A Guide to Buying Commercial Premises

canstockphoto1045304Buying 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.

It is crucial that a buyer looking to purchase commercial property seek suitably qualified legal advice from someone who can:-

  • Explain the terms of the contract in a straight forward 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 transactions.

 

Contract for sale

The contract is typically prepared by the seller’s lawyer; it will set out the terms and conditions of the sale. Essential terms will include, for example, a description of the property, the purchase price, a list of any fixtures or fittings included in the sale, as well as 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. These special conditions need to be examined and explained to a buyer by a lawyer who is experienced in the purchase and sale of commercial properties.

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.

 

Name of the purchasing party

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, individuals in partnership, companies, 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 your accountant and lawyer 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

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.

 

Existing leases

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 an experienced lawyer. 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.

 

Due diligence

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.

 

Conclusion

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.

If you or someone you know would like more information on buying or selling a commercial property, please contact Emma Bragg or Brian Tetlow on (02) 6140 3263 or email mail@tetlowlegal.com.au.