Buying a commercial property (such as a warehouse, office building or retail space) can be tricky. Unlike transactions involving residential property, the selling and buying of commercial premises does not provide the same level of protection to buyers.
Buying a commercial property will usually require further investigations into the property and careful consideration of the transaction in its entirety.
At Tetlow Legal we can:
- Explain the terms of the contract in a straightforward manner;
- Ensure that the terms of the contract adequately reflect the agreement;
- Successfully negotiate amendments to the terms of the contract; and
- Provide tailored advice in relation to the property transaction.
As a guide to buyers who are looking to purchase a commercial property in the ACT or NSW, we’ve laid out a list of matters to consider when entering into these types of transactions.
The contract is typically prepared by the seller’s solicitor and will set out the terms and conditions of the sale. Essential terms will include:
- A description of the property;
- The purchase price;
- A list of any fixtures or fittings included in the sale; and
- The settlement date.
The contract will also include detailed special conditions that relate specifically to the property and the terms on which the seller is offering the property for sale. Tetlow Legal is experienced in the purchase and sale of commercial properties and can examine and explain these special conditions to you.
The sale of each commercial property is a unique transaction and general terms in the contract will usually be negotiated and varied by the parties.
In commercial sales, it is important to ensure that the contract correctly identifies the entity buying the property. There are a number of different entities that can purchase commercial property, including:
- Individuals in partnership;
- Trustees of discretionary trusts;
- Superannuation funds; or
- A combination of entities.
If you are thinking about buying a commercial property, prior to the purchase you should speak with both Tetlow Legal and your accountant about the buying entity that best suits your tax and/or asset protection needs.
If the sale is completed and you decide that someone else should own the property (for example, a trustee of a trust) then this could require a transfer of the property and payment of additional stamp duty and that transfer may also trigger capital gains tax.
Goods and Services Tax (GST)
The sale of commercial premises will often attract GST. Whether or not you are required to pay GST on the sale price of the property can make a significant difference to your cash flow.
GST is generally imposed where a seller is registered or required to be registered for GST and is conducting an “enterprise”. If you are the buyer and are registered for GST, you can claim a credit for the GST component in your next Business Activity Statement, however, you will need to pay the money upfront to the seller.
There are some exemptions to the application of GST. For example, a seller does not need to apply GST if the property is part of a “going concern”. This might apply if the property is business premises or a tenanted building. A seller may also be able to use the margin scheme to work out the GST applicable to the sale of the property. This should be detailed in the contract.
When it comes to GST in commercial property it is important to seek advice as it can affect the amount required to be paid at settlement, as well as the stamp duty assessed as payable.
A buyer is bound by any leases disclosed in the contract of sale. If you are buying premises subject to a lease, you should have the lease reviewed by our office. This is due to the fact that the specific terms of the lease can have an impact on the commercial viability of the purchase. For example, a lease to an unreliable tenant, paying under market rent for a lengthy lease term is a vastly different commercial proposition to that of a lease entered into with a reliable tenant paying market rent.
There are a number of searches and enquiries – legal, physical and technical – that should be carried out when purchasing a commercial property. We can discuss with you what may be appropriate in the circumstances of any particular transaction.
Purchasing a commercial property is an important investment decision with significant legal implications. Tetlow Legal can help you negotiate the sale contract and ensure that your interests are protected during the purchase process.