Buying commercial premises (such as a warehouse, office building or retail space) is often more complicated than buying a residential property. There are complex contract terms, detailed planning information, and additional legal and commercial implications if the premises are leased.
In this article we set out some of the key issues to consider if you are thinking of buying a commercial property.
Contract for sale
The contract will typically be prepared by the seller’s lawyer and will set out the terms and conditions of sale. Terms will include, a description of the property, the purchase price, a list of any fixtures or chattels that are included in the sale, and the settlement date.
The contract will also include detailed special conditions which specify the terms on which the seller is offering the property for sale. These special conditions can impact your potential purchase and, therefore, need to be examined and explained to the purchaser 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 any sale agreement, it is crucial to make sure that the contract correctly identifies the entity buying the property.
There are a number of entities that are able to purchase commercial property, including individuals, partnerships, companies, trustees of discretionary trusts, superannuation funds or a combination of entities.
When purchasing a commercial property, you should speak with your accountant or lawyer to identify the buying entity which best suits your tax or asset protection needs.
Goods and services tax
The sale of commercial premises will often attract GST.
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 registered for GST, you can claim 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 the sale of a business as a “going concern”. This might apply if the property is a business premises or a tenanted building. A seller may also be able to use the margin scheme to work out the GST that applies 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 will affect the amount required to be paid at settlement and the stamp duty which is assessed as payable.
A buyer is bound by any leases that are attached to the property and disclosed in the contract of sale. Often leases (over three years in duration) will be registered on the title, which can be searched through the relevant land titles office (that’s Landgate in Western Australia).
If you are buying premises subject to a lease, you should have the lease reviewed by an experienced lawyer. Specific terms of the lease can have an impact on the commercial viability of the purchase.
There are a number of searches and enquiries, including legal, physical and technical, which should be carried out before buying commercial premises. These can include rates and water search, title search, company search (if the seller is a company), a search of the contaminated land register and land tax search.
A buyer can consider inserting a clause in the contract that the purchase of the property is subject to the buyer being satisfied with its due diligence inquiries, to be undertaken within a specified time.
Purchasing a commercial property is an important investment decision with significant financial implications. A good lawyer can help you negotiate the sale contract and ensure that your interests are protected during the purchasing process.
If you or someone you know wants more information or needs help or advice, please contact us.