Buying Guide for Commercial Property
Our Buying Guide for Commercial Property contains important information to help you before starting the buying process.
1. Contract Documents
If you are buying a commercial property in Queensland, the most popular contract is the REIQ Contract.
There are 2 versions of the Contract:
- Land & Buildings
- Community Titles Scheme
Each Contract comprises:
- Reference Schedule > containing the contract particulars
- Contract Conditions > containing the terms and conditions of the Contract
When buying in a Community Titles Scheme, you will receive a Disclosure Statement about the body corporate. As the Disclosure Statement doesn’t contain all the information you need, we will include a special condition in the Contract and arrange a body corporate records inspection report.
2. Before You Start
A few points to keep in mind:
a) Because the Selling Agent is the Seller’s Agent, obtain advice before finalizing the negotiations.
b) Although the selling agent is required to act honestly in its dealings with you, the agent is unable to provide advice to you about action you should take to protect your interests.
c) If you or the Vendor has agreed to some issue or item during their negotiations about the purchase, that issue or item must be written into the Contract.
d) As the Contract doesn’t contain many ‘ready made options’ to protect your interests, contact us about the benefits of including special conditions into the Contract.
3. Protect Yourself
The following special conditions may be useful:
a) Due Diligence
b) Building & Pest Inspection Report
c) Body Corporate Records Inspection Report
However, including additional conditions may make your offer less attractive to the Seller!
As most Contracts do not contain a due diligence clause, a special condition can be inserted to enable you to undertake whatever enquiries you wish about the property.
You should investigate the property, including any aspects which may impact on its value, and any statements made about the property.
Building & Pest Inspection Reports
Whilst a building and pest report would be included within Due Diligence enquiries, you may not wish to include a “due diligence” condition. You should confirm that the building is in a satisfactory condition.
The standard building and pest inspection report may not be adequate as it usually contains extensive limitations and disclaimers. You may prefer a more comprehensive Building Structural & Engineering Report.
Body Corporate Records Inspection Report
When buying in a Community Titles Scheme, because the Disclosure Statement contains limited information, a special condition can be included in the Contract enabling you to obtain a comprehensive body corporate records inspection report.
You may not be aware of the potential risks and liabilities of a body corporate which you become jointly liable for upon becoming an owner. Unless you protect yourself by including the condition and obtaining a report, you won’t be able to make an informed decision.
Commercial office building
4. Who is the Purchaser?
There is a crucial decision to be made after talking with your Lawyer, Accountant and other advisors.
The property can by purchased using any of the following options (there are others):
- your personal names
- a family trust where you are the trustees
- a family trust where a company controlled by you is the trustee
- a company controlled by you
- a Self Managed Superannuation Fund (the Purchaser will the trustees of the SMSF – which may be a company or the members of the SMSF)
There are important issues to consider, including
- asset protection (the owner should not conduct any profession or business), and
- taxation (income tax and Capital Gains Tax – when you sell the property).
Make the correct decision now, as transferring the property later will incur considerable costs.
5. Any Ongoing Agreements?
Where the property has leases or service contracts, these agreements continue when you are the owner.
Where the property is leased, you should obtain a legal review and report of the lease.
As an example, where the purchase price has been calculated by reference to the rent payable, it would be useful to confirm the market rental for the property, and that the Tenant is financially stable and has been paying the rent payments.
The existence of option periods should be reviewed carefully, as your ownership is subject to the exercise of the options. You can refer to our commercial leasing pages for an overview of some of the issues confronting landlords and tenants.
The Vendor is required to provide you with complete copies of all Leases. If you are not satisfied with any Lease, you can terminate the Contract within 7 days from the date when all Leases were delivered.
b) Service Contracts
Where the property is subject to any service contracts, you should review the terms and conditions of those contracts.
The ongoing costs of any service contracts should be considered as part of determining the market value of the property.
6. Goods & Services Tax?
Goods and Services Tax (GST) is payable by the Vendor unless an exemption applies. Therefore, a decision must be made as to how GST is to be dealt with before the Contract is prepared.
The possible options include:
1. The property is sold as a going concern where there is no GST component to the purchase price > you are not required to pay any GST
2. The Vendor applies the margin scheme in which the purchase price includes the Vendor’s liability for GST on the sale of the property > you are not required to pay any GST
3. The purchase price does not include GST > you must pay an additional 10% GST at settlement
4. The purchase price includes GST > you are not required to pay any GST
7. Purchase Costs & Ongoing Costs
The costs of buying a property include:
- Transfer Duty
- Registration Fees
- Legal Fees
- Search Costs
- Due Diligence Enquiries
- Inspection Reports
- Lease Review and Report
The ongoing costs of ownership include:
- Local Authority Rates & Water
- Land Tax
- Body Corporate Levies
Conclusion: Do I need legal assistance?
Buying a commercial property can be challenging where even a simple transaction can lead to financial and legal hardship. Avoiding the cost of legal representation may be the most expensive cost saving you ever make as legal fees are insignificant compared to the amount of time and money that can be lost if the transaction is not handled correctly.