The "Bargain" Trap

The “Bargain” Trap: Keeping your eyes open to the costs of commercial property

If you are a residential landlord in Scotland, you’ve likely felt the squeeze recently. Between the 8% flat rate Additional Dwelling Supplement (ADS) – which applies to the total purchase price of any additional residential property over £40,000 – and the restrictive rent caps on residential tenancies, many are looking at commercial property as a potentially lucrative alternative.

It is easy to see why. In many Scottish town centres, you can find small offices or shops for as little as £60,000. On paper, the rent looks lucrative. However, a “cheap” commercial unit can also expose the owner to a number of hidden costs:-

1. The Energy Overhaul:

The Energy Performance of Buildings (Scotland) Regulations 2025 go live on October 31, 2026.

• Validity: The new regulations cut EPC validity from 10 years to 5 years. This doubles the administrative burden and the frequency of compliance expenditure for commercial landlords.
• Assessment Criteria: The metrics are changing as the new EPCs will provide three distinct ratings: Energy Performance, Energy Use, and Direct Emissions. A property with an old ‘E’ rating could soon be downgraded to an ‘F’ or ‘G’ under the stricter 2026 methodology.
• Detailed Recommendations: the old system EPC “Recommendations Report” is replaced by a much more robust “Property Report” that includes estimated costs for improvements. A unit might come with a Property Report mandated by the new regulations that stipulates £50,000 of HVAC and insulation upgrades to move from a G to a C rating.
• Devaluation via Tenancy: Whilst there is no minimum mandated energy rating for commercial property currently (meaning a commercial property with a poor EPC rating can be legally rented), institutional tenants (banks, government, etc.) often have internal ESG policies preventing them from leasing buildings below a certain rating. A cheap building with a poor “Direct Emissions” rating may be less attractive to high-quality tenants.
• The residential safety net: The Regulations suggest that all residential properties subject to a private residential tenancy should have a minimum EPC rating of C by May 2028. However, current proposals suggest a £10,000 cap on what a residential landlord must spend on energy upgrades. Whilst there is no minimum standard currently imposed on commercial buildings, there is no legislative cost cap for commercial properties. If a building requires more than £10,000.00 worth of work to be “lettable”, that is entirely the owner’s burden.

2. Action Plan:

If the property is a larger unit (over 1,000 m²), the EPC is only half the story. Section 63 of the Climate Change (Scotland) Act 2009 (and the 2016 Regulations) will come into play. Unlike a standard EPC, which is just a snapshot of the current position, Section 63 forces an owner to take further steps to improve energy efficiency.

• The Action Plan: You cannot simply file a low energy rating and walk away. A sale or a new lease triggers the requirement for an “Action Plan.” This is a legal commitment to physical energy upgrades – such as boiler replacements or lighting overhauls – which must be generally completed within 3.5 years.
• The Deferral option: The only way to avoid these physical works is to file a Display Energy Certificate (DEC) every single year. However, this will incur annual assessor costs and the public disclosure of exactly how much energy your building is using. In a market increasingly focused on “green” credentials, a DEC can be a red flag that drives down your asset value.

3. Business Rates: The “Empty Property” Trap:

In Scotland, the days of indefinite empty property relief are gone.

Local Authority Autonomy: Since 2023, local councils have the power to set their own relief rates. Many have moved to a tapered system. Take Glasgow, who at the time of writing have the following system:

•       Months 1-3 – 100% rates relief
•       Months 4-15 – 10% rates relief
•       Months 16+ – no rates relief

The Maths: If you bought a cheap unit for £30,000, you may not realize that if it stays empty, you quickly become liable for business rates. For a high-rateable-value property in a declining high street, the annual rates bill can quickly exceed the purchase price.

4. Factoring & “Common Repairs”

In Scotland, the Tenement Management Scheme (TMS) or specific Title Deed provisions can be onerous for commercial units, particularly those that are part of a tenement.

• The Roof Liability: A ground-floor retail unit might only be 50sqm, but if the deeds say they pay a share of the roof based on floor area or a fixed percentage, a low value shop can potentially become with a £20,000 bill for a communal roof repair issued by a factor just weeks after entry.
• The Factor’s Float: Factors are increasingly demanding large “floats” or “sinking fund” contributions from new owners to cover potential defaults by other owners in the building.

Buying a commercial asset is not just a legal transaction; it’s the acquisition of a complex set of liabilities that requires a solicitor who understands your business.

You need an advisor who doesn’t just process the deeds, but actively hunts for potential pitfalls, from VAT implications to the ticking clock of a Section 63 Action Plan. 

The information and opinions contained in this blog are for information only.  They are not intended to constitute advice and should not be relied upon or considered as a replacement for advice.  Before acting on any information contained in this blog, please seek solicitor’s advice from Gilson Gray.