Commercial property includes retail and office space, industrial buildings, factories, and warehouses. Retaining competent professionals is essential when buying or selling commercial real estate, with additional considerations required that fall outside a standard residential conveyancing transaction. Our experienced lawyers can advise and guide you in all aspects of your commercial property transaction.
The contract
A written contract governs the sale and purchase of commercial property and is typically prepared by the vendor’s lawyer. It includes details of the property, the parties, and the purchase price, and conditions setting out the rights and responsibilities of the parties.
The contract should also include various disclosure documents and may contain a list of fixtures and fittings. Incidental agreements forming part of the transaction, such as a commercial or retail lease, must also be attached.
The parties must be correctly identified in the contract, and may be an individual, partnership, corporate entity, trust, or combination. The parties to the contract must be legally entitled to deal with the property and able to complete the transaction.
When purchasing commercial property, buyers may need to consult their accountant to ensure that the most appropriate purchasing entity (from a taxation and asset protection perspective) is used to enter the transaction. Adverse duty and other financial implications can arise if it is decided that a different entity should have purchased the property after binding contracts have been entered.
Due diligence
Unlike most residential property transactions, buyers of commercial property do not have statutory cooling-off rights, so all due diligence should be addressed before entering a binding contract.
Buyers should invest in appropriate advice and investigations to ensure the property is a good investment and has capacity for its present and any proposed future use. In addition to the property itself, considerations include potential rental income (if relevant), capital growth, stamp duty and depreciation matters.
The location and permitted use of a property play a key role in the viability of a commercial investment.
Additional investigations should be carried out to identify specific matters affecting the property that would not be obvious from the contract.
The present condition of the building and fixtures must also be considered, and allowance made for future maintenance. Issues can be flagged in building and pest reports carried out by reputable professionals. If the commercial premises forms part of a strata development, a strata report and strata by-laws are essential.
Due diligence for a vendor should start before the property is offered for sale. Understanding the market and the likely benefit of refurbishing the premises before it is listed is important. Advice from a financial professional regarding the taxation implications of the sale should also be considered.
Existing tenancies
Many commercial properties are sold with existing tenancies with the rights and obligations under the lease transferring from the vendor to the purchaser on completion. A purchaser will need to review the terms of the lease and take note of key dates such as rent reviews, options to renew and termination dates.
Purchasers should ask about the lessee’s record for timely lease payments and maintaining their obligations under the lease. These matters will impact on the value and viability of the commercial property as an investment.
Goods and Services Tax
The sale and purchase of certain types of property such as commercial premises may attract Goods and Services Tax (GST). GST may apply where a seller is registered or required to be registered for GST and is conducting an enterprise. There may be exemptions to the application of GST on a commercial property such as where the property is sold as a ‘going concern’, however the GST system is complex, and it is critical to discuss these matters with your lawyer or accounting professional.
If you need assistance, contact one of our lawyers at [email protected] or call 02 4297 6066 for expert legal advice.