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Commercial Property

What are property searches and why do you need them?

Monday, January 6, 2020

This is a good question that, oddly, clients probably don’t ask as often as they should. But it’s something that you really do need to understand when making an investment in property. And make no mistake; any dealing with property is an investment.

As with any significant financial investment, it usually pays to find out as much as you can about the commodity that you are investing in. Property is no different. In property matters, information is usually power, in this case, the power to act quickly in walking away from a bad deal or to renegotiate its terms; or at least to anticipate and prepare for its negative consequences.

Basically, property searches are part of the due diligence process that is usually carried out when you buy, lease or take a charge over property; similar to when you carry out a physical survey of the property, check out the title documents for a property, or raise enquiries with the seller or landlord.

You’ve got to carry out your due diligence before acquiring an interest in a property because the seller or landlord is only under a limited duty to provide you with very specific and limited information about the property. For example, the seller or landlord is not necessarily obliged to disclose to you physical defects in the property, hence the need for a structural survey. It’s exactly the same with legal matters, such as the authorised use of the property or any planning proposals which might affect the property. So, it’s often prudent to carry out as much due diligence as you reasonably can, including carrying out property searches.

The searches are actually carried out by third parties, not the property solicitor. The results are then provided to your property solicitor to review and report to you. Any decent property solicitor should advise you on the various relevant searches required and help you reach a decision on which to carry out based upon your specific needs, such as your budget, preferred level of risk and time available for the transaction.

There’s a typical suite of property searches that you can benefit from carrying out in almost every matter. These include a local property search, water & drainage search, and an environmental & flood search. Depending on the location of the property, your solicitor should also advise you on and carrying out additional searches that are often required in specific areas of the country. For example, throughout areas of the North East, it is essential to carry out a coal mining search, to establish whether the property may be affected by past, present or future mining activities.

The key factors that you really want to consider with searches are time and cost: Do you have the time to carry out the searches? And can you afford to not carry out the searches or wait for their results?

Some search results can be returned more or less instantly, such as water & drainage searches or flood searches. Other searches, such as local searches, can take anywhere between 10 and 20 working days, depending upon the local authority. Although you might not want this delay in the transaction, often there is plenty that you and your professional advisers can be getting on with in the meantime. For example, carrying out physical surveys and negotiating the terms of contracts, transfer documents and leases etc. So, provided you are given sufficient advice and your searches are ordered early enough on in a transaction, they shouldn’t prevent your matter from completing within the typical 4-8 weeks.

The cost of searches for a typical commercial property transaction will usually range from £300-500. This cost can seem relatively high but the results can, in the long run, often save you significantly more than this. Search results can reveal a wealth of information about the property and the surrounding area, including whether the property has the correct planning permissions for the current use, whether the property is likely to be subject to environmental contamination, or whether it may be susceptible to flooding. These results, along with other aspects of your due diligence, can greatly improve your understanding of the true value of the deal you have agreed with a seller or landlord.

Positive or clear search results can mean that you can proceed with peace of mind, knowing that you can rely on the advice of your solicitor, which will be covered by professional indemnity insurance, and the accuracy of the searches, which, if carried out through official search agencies, are usually guaranteed.

In some instances, negative search results will not affect the transaction too much, but at least you can proceed with all of the relevant information about the property and a greater awareness of any risks to your investment. On the other hand though, negative search results can reveal risks which are so high and costly that you might decide to withdraw from the transaction altogether, and potentially save yourself a small fortune further down the line. Then, of course, there is the situation where, as a result of the searches, you might realise that you have agreed to pay too much for the property and decide to renegotiate the terms of the deal.

All in all, carrying out the relevant property searches and obtaining the advice of an experienced property solicitor will provide you with the relevant information and the power that comes with it.

If you’re considering your next property and would appreciate an informal discussion about any aspect of the transaction, please do not hesitate to contact William Jarvis-Smith on 0191 255 0253 or by email williamjarvis-smith@samuelphillips.co.uk

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