An introduction to commercial property investment transactions

Commercial property investment is a cornerstone of the UK real estate market.  Whether you’re an investor, a landlord managing a portfolio, a pension scheme holding a property on behalf of your members or a lender securing your position, understanding how investment transactions work is essential.  

We have created a user-friendly, three-part introduction which will take you through the fundamentals of investment transactions and why legal due diligence forms the backbone of any successful transaction.

Who is this guide for?

• Investors: Looking for stable returns and capital growth
• Landlords: Managing existing assets and planning acquisitions
• Pension schemes and their members: Investing in tenanted property to create an income stream
• Lenders: Providing finance and securing their position through legal protections.

If you fall into any of these categories, understanding the process and risks will help you make an informed decision. This article forms part of our series on investment transactions:

• Part 1:  An introduction to commercial property investment transactions
• Part 2:  Navigating complex investment transactions
• Part 3:  Financing, tax, and sector-specific considerations.

What is a commercial property investment transaction?

In simple terms, an investment transaction involves buying, selling or transferring ownership of a tenanted property or portfolio. These transactions can range from single-site acquisitions to complex multi-let investments involving multiple tenants and income streams.  Each deal carries its own legal, financial and operational considerations, making a structured approach vital.

The importance of proper due diligence

Due diligence is the process of investigating a property before committing to purchase. It provides you with the information you need in order to make an informed decision, and rushing this stage can expose you to:

• Title defects: Overlooking restrictions or defects which may impact the value of your investment, and inhibit a future resale or remortgage
• Breaches of planning or environmental law:  Missing unauthorised works or breaches of planning use, which may expose you to enforcement action in the future
• Tenant issues: Arrears, disputes, or poorly drafted occupational leases, which may adversely impact value or ability to re-sell or take out a loan security.

A thorough review ensures you know exactly what you’re buying.

What are the key steps when considering an acquisition?

Every transaction follows a structured path with careful coordination:

• Heads of terms: Outline the essential terms of the deal before legal drafting begins
• Due diligence and reporting: Investigate title, occupational lease and tenancy information, planning, and compliance.  Your lawyers will collate this information into a report for you.
• Drafting legal documents: Your lawyers will negotiate and agree the contract, transfer and any other ancillary documentation (for example, security documentation, rent authority letters, deeds of variation)
• Exchange and completion: Exchange is your contractual commitment to purchase.  Completion is the formal transfer of ownership and funds.
• Post-completion: This comprises filing of Stamp Duty Land Tax returns at HMRC (where a lender is involved), the registration of a legal charge at Companies House, and registration of your purchase at HM Land Registry.  You will also need to notify your occupational tenants of the change in ownership.

What are the common legal structures in investment transactions?

Commercial property deals often use specific structures for tax efficiency and risk management:

• Special Purpose Vehicles (SPVs): A company created solely for holding the property, limiting liability
• Pension schemes: This is often a sensible structure to provide a more tax-efficient income
• Trusts: Used for estate planning or more complex ownership arrangements.

The choice depends on factors like tax planning, financing, and investor requirements.

Is property investment right for you?

Investing in commercial property can be complex. Understanding the fundamentals and why due diligence matters can save you time, money and stress.