Buying business premises: What to look for in the survey
Finding out the condition of your prospective premises could be crucial
Surveys and valuations should not be confused. A survey investigates the physical conditions of a property while a valuation calculates its worth.
A valuation will take into consideration the physical condition because this has an impact on the market value. But it will rarely dig far below the surface. This requires a structural survey, which can cost anything from hundreds to thousands of pounds, depending on the age and condition of premises. But the up-front cost has to be set against repair and maintenance bills that could emerge later.
Commercial premises are no different to a home – or indeed a car: never commit to a large outlay unless you are sure about the condition. The difference with commercial premises is that they can cost far more to put right later on.
Leases normally demand that a building is maintained and repaired by the tenant. If they are not, it could lead to repossession. More likely, the landlord will demand that premises are brought back to their original condition at the end of the lease. That can be a major expense.
It is, therefore, important to check the condition of the property at the outset. Any faults can be used as a negotiating factor over rent and will also give some idea about potential future costs of repairs and maintenance. Many businesses take only part of a building, so the condition and service charges covering areas like roofs and stairs will be important.
A surveyor will produce a condition schedule. This is a vital piece of paper, as at the end of the lease the landlord will do his own inspection and produce a dilapidations schedule, which is a list of claims about what must be done to return the building to its original state. The exception is under licences, short leases and serviced premises, where the tenant is not responsible for repairs.
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Who does it?
It is crucial to use a qualified professional. Buildings are complex and faults often hard to find. A chartered surveyor, engineer or architect will also be controlled by a professional body and insured, so if problems emerge later there is a way to claim compensation.
Look for letters such as ARICS after the expert’s name, showing that they are members of the Royal Institution of Chartered Surveyors (RICS). Remember, however, that despite the name, not every surveyor is qualified in this area. Some specialise in leases while others, called building surveyors, are experts on structures.
What does it cover?
It is important to remember that structural surveys are not totally comprehensive. Electrics, air-conditioning, drains and potentially dangerous materials may all need checking by other experts. The survey should note this and point you in the right direction for further advice.
“Any faults can be used as a negotiating factor over rent and will also give some idea about potential future costs of repairs and maintenance. “
It may not come to this, however. A lease on an office in part of a relatively modern building would rarely require such extensive checking. An older workshop, on the other hand, may need a close look at areas such as foundations, contamination and drainage. Buying premises will also require more intensive study than leasing, where the landlord is likely to have investigated potential threats to his investment.
What gets done?
The surveyor will inspect the premises for settlement, damp or rot, but should also comment on things like roofs and drain pipes which may cost significant amounts to maintain or repair in the foreseeable future. You should get a maintenance schedule as well as a structural report to indicate future costs.
The detail of any report may vary between surveyors. Sound premises will obviously require less comment, and buying is likely to demand deeper investigation than leasing. It helps to brief a surveyor fully in advance so he knows what you want.
Basically, you should get an itemised report of the condition of important areas like the roof, a list of areas which are suspect and the potential costs of those that may need repairs or extensive maintenance. There should also be a list of areas not covered – such as the drains. If not, ask: the surveyor may have skipped something like the interior of the roof because he could not gain access through neighbouring premises. That may be overcome by asking the landlord.
What if something is missed?
This is where the letters after the name come in. Chartered surveyors, engineers and architects must carry indemnity insurance to cover them against negligence or incompetence. Remember, however, that it may involve long and drawn out legal action to prove this.
How much does is cost?
There are no set fees. These must be negotiated at the outset and can involve a lump sum or hourly fee. As an indicator, however, a residential survey can cost anything from £250 to £1,000, depending on the size.
Shop around – remembering to make sure the surveyor you choose is properly qualified. Recommendations from satisfied customers are useful, so don’t be afraid to ask for references.
One way of saving could be to negotiate a deal for the surveyor to look after the premises after inspection. Owners generally have their own property managers, although if the premises are big enough, leaseholders often find it worth employing a surveyor. Again, fees are negotiable, but with a maintenance schedule, it will be easier to estimate what these could be.