We all know that things are pretty bleak at the moment, but like all markets, there is always a bull market somewhere. Whilst the residential property market, save for niches in certain areas, has been in the doldrums with little movement, the commercial property market has bend doing reasonably well in the recovery, until now.

The macro economic conditions have of course taken a very significant turn for the worse in the last few months and consequently it now looks like we could have a second credit crunch.

Put simply, when it’s not safe to lend money to some of the biggest economies in the world, you can’t relay blame banks for being unwilling to lend generally, even though the lack of lending itself then becomes a big part of the problem.

As evidence of the rapid change in circumstances, Société Générale is reported to have decided to  suspend new lending for European property indefinitely.  It is indicative of just how fast things have deteriorated that only a month ago this bank was planning to lead a bank consortium providing nearly 330 million euros of debt to a multi-asset portfolio in Germany.

The move comes as a major setback for the property industry following another setback where Commerzbank’s commercial property lending subsidiary will also suspend new business for the first half of 2012.

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.

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 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
• Advice on rent reviews
• Advice on issues regarding service charges
• Possession proceedings

Commercially focused advice for businesses

Commercial property solicitors pride themselves on providing their clients with commercially-focused, practical advice in dealing with a wide-range of business premises, including:

• Offices
• Shops
• Pubs
• Restaurants
• Cafés
• Factories and workshops

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.