Commercial property purchasers increase risk by neglecting searches

David Lucas, partner in the commercial property department at Shropshire law firm FBC Manby Bowdler LLP, says that in an attempt to keep costs down some purchasers of commercial property are deciding not to carry out searches for mineshafts, contamination and chancel liability; omissions which could cost them dear when they come to sell on.

“Tempted by the prospect of lower prices for commercial property, it is no wonder that investor developers want to keep purchase costs down, but not paying for searches is a false economy,” says Mr Lucas, who is based in FCB Manby Bowdler’s Shrewsbury office.

“Finding a mineshaft or any sort of contamination on land can seriously devalue it, to take into account the remediation costs. However, if a new owner is unaware of any problems at the time of purchase, they can effectively overpay for a property, as they become liable for any future remediation, and face a massive reduction in value when they come to sell it on and a prospective purchaser discovers the problem.

“Simple desk searches should make prospective purchasers aware of any potential problems, which can then be explored further. In many cases inexpensive insurance policies can be taken out to guard against any future claims. However, all of this costs money and time.

“When lenders are involved they will insist that standard searches are carried out, but with banks much less interested in lending on commercial property, many of the purchasers we see are now using only their own money and taking an increased risk.

“Just because a problem with a piece of land or property has lain undiscovered for many years does not mean that it won’t come to light. Purchasers who fail to spend an initial six to seven hundred pounds on key searches are taking a great risk on future profits,” concludes Mr Lucas.