What costs should I consider when buying a commercial leisure property?

Buying commercial leisure property can represent an excellent investment, with potentially high yields if you choose to let the property, and plenty of opportunities for revenue diversification as an owner-occupier. 

Leisure property pricing can also be favourable, particularly compared to other sectors such as office and general retail. Reliable tenants, long leases and healthy profit margins can all lead to strong returns and underline the sector’s investment potential.

If you are thinking about buying a leisure property, you need to consider the costs. Here we run through the upfront leisure property purchase costs and the hidden fees to help you make an informed investment decision. 

The leisure property purchase costs to consider

There are three broad categories of costs to consider when buying a leisure property. They include:

• Acquisition costs - such as the purchase price, stamp duty and conveyancing fees
• Set-up costs - including fit-out, regulatory upgrades and compliance
• Ongoing operating costs - like business rates, insurance and property maintenance

Carefully considering all these cost areas when buying a commercial leisure property is vital to the long-term success of your investment. 

The purchase price

The most obvious cost when buying a commercial leisure property is the upfront purchase price. This is based on the size, location and demand for the particular property type, as well as its past financial performance. 

The level of interest in the property, how long it has been on the market, and to a certain extent, your position as a buyer, will all determine the balance of power when it comes to negotiating a deal.  

Financing costs

A hidden cost of buying commercial leisure property is the fees and interest charges associated with financing the deal. If you can buy in ‘cash’ (without external financing), you will reduce your overall costs significantly, but that’s not a luxury most buyers have.

The majority of buyers require some form of external finance, most commonly a commercial mortgage, but some also raise capital from investors and other third-party funding sources. 

To secure a commercial mortgage, you will typically need to pay a deposit of at least 20% of the purchase price. The higher the deposit you pay, the lower the interest rate will typically be. There may also be mortgage arrangement and broker fees.

Stamp duty

After the purchase price, Stamp Duty Land Tax (SDLT) is likely to be the largest acquisition cost. You must pay commercial leisure property Stamp Duty at the following rates:

• 0% on property values up to £150,000
• 2% on property values between £150,001 and £250,000
• 5% on property value above £250,000

As an example, if you buy a commercial leisure property for £750,000, you will have an SDLT bill of £27,500.

Conveyancing fees

You’ll need to appoint a conveyancing solicitor with commercial property experience to manage the purchase on your behalf. They typically charge between 0.5% and 1% of the transaction fee for their services. That will include costs such as land registry fees and property searches. 

A survey

Although it’s not a legal requirement, when making such a substantial investment, it pays to do your due diligence. A vital part of that is conducting a building survey to uncover any hidden issues that may not be visible during a viewing. If the survey reveals any significant problems, you can then renegotiate the price or ask the seller to resolve the issues before completion. 

A survey provides crucial insights into the property's condition, particularly its structure and materials. It will also outline any repairs and refurbishments that may be required, along with their estimated costs. Some mortgage lenders will ask you to commission a survey before they approve a mortgage. 

You can expect to pay around £1,500 to £3,000+ for smaller and medium-sized commercial units. Larger leisure spaces can rise to £5,000 or more. Simpler condition surveys typically start at £1,000.

Buildings insurance

In most cases, you will need to have commercial buildings insurance in place when you exchange contracts, and that will contribute to your overall leisure property purchase costs. If you’re using a commercial mortgage, the lender will almost always require proof of adequate buildings insurance before releasing the funds. 

Buildings insurance protects the property from risks such as fire, flood, vandalism and storm damage. Annual premiums vary considerably depending on the property type and risk profile. However, as a very rough guide, you can expect to pay between 0.1% and 0.5% of the rebuild cost per year, rising higher for specialist or high-risk properties. 

Although you incur these costs after the purchase, it’s important to factor them into your budget from the outset. Most leisure properties require some level of refurbishment or conversion, depending on their condition and your intended use. Typical set-up costs may include:

• Fit-out, equipment and modification - The cost of fitting out and installing or upgrading equipment in leisure properties can be significant. You may also have to change the layout, install specialist ventilation and increase the structural support for heavy equipment (gyms, climbing walls, etc.).  
• Compliance and licensing - There may be hidden costs associated with buying leisure property, including health and safety and fire compliance, accessibility modifications, and energy efficiency improvements. You may also need special licences for children’s play areas, selling food and drink, broadcasting music publicly and providing certain facilities and services.
• Moving costs and final installations - To get your leisure business ready to operate, there may also be costs for things like signage, IT equipment, security systems, audio/visual equipment, gym equipment, office furniture and lockers.

Leisure property ongoing costs

There are also several ongoing costs to factor into your budget. That includes ongoing maintenance and repairs, energy costs (which can be significant for leisure properties), business rates and loan repayments. You may also ask a commercial property management team to manage the property on your behalf.

If you plan to let the property, it’s also important to consider the impact of vacancy periods and how you’ll cover the costs when the property is unoccupied. There are also additional expenses to factor in, such as advertising and tenant sourcing. 

If you are looking to buy a commercial leisure property or an established leisure business, we have a broad range of commercial properties and businesses for sale to suit your investment goals. 

Our commercial property agents can help you find an appropriate property and provide data-backed advice and practical transaction support to guide you throughout the process. Find out more about our leisure property services and get in touch to discuss your leisure property requirements with our team.