Buying freehold commercial property as a sitting tenant: a specialist guide
Most writing on buying freehold commercial property assumes you are a stranger walking into an empty unit. Plenty of owners are not. They have traded from the same workshop, surgery or showroom for a decade, they have fitted it out at their own cost, and every quarter a rent cheque goes to a landlord who may be ready to sell. If that describes your business, you are in an unusual position: you already know the building better than any buyer could, you may be the most logical purchaser, and the price you agree will be shaped by the lease you hold today.
Business Mortgages Broker, a trading name of Lenzie Consulting Ltd (company number 08174104), arranges business mortgages for trading companies buying the premises they occupy. We are a broker, not a lender. Commercial lending to a limited company is unregulated and falls outside the FCA’s regulated mortgage perimeter. Where a deal would be regulated, for example lending to a sole trader or individual, or a property where the borrower or a close family member will live in part of it, we refer it to an appropriately authorised firm. This is finance for a trading business’s premises, not a residential mortgage.
In the companion episode, Georgina talks through what changes when the buyer is the tenant already sitting in the building.
Why would a sitting tenant buy the freehold of its own premises?
A freehold is outright ownership of the land and the building on it, with no term that runs out and no landlord above you. A lease, by contrast, is a time-limited right to occupy on terms the landlord set. When a business buys the freehold of the property it already rents, it swaps a rent obligation for a loan repayment and, over the term, ends up owning an asset instead of a stack of receipts.
The reasons we hear most often are practical rather than speculative:
- Rent reviews. An upward-only review every five years can move the occupancy cost faster than the business grows.
- Lease expiry. A lease with three or four years left is a weak base for a big fit-out or a long contract with a customer.
- Control. Alterations and signage become your decision, subject to planning.
- Service charges. On a multi-let estate the landlord recovers repairs and management through service charges; owning a standalone unit outright removes that line, though the repairs become yours.
The trade-off is cash: the deposit and costs come out of working capital. Our longer guide to buying commercial property for your business covers the rent-versus-own decision in depth; this article stays with the sitting-tenant route.
Freehold or long leasehold: what changes for a lender?
Lenders active in owner-occupier lending will take a freehold property or a leasehold property held on a long term as security, but they treat the two differently.
| Tenure | How a lender usually views it | What the solicitor checks |
|---|---|---|
| Freehold | Simplest security; the lender takes a first legal charge over the whole title | Title, boundaries, rights of way, restrictive covenants |
| Long leasehold (for example 125 or 999 years) | Close to freehold if the term left runs well beyond the loan | Ground rent, forfeiture clauses, alienation, the landlord’s consent to charge |
| Short occupational lease | Not mortgageable as security in its own right | Not applicable: this is the lease you are buying out |
A 999-year lease at a peppercorn ground rent is, in most lenders’ eyes, almost as good as a freehold. A long leasehold property with a rising ground rent, heavy service charges or a landlord’s right to forfeit on breach is weaker, and some lenders will cut the loan to value or decline. If the building you rent sits inside a larger leasehold title, the thing your landlord can sell you may itself be a lease rather than the freehold, so ask early what tenure is actually on offer.
Will the UK get rid of leasehold?
Recent reform has targeted residential leasehold homes. Commercial leases sit under a different regime, largely the Landlord and Tenant Act 1954 and the lease itself, and leasehold commercial property remains a normal way to hold business premises.
How do you approach your landlord and agree a price off-market?
Many sitting-tenant purchases never reach an agent’s window. The commercial tenant asks, or the landlord offers, and a private agreement follows. Commercial landlords selling to the occupier avoid a marketing period and a void, and they already know the buyer pays on time, which is worth something in the price. It also has a trap. Without a market test, both sides can anchor on a number that the lender’s valuer will not support.
Before you talk price, gather:
- A copy of your lease, any rent review memoranda and the current passing rent.
- Your own sense of comparable sales nearby. HM Land Registry publishes price-paid data for registered titles, which can show what similar buildings in the area have changed hands for, although commercial transactions are thinner than residential ones.
- A view from an independent RICS-registered valuer if the sum is material. The lender will instruct its own valuer anyway, but an early opinion stops you agreeing a price the finance cannot match.
Put the agreed figure into heads of terms, which are usually not legally binding, and make the purchase subject to finance and survey. The legally binding agreement comes at exchange of contracts.
How do you value a freehold commercial property?
Commercial property is usually valued on one of two bases. An investment valuation capitalises the rent: the income divided by the yield an investor would accept. A vacant possession valuation asks what the building is worth to an owner-occupier with no tenant in place. A landlord selling to its tenant tends to argue the investment figure; the lender’s valuer, because the lease will end when you buy, often leans towards vacant possession. The gap between the two is where most sitting-tenant negotiations happen.
Deposit, stamp duty and legal costs on a freehold purchase
The cash requirement is larger than the deposit alone. Lenders advance against the lower of price and valuation, and they do not lend the tax or the fees.
Illustrative example: a trading company buys the freehold of the unit it rents for £500,000. At 75% loan to value the loan is £375,000 and the deposit is £125,000. An arrangement fee of 1 to 2% on the loan adds £3,750 to £7,500. Then the tax:
| Where the building is | Tax and authority | Tax on £500,000 |
|---|---|---|
| England or Northern Ireland | Stamp Duty Land Tax, HMRC | £14,500 |
| Scotland | Land and Buildings Transaction Tax, Revenue Scotland | £13,500 |
| Wales | Land Transaction Tax, Welsh Revenue Authority | £12,750 |
Rates as at October 2026; check the current rates before you buy. The figures assume a non-residential purchase with no VAT and no linked transactions. Under HMRC’s non-residential bands the first £150,000 is at 0%, the next £100,000 at 2% (£2,000) and the remaining £250,000 at 5% (£12,500), which gives the £14,500. If VAT is charged on the price, the tax is worked out on the VAT-inclusive figure, so check the seller’s option to tax position early. Our guide to stamp duty on commercial property sets out all three regimes.
