Commercial Mortgage Guide

Contrast between commercial & residential property sector current prospects

Whilst most current data indicates that, save for certain hotspots, the residential property market remains weak, with prices falling in many places, the prospects for commercial property, particularly in London, appear to be on the up.

According to W A Ellis, commercial property values may have increased by up to a whopping 20% (although we are somewhat circumspect about these figures) in May 2011. Apparently, several factors are contributing to this mini boom, including improved sentiment in the professional services sector and not least foreign investment due to sterling’s weakness.

Commercial property rebounding – or just Central London inflated ?

According to a report from highly respected property company Knight Frank, London’s West End is the most expensive place in the world to rent office space, with rent having shot up by a heady 31% in the last year. This now means that the average cost per square foot for West End office space is a whopping  £85.00.

The City of London, not surprisingly, is not much cheaper and also ranks in the top 10 most expensive commercial property zones worldwide, with an average square foot cost of some £55.00.

Let’s hope this is not yet another unrealistic bubble……

Commercial Property Services

Commercial property is an important component of any business.  It also forms a large part of a business’s expenditure, so it is important to get it right.  With the recent slump in the economy, it is a really good time for renting commercial property or renegotiating commercial lease terms.

What kind of services do commercial property lawyers provide ?

• Assistance with the sale, purchase and re-mortgaging of business premises‘ freehold
• Advice on assignments of leases (transfer of a lease to a third party
• Advice on short-term leases and licenses
• Sales and purchases of businesses, including both asset and share transactions
• Advice on lease renewals and extensions
• Advice on lease surrender (termination of a lease)
• Advice on landlord/tenant disputes Continue reading →

Before considering purchasing a commercial property it is vital to understand that there are some very biog differences between commercial mortgages and residential mortgages. Perhaps the most important factors to take into consideration are :-

Length of commercial mortgages

Most residential mortgages are typically repayable over a 25 year period whereas with commercial mortgages the repayment period is typically shorter at 10-20 years.

Amount of loan to value

Commonly, commercial mortgages require a higher level of doenpayment by the borrower, or put another way, a lower loan to value. It is not unusual for lenders on commercial mortgages to require between a 20-30% doenpayment by the borrower.

Differing paperwork requirements

Paperwork required for a commercial mortgage tends to be more comprehensive than for a residential mortgage. It can also include ancilary documents pertaining to any parts of a building being purchased which are already let, and may also include various company law documents if the borrower is a corporate entity.

Typical requirements may include :-

• Audited accounts

• Current performance indication

• Bank statements of the business over the period of the last six months

• A detailed business plan

Fees not necessarily associated with a residential mortgage application

May include :-

• Administration Charge
• Mortgage arrangement fee – can be between 0.5-1.5 per cent of  loan
• Lender’s solicitors fees – it is not as common for lenders on commercial mortgages to allow the same solicitors to advise both them and the borrower. the lender may insist on using it’s own solicitors, at the borrower’s cost
• Early Repayment Charges -  these can apply to residential mortgages but are particularly common ion commercial mortgages and the implications should be carefully considered.
• Full Structural Survey fee – with residential mortgages the requirement is typically for the borower to pay a valuation fee only, which is considerably cheaper than a full structural survey cost.

In summary, it is always important to take specialist commercial property legal advice before incurring the fees detailed above, some of which are payable on a non-refundable basis at an early stage of a transaction.

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