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How to avoid being gazumped on a commercial property purchase

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The issue of gazumping – being outbid on a property at the last minute – isn’t a phenomenon that’s confined to the residential property market.

Gazumping is legal in England and Wales (but not in Scotland) and if you are gazumped, while you can ask for a contribution towards the wasted costs, there is no legal basis for bringing a claim and the seller is under no legal obligation to pay anything.

As such, those looking to purchase a commercial property also need to be mindful of the risk of being gazumped by another interested party coming to the table late in the day. Too often, buyers of commercial property fail to mitigate the risks of being gazumped, usually through a lack of communication or organisation, or both.

Here are some top tips for to help those purchasing a commercial property to reduce the risk of being gazumped.

1. Get your funding in place early

Funding a commercial property purchase is something you should begin planning well in advance, usually as soon as the requirement to purchase a new property becomes apparent, but ideally before this. Good relationships with your existing funders and early conversations with your other professional advisers can really help here. By having a plan in place, you’ll be able to move quickly when the right commercial property comes on the market and avoid funding issues stalling the deal.

2. Make due diligence a priority

You should look to begin the due diligence on your commercial property purchase as early as possible. For example, legal searches on the property you are buying can take weeks to come back, so need to be submitted at the earliest opportunity to avoid slowing the process down. Likewise, figuring out the tax implications and how the property purchase is to be structured will be a key consideration. Again, this is where having strong relationships with your legal team and other advisers will come into its own.

3. Push for an exclusivity agreement

The seller may be open to the idea of entering into an exclusivity agreement where they agree not to deal with any other interested party for a defined period, such as four weeks or eight weeks. This can give you that bit of breathing space to get everything in place to allow you to complete the deal. Far from putting off the seller, a desire to enter into exclusivity agreement can encourage the seller that you are committed to finalising the deal as soon as possible.

4. Get into contract as early as possible

So often commercial property transactions hit the buffers because there is a lack of urgency to get contracts exchanged. When this happens, uncertainty grows, as does the timeframe for a rival bid. Such delays can also spook the seller into raising the asking price at the last moment, leaving you needing to find extra tens or hundreds of thousands of pounds to secure the property. Of course, rushed decisions need to be avoided, but too much hesitancy can kill a deal.

5. Keep open the lines of communication with the seller

Keeping the seller informed of your intentions is a great way to keep your commercial property transaction on track. This regular dialogue allows any potential issues to be ironed out with a quick phone conversation between your representatives and those of the seller, rather than through protracted correspondence, which can slow the process down and feed the gazumping risk.

To speak to someone from our commercial property team at Harrison Drury contact 01772 258321.


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