Whilst the fundamentals to buying or selling a commercial property are the same, residential and commercial transactions differ in a number of aspects. When selling/purchasing a commercial property, there is no requirement that a contract be prepared prior to marketing the property. A contract can be prepared once an agreement has been negotiated between a vendor and purchaser.
If you are buying it is important that you have the contract reviewed and explained by your legal representative as they may be able to assist you to negotiate a contract on fairer and equitable terms. A contract is normally binding once a vendor and purchaser have signed and exchanged contracts and a deposit has been paid. Generally cooling off periods do not apply to commercial properties and contracts are entered into unconditionally, If you are purchasing, it is imperative that prior to exchanging Contracts you have an unconditional loan approval in place. Pursuant to the vendor disclosure regulations copies of the following documents are required to be attached to the Contract:
- a title search;
- a common property title search (if applicable);
- the deposited plan or strata plan;
- all documents creating easements over the land (right of way etc.) and covenants;
- a zoning certificate under s10.7 of the Environmental Planning and Assessment Act, 1979;
- a drainage diagram showing where the main sewer lines are in relation to the land;
- a sewer connection diagram
- strata by-laws (if applicable); and
- current lease, if the property is being sold ‘subject to existing tenancies’
It is recommended that a Pest and Building inspection be carried out prior to exchanging contracts.
If the property is part of a strata scheme a Strata Report should also be obtained. When selling commercial property there are a number of tax issues that should be considered.
These include but are not limited to:
- Capital gains tax – which should be discussed with your accountant;
- Land Tax – it is common practice in commercial transactions that land tax be adjusted. The purchaser will need to be provided with a Notice of Assessment for the current land tax year and subject to any adjustment for land tax, a clear S47 Land Tax Certificate will need to be provided to the purchaser on or before settlement.
- Goods and Services Tax (GST) – quite often the sale of a commercial property will attract GST which may or may not be recoverable from the purchaser. There are also GST exemptions in circumstances where the property is sold as ‘a going concern’ eg. if there is a current lease in place at the time of entering into the contract. It is important that any or all GST implications be discussed with your accountant and legal representative.
If the property is being purchased ‘subject to existing tenancies’ and is subject to a lease, the lease will need be reviewed to ensure you are fully versed as to your obligations as the Lessor/Landlord.