Before you commit: the money, the rules, and the kind of building
Deposit & debt
Commercial lenders typically advance 60–75% LTV, priced off Bank Rate or SONIA plus a 2.0–5.5% margin. Expect interest cover ratio (ICR) stress-testing at 125–150% and arrangement fees of 1–2%. Loans are often 15–25 year amortising, with refinancing risk at each fixed-term expiry.
Title, planning and use class
Verify the planning use class: Class E now covers most retail, office and light commercial uses, but sui generis uses (e.g. pubs, takeaways) need consent to change. Check title for restrictive covenants, rights of way and any overage clauses from prior sales.
Lease due diligence
Read the actual lease, not the summary: repair obligations, rent review mechanism and dates, break clauses (tenant or landlord), alienation provisions, and whether the lease sits inside or outside the Landlord & Tenant Act 1954 — inside gives the tenant statutory renewal rights.
EPC and MEES compliance
Commercial lettings require a minimum EPC rating of E under MEES regulations, and government has consulted on tightening this. An older building below the threshold cannot lawfully be let without upgrade capex — price this into your offer, not after completion.
Voids, rates and holding costs
When a unit sits empty, the costs invert: the landlord pays business rates (after a 3-month relief for most property types), insurance, security and service charge shortfalls. Model realistic void periods — 6–18 months is common for secondary stock — and a 10–15% ERV incentive package (rent-free periods) to secure a new tenant.
Dilapidations and condition
Commission a building survey and review the tenant's repairing liability. At lease end, a schedule of dilapidations can recover reinstatement costs from the outgoing tenant — but only if the lease supports it. Factor deferred maintenance into secondary and tertiary stock pricing.
Retail
7.4%Higher headline yield, sharper void risk. Rewards footfall data and short lease flexibility.
Office
6.1%Grade A stock holds value; older stock faces EPC upgrade capex before it can be let.
Hospitality
8.2%Operationally intensive and cyclical, but long leases with turnover rents can outpace inflation.