Selling commercial property: what should you watch out for as an owner?

If you want to sell a commercial property, you are selling more than bricks. A buyer looks at the tenant, the lease, the location and what the building earns each year. That makes the sale different from selling an ordinary home. In this article you will read what to watch out for as an owner, from valuation to certificates and the tax side. Looking for the buyer's perspective? Then read our article on buying commercial real estate in Belgium.

Who buys a commercial property, and why that sets your price

People usually buy a home to live in it themselves. A commercial property attracts a different audience. Broadly speaking, there are three types of buyers. The investor wants a stable rental income and thinks mainly in terms of yield. The retailer or self-employed business owner wants to run a business there and looks at location, footfall and visibility. The developer sees potential to convert the building, for example into flats above a smaller shop.

Each of these buyers values the same property differently. A let property with a solvent tenant and a long remaining term appeals to investors. A vacant unit on a strong shopping street is more likely to interest a retailer. A large building in a town centre where retail is declining is sometimes the best fit for a developer.

How is the value of a commercial property determined?

For a home, a valuer mainly compares with recent sales in the area. For a commercial property, income plays a big role. The investment method starts from the rent the property brings in, or could bring in, and converts it into a value based on the yield buyers expect for that kind of property. The higher the risk, the higher the expected yield and the lower the price.

What drives that risk is fairly concrete. Location weighs most: a unit on a busy shopping street lets more easily than one on a side street. Next come the tenant and the contract: how long does the lease still run, does the tenant pay on time and is the rent in line with the market? Finally, the condition of the building counts, as do the option to split the property or use it differently, and its zoning.

So have the value assessed by someone who knows commercial property in your region. A standard home valuation says little about a retail unit. For a mixed-use building, a free valuation can still give a first indication for the residential part. In addition, ask an estate agent with experience in commercial property for a well-founded valuation of the whole.

Selling with a tenant: what happens to the commercial lease?

Many commercial properties are sold while a business is operating in them. That is often an advantage, because an investor is buying exactly that rental income. The contract does deserve your attention before you put the property on the market.

A commercial lease falls under its own legal framework, which has been regulated per region since the state reform. As a rule of thumb, a registered lease in principle also binds the buyer. Whether and under which conditions a buyer can end the contract depends on the registration, the clauses in the contract and the rules of the region. Have the notary check this in advance, so you inform a buyer correctly. Also check whether the contract itself contains a right of first refusal or another arrangement for the tenant in the event of a sale.

Prepare an overview for prospective buyers with the rent, the indexations, the term, the rental deposit and any arrears. The clearer that file, the less room for uncertainty in the offer. You can read more about selling with a tenant in general in our article on selling a tenanted property.

The mixed-use building: shop downstairs, home upstairs

In many Flemish town centres, the commercial property is a mixed-use building: a shop on the ground floor and one or more homes above it. Legally and practically, you are then selling two kinds of real estate in one deed, and that has consequences.

The residential part follows the usual rules for selling a home, such as the inspection of the electrical installation and a residential EPC. The commercial part follows the rules for non-residential units. Also check whether the upper floor is permitted as a separate dwelling, and whether it has its own entrance.

A mixed-use building often appeals to a wider group of buyers: a retailer who wants to live upstairs, or an investor who sees two rental incomes. Explain clearly in the listing what is permitted and what is let, so every buyer quickly sees whether the property fits their plan.

Which certificates and documents do you need?

The list differs per region. For a commercial property in Flanders, it includes the following documents:

• a soil certificate from OVAM, especially important if there used to be an activity with a risk of soil pollution;
• an asbestos certificate for buildings from before 2001;
• an inspection certificate for the private drainage system;
• the planning information from the municipality, with the permitted use;
• a non-residential EPC for the commercial part, under the rules of the Flemish Energy and Climate Agency (VEKA);
• the post-intervention file if works were carried out after 2001;
• the lease and proof of registration, if the property is let.

In Brussels and Wallonia the rules are different and certificates sometimes have another name. Ask the notary which documents your property needs. You will find a full overview for homes in which documents you need when selling. Start in good time: some certificates are requested from the municipality or an accredited expert, and that can take weeks.

Tax: who is the owner and which levy applies?

The tax consequences depend first on who owns the property. A private individual who sells a built property within five years of buying it can be taxed on the capital gain. After that period, a sale by a private individual is generally not taxed, unless the sale is seen as speculation or a professional activity. You can read more about that mechanism in our article on capital gains tax when selling.

If the property is part of your business assets as a self-employed person, or a company owns it, other rules apply. A capital gain is then taxed as professional income or as company profit. Sometimes a company does not sell the property itself, but the shares of the company that owns it. That changes both the tax consequences and the work for the buyer, who then also has to examine the company.

On the buyer's side, something else comes into play. When buying an existing commercial property, the buyer generally pays registration duties at the standard rate, not the reduced rate for an owner-occupied home. For a recent building, the sale can fall under VAT instead of registration duties. Whether that is the case depends on the age of the building and on who is selling. Have this checked in advance by your accountant or notary, or consult the FPS Finance.

Finally

You sell a commercial property to a buyer who runs the numbers. The better you map out the lease, permits, certificates and tax situation, the less reason that buyer has to lower their offer. Choose an estate agent who knows commercial property in your region and knows which buyers are active there. Through ImmoMakelaarVergelijker.be you can compare up to three BIV-accredited estate agents near you, free and without obligation. Ask each of them about their experience selling commercial property, and put their proposals side by side before you choose.