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Commercial property can be bought and sold with vacant possession, but for investment purposes it is more likely to be subject to one or more existing leases. Since the lease provisions can critically affect the potential for income growth, a detailed appraisal is vital.
Whether property is bought for investment or occupation, planning restrictions, rights and covenants affecting the property should all be checked.
VAT may be payable on the purchase price and stamp duty is payable on the VAT-inclusive sum – tax on tax! In designated disadvantaged or “enterprise” areas, commercial property purchases are now exempt from stamp duty.
Sale contracts can be conditional on some event occurring within a specified time. Often the condition is the buyer obtaining planning permission to develop or change the use of the property. If the condition is satisfied, the seller and buyer are committed to proceeding. Options are more one sided: the buyer can decide whether or not it wants to buy, within the option period. For capital gains tax purposes in such cases, the disposal occurs when a conditional contract becomes unconditional, or when an option is exercised – so advance tax planning is important.
"Overage" or "clawback" agreements, by which sellers reserve the right to share in future increases in the value of a property (e.g. on the grant of planning permission), are becoming increasingly common.