Quick take: Commercial property auctions promise high yields—often 10% or more—but the legal and tax risks are far greater than residential deals. A cheap shop or office block can turn into a liability the moment you sign, especially if you miss key details in the legal pack. Relying on the auctioneer’s “Key Particulars” is risky; only a thorough legal review reveals the true financial and conveyancing risks.

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Commercial Auction Pitfalls and How to Spot Them

Imagine you win a high street shop at auction, expecting steady rent and capital growth. The reality? Commercial investments come with complex tax structures, hidden repair obligations, and liability traps that can wipe out your yield.

1. The VAT Shock

Unlike residential property, commercial units can be “Opted to Tax.” If the seller has made this election, 20% VAT is added to the hammer price. Bid £200,000 and you owe £240,000 on completion. Worse, Stamp Duty Land Tax (SDLT) is calculated on the VAT-inclusive price, so you pay tax on the tax. Unless you’re VAT registered and know how to reclaim it, this can devastate your cash flow and kill the deal.

Nuance: VAT status is often buried in the Special Conditions. If you don’t check, you could be blindsided at completion.

2. FRI vs. IRI Leases

A “Full Repairing and Insuring” (FRI) lease means the tenant covers all repairs and insurance. You just collect rent. But many auction properties have “Internal Repairing Only” (IRI) leases, where the tenant only maintains the interior. The landlord is responsible for the structure, roof, and external walls. If the building is old, you could face a £50,000 repair bill for a property generating just £10,000 a year in rent. Lease type is hidden in the tenancy schedule—miss it, and your liability skyrockets.

Caveat: Even FRI leases can be “ineffective” if the tenant is a shell company with no assets. Always check for personal guarantees or rent deposits.

3. Dilapidations and “Effective” FRI

If the tenant is a limited company with no assets, their repair obligations may be worthless. Check tenancy documents for guarantees and deposits. If you buy a vacant unit, you’re liable for empty business rates—thousands per year with no income to offset them.

Completeness: Commercial property law is full of dependencies. Lease terms, VAT status, and EPC ratings all interact to affect your liability and yield.

How Unwildered Protects Your Yield

Unwildered’s AI lets you quickly audit the commercial viability of a deal before you bid, using our 30+ point check:

• VAT Check: We scan Special Conditions for “Option to Tax,” so you know the real purchase price.

• Lease Analysis: We classify lease terms (FRI vs IRI), highlight break clauses, rent review dates, and alienation provisions (subletting freedom).

• EPC Standards: We check the Energy Performance Certificate rating. You cannot legally let a commercial property rated ‘F’ or ‘G’. If the EPC is low, Unwildered flags the immediate capex risk.

Unwildered is not a substitute for solicitors. Commercial conveyancing is complex, and you should always engage a professional. Our tool helps you filter out bad deals first, saving time and money.

FAQ

Can I avoid paying VAT on commercial property?
Sometimes. If you’re buying a property with a tenant in situ, and both you and the seller are VAT registered, the deal may qualify as a “Transfer of a Going Concern” (TOGC), which is outside the scope of VAT. This requires specific legal wording in the contract, which Unwildered can help you look for.

What are “Empty Business Rates”?
Commercial property attracts Business Rates. If the property is empty, the owner pays them after a 3-month exemption (6 months for industrial). This is a holding cost you must factor in for vacant auction lots.

What about ChatGPT?
ChatGPT struggles with the interlinked nature of UK commercial property law—like how an Option to Tax affects SDLT calculations. Unwildered is designed to handle these dependencies, offering a coherent commercial risk assessment that generic AI models cannot provide.

Where are property auctions listed?

They are listed on several property auction websites. You can find a list to those property websites here.

How do I check if the lease is truly FRI?
Review the tenancy schedule and lease documents for repair obligations, guarantees, and deposits. Unwildered’s report will flag any weaknesses, so you know if the lease is “effective” or just a liability.

Disclaimer: This article is general information, not financial, tax, or legal advice.