Add legal fees on both the purchase and the lender’s side, the lender’s valuation fee and any survey. Rates on the loan sit in the owner-occupier band of 6.0 to 7.5% a year, indicative, subject to status, accounts and valuation; lenders set that price as a margin over Bank Rate, which the Bank of England sets, or as a fixed rate for an agreed period. You can test repayments on our business mortgage calculator.
Is a commercial mortgage hard to get?
For a profitable trading company, not usually. Lenders check that the accounts cover the repayments with headroom, then look at the building and the directors. A sitting tenant starts ahead: the accounts already show years of rent paid for the same space.
How does the lease you hold today affect the price?
Your commercial lease is an asset for the landlord and a bargaining chip for you. Three features matter most.
- Time left to run. A lease with 12 years remaining and a strong tenant is a valuable income stream, and a landlord will price the freehold accordingly. A lease ending in 18 months, with you as the likely leaver, makes the building worth less to them.
- Security of tenure. If your lease sits inside the Landlord and Tenant Act 1954, you may have a right to renew on expiry. If it was contracted out, you do not, and the landlord knows it.
- Rent level. If you pay above market rent, the investment value is inflated; if below, it is depressed.
Illustrative example: a tenant pays £35,000 a year. Capitalised at a 7% yield, the investment value is £500,000. If the lender’s valuer puts the vacant possession value at £450,000, a 75% loan is £337,500, not £375,000, and the buyer needs £37,500 more cash or a lower price. Talking to us before heads of terms are signed lets that gap surface while there is still room to negotiate.
Look also for hidden costs in the lease itself. Dilapidations claims, outstanding service charges and repairing obligations usually fall away on purchase because the lease merges into the freehold, but your solicitor should confirm that the agreement deals with them explicitly.
Who should own the building: the trading company, the directors or a pension?
The entity that buys the freehold does not have to be the one that occupies it. There are three common structures:
- The trading company buys. The simplest route: the business owns its own premises and the loan sits on its balance sheet.
- The directors or a separate property company buy and lease it back to the trading company. This keeps the asset away from trading risk, but the lender will want a formal lease at a market rent between the two.
- A self-invested pension buys. A SSAS or SIPP can hold commercial property and lease it to the business. We introduce; we do not advise. Pension advice comes from a regulated pension adviser or scheme administrator, and our page on buying premises through a pension explains how the finance works around the scheme.
Each structure has tax, legal and accounting consequences that sit outside what we do. Take legal advice and speak to your accountant before choosing, because changing the owner later can trigger a second round of stamp duty.
Conveyancing, searches and the timeline to completion
Commercial conveyancing on a sitting-tenant purchase is lighter than on a cold purchase in one respect: you know the building’s quirks. It is just as heavy in every other. Expect your solicitor to work through this due diligence process:
- Title. The title register at HM Land Registry, plans, easements, covenants and any charges the landlord must clear.
- Searches. Local authority, drainage and water, environmental and, depending on location, mining or flood searches.
- Enquiries. The standard commercial property enquiries to the seller, covering any boundary dispute, planning, building regulations, asbestos and service charge history.
- Report on title. The lender’s solicitor needs a clean report before funds are released.
- Completion and registration. On completion the SDLT return goes to HMRC within 14 days (30 days for LBTT and LTT), the transfer is registered at HM Land Registry, and the lender’s legal charge is registered there and, for a company, at Companies House within 21 days.
Energy efficiency, safety and development potential
Three checks are easy to skip when you already occupy the building. First, the Energy Performance Certificate: the minimum energy efficiency standards apply to let commercial property, so if the freehold will be owned by the directors or a pension and leased to the trading company, the rating matters from day one, and some lenders ask about it regardless. Second, health and safety records, including the asbestos register and fire risk assessment, which become the owner’s responsibility. Third, any development or extension potential, which can add value to the property but only if planning and the title allow it.
From agreed terms to completion, many purchases take 8 to 16 weeks. A sitting-tenant deal can be quicker because there is no marketing period, but the legal process and the lender’s valuation set the pace, so we make no promise on timing.
Questions owners ask before buying the freehold
Is it worth buying the freehold on a 999-year lease?
Often not, at a nominal ground rent: lenders already treat that lease as near-freehold security, so buying the freehold mainly removes a landlord.
Are commercial properties cheaper than houses?
Not in any simple sense. Commercial property values depend on use, location, condition and income, so comparing them with a house is rarely useful. A “freehold business for sale” listing, such as a pub sold with its building, is a different product again: you buy the trade and the property together.
Can you buy freehold commercial property in London?
Yes. Buying freehold commercial property in London works on the same principles as anywhere else, and freehold titles exist across the capital, though many buildings in central areas are held on long leases from estates. The finance principles are the same; the tenure questions above matter more.
Talk to us. If your landlord has offered you the building, or you are thinking of asking, talk to us before you agree a number. Matt Lenzie has 25 years in financial services, raising debt and equity, with around £400m arranged, and we can show you how lenders active in owner-occupier lending are likely to read your accounts and the valuation. Start at Business Mortgages Broker.
All figures in this article are indicative and are not an offer of finance. Rates, loan to value and fees depend on status, accounts and valuation. We are not tax, legal or pension advisers; take independent advice on tax, structure and the legal terms of any purchase.