Commercial property plans and pitfalls
Sometimes all a great company needs to set them down the path of success is a prime location and a building that perfectly suits their needs. However, much like looking for your perfect home, sometimes what you want just doesn’t exist.
The next logical option is to simply find the perfect plot of commercial land and develop it yourself. Hey presto, your dream location and a made to order building is now a tangible reality! But, (and let’s face it there is always a but) what are the risks and considerations you need to be aware of?
Or are you just looking to build something to sell or rent and want to ensure every box is ticked?
Once you have found your perfect piece of land that fits your criteria, and conducted the relevant surveys. You will then need to develop a thorough construction project plan to keep things moving. The planning alone can be complicated enough, so don’t forget to take into account the risks involved in a commercial development.
Here are a few tips about potential pitfalls and things to look out for when developing commercial land:
General and construction risks
- Health and safety as well as environmental issues can result in fines if not handled properly. Ensure you provide training courses to workers on how to work safely and efficiently on site.
- Consider hiring an environmental health officer. They can educate workers and identify potential risks in the surrounding environment.
- Ensure you secure the proper environmental permits so you remain compliant.
- Look to get more than one opinion on the value of the land and the developed site. If you overpay for it or overestimate its value when developed, you could end up in financial difficulties.
- Give yourself a realistic timeframe for selling or letting if you are developing for profit reasons. You need to be able to afford the financial impact of waiting for a buyer or tenant.
- Allow a contingency fund for any unforeseen costs for building materials. Without a very stringent control over the budget, costs can escalate. This is especially true if, for example, the site sustains any damage from bad weather.
- If you are looking to sell or rent, do you have any potential interested parties? If an organisation is interested in renting the completed structure you may be able to pre-let the property. It could also give the tenants chance to help develop the space.
- Be sure to consider the cost of any additional construction involved such as roads or car parks. Or anything else that will be necessary to make the site viable for access and use.
- Delays in development time as with any building project means money lost. As well as contingency funds for materials, consider how long you can sustain a project for if delays occur. Delays could also spell trouble if investors consider pulling funding. The more your project manager can ensure time frames are stuck to, the better.
Property development insurance
When developing a property it is essential that you have the correct property development insurance. This forms a part of your risk management scheme and can include cover for:
- Construction risks
- Public liability
- Environmental liability
- Loss of income or rent
- Delay in completion
- Defective title
- Contract works
- Restrictive covenants
- JCT Clause 21.1.1 insurance
Although the above advice is not exhaustive, it forms a good basis to start with. Developing your own property can pay dividends, but proper planning and risk management is essential to keep you on track.
Source: Zywave: Construction Risk Insights – Commercial land development