotiation occurs in the form of agreeing price reductions and allowances for some works that become apparent following a survey, but in the main this is then dealt with by the agents

Unlike residential transactions, in commercial conveyancing, the parties on either side far more to negotiating terms; it’s generally the nature of commercial businesses to do so.

Use class of the premises

In residential transactions, the position will generally be that the use of the building has long been established to be residential. In commercial premises, it is more common to have to consider whether the existing use class of the property is suitable for an ingoing occupier. The local authority may be required to grant permission for the building to be used for the running of a certain business (e.g. the premises was previously used as a restaurant, the use of class of the premises may need to be changed if the ingoing occupiers are planning on using the premises as a shop or as a post office)

Clients

The attachment of a commercial client to a transaction is generally financial; that is to say that the primary motivation in completing the transaction is financial.

In residential conveyancing, the process is generally the most important thing going on in each party’s lives at that time; therefore, the attachment to the transaction is more personal than financial.

The similarities and differences in each process is vaster and more interesting than can be explained in a short blog entry. However, this gives a short overview of primary considerations in each process.

 

Contributed by Thomas Keene, Solicitor, MJP Conveyancing

 

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