Commercial Property Conveyancing

Who this service is for

Investors buying tenanted office, retail or industrial premises; owner-occupiers buying premises for their own business; developers acquiring or disposing of development sites; SMSFs purchasing business real property; and family investment structures.

What is different about commercial property

• No consumer cooling-off. The section 31 cooling-off right applies to residential contracts of sale, not commercial. Once signed, a commercial contract binds.
• GST. Most commercial sales are taxable supplies. The contract must be clear on whether the price is GST inclusive or plus GST, whether the margin scheme applies and whether the going-concern exemption is available (typically where the premises are sold with the existing lease in place).
• Existing leases. The purchaser takes the property subject to registered leases and, in practice, most unregistered leases too. Rent, security deposits, bank guarantees and outgoings need to be checked and adjusted at settlement.
• Duty on the higher of price or market value. The State Revenue Office may impose duty on the higher figure where the sale is not at arm's length. Related-party transfers require care.
• Foreign purchaser surcharge and absentee owner surcharge. Both can apply to commercial property held by non-resident interests.

Due diligence we typically conduct

1. Title and plan search, including a survey where the boundaries are unclear.
2. Planning and zoning search, including any planning permits and heritage overlays.
3. Council rates, land tax and water certificates.
4. Building permit history and any current building orders.
5. Owners corporation records (for strata-titled commercial property).
6. Environmental audit history where the site has been used for industrial purposes.
7. Review of every current lease, including rent reviews, options to renew and end-of-lease make-good obligations.
8. Review of tenant financial position and payment history where the vendor can provide it.

Structuring the acquisition

The name in which the property is bought has long-term consequences for land tax, income tax, capital gains and asset protection. Trusts, companies and SMSFs each have different regulatory requirements. It is far cheaper to structure correctly before contract than to unwind and re-transfer afterwards.

Settlement and post-settlement

Commercial settlement is usually electronic through PEXA. Where physical documents are required — such as older certificates of title or complex tripartite arrangements — we can conduct a paper settlement. After settlement we notify tenants of the change of landlord, arrange transfer or reissue of bank guarantees, and lodge the transfer duty.

What to prepare

• The proposed contract and section 32 and any lease documents.
• Details of the purchasing entity — company details, trust deeds or SMSF documents.
• Finance and any conditions imposed by the lender.
• Details of related businesses that will occupy the property.

Preliminary due diligence before signing

Commercial property purchases warrant more preliminary due diligence than residential. The scope varies with the asset but typically includes a review of the title and any encumbrances, planning zone and permitted uses, environmental history and any known contamination, current leasing arrangements, the identity and financial standing of tenants, outgoings recoverable from tenants, capital works and building compliance, and the treatment of GST. Due diligence is normally documented in a written report so that the commercial decision to proceed, renegotiate or withdraw is made on a clear record.

GST and the going concern concession

Whether the sale of a commercial property is a taxable supply for GST purposes depends on the vendor's registration position, the use of the property and the presence of a tenant. Sales of tenanted premises may be structured as the supply of a going concern where the statutory requirements are met, which typically requires the vendor and purchaser to be registered, the parties to agree in writing before settlement that the supply is of a going concern, and the vendor to supply everything necessary for the continued operation. GST treatment must be confirmed by the parties' tax advisers — we set the contract up to reflect the position agreed with those advisers rather than deciding it for them.

Existing leases and tenants in occupation

On the purchase of a tenanted property, we obtain and review copies of each lease, any variations, the current rent and outgoings schedule, bank guarantees or security deposits, and any correspondence about arrears, disputes or option exercises. We also check whether the lease is a retail lease governed by the Retail Leases Act 2003 (Vic), because retail leases carry statutory requirements that affect the landlord's position on and after settlement.

Special conditions we watch for

• Warranties limited by knowledge qualifications so narrow that they are effectively unenforceable.
• Adjustment mechanisms that leave outgoings arrears with the purchaser rather than the vendor.
• Post-settlement obligations on the vendor that are not backed by any retention or guarantee.
• Options and pre-emptive rights held by tenants or third parties that would be triggered by the sale.

Where separate advice is required

Commercial property transactions frequently interact with taxation, accounting and finance advice. We work alongside the client's tax adviser on GST and capital gains treatment, and with the client's broker or bank on funding structure. Environmental questions may require input from a specialist consultant. We coordinate the engagement of these advisers but do not substitute for them.

Limitations of general information

Commercial property is an area where general information is a poor guide to any specific transaction. The material on this page is introductory and is not a substitute for advice on your matter.