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Buying and Selling Commercial Property

Buying And Selling Commercial Property

Purchasing or selling commercial property can be complex. Consideration needs to be given to issues such as permitted uses, commercial leases, land tax implications to name a few.

Whether you are buying or selling a commercial property you should always conduct investigations into the property before proceeding to contract. As a buyer, this can often be dealt with by inserting a due diligence condition in the contract which allows for the buyer to make these investigations prior to the contract becoming ‘unconditional’.

But what about the seller? Seller’s often list the property and proceed to contract without giving much thought to the promises (warranties) they are making in the contract. For example:

  • Does the commercial property have an asbestos register?
  • Is the tenant in breach of the lease in any way?
  • Has the tenant exercised an option on the lease which is not discoverable by ordinary search?
  • Are there any “side agreements” with the tenant?
  • Is there a right of entry agreement with the tenant’s financier?
  • Is there a first right of refusal in a lease?
  • Does the building have a certificate of classification for its permitted use?
  • If in a community titles scheme, does the body corporate intend to amend any of its by-laws or are there any disputes with the body corporate which may affect the property?
  • Is there any service contract that should be disclosed?
  • Is the property adversely affected by any proposed resumption or statutory encumbrance?
  • Are there any environmentally relevant activities conducted?
  • What are the GST implications in respect of the sale?

Investigation into these issues often get blanketed with the term ‘due diligence’, however even satisfaction of a due diligence condition will in most cases not remove a buyer’s rights under the contract if there is a breach of condition or warranty. Those rights can see the contract terminated, or a subsequent claim for damages, or both.

In many circumstances the seller can ensure its compliance with these warranties and conditions by undertaking some preliminary investigations, searches, if necessary procuring reports (such as asbestos reports) prior to entering into a contract, and amending the standard conditions of the contract by special conditions catering to the issue.

For specialist advice in respect of all commercial property transactions from experienced Gold Coast property lawyers, please contact Peter Muller on 07 5574 0575 or peterm@qbmlaw.com.au or Megan Hanneman at meganh@qbmlaw.com.au

Frequently Asked Questions

Contracts for the sale of Commercial properties can be quite complex with a range of warranties (promises) made by the Seller to the Buyer. Throughout the life of the contract the Buyer may obtain a right of termination if these warranties are revealed to be untrue. Proper investigations into issues such as the tenancies, council requirements, permitted use and compliance with the multitude of legislative requirement can often deal with and comfort the client that the contract will proceed to settlement through no fault of theirs.

Searches conducted will, in most cases, reveal any notices or issues with the property. For example, the Council may have issued a show cause notice for non-compliance with a Council Regulation or Local Law. In the circumstance where the Seller does not want to satisfy the Council’s requirement, then provided that the proper disclosure is given in the contract, the Buyer may assume the obligation of compliance with the Council’s Notice. If the Seller did not conduct the search, it may never be aware of the Notice at the time of entering into the contract.

Buyer’s will often attend an auction at short notice to bid on a property. The Buyer is successful at the auction only to discover from their accountant that the proposed buying entity is incorrect, maybe for taxation of asset protection reasons. It is possible to change the entity purchasing the property but this should be conducted and the appropriate documentation prepared so as not to incur double Transfer Duty on the transaction. We are able to prepare the necessary documentation and deal with any possible Transfer Duty issues to ensure that not only are you and your accountant happy, but the Office of State Revenue requirements have been complied with.

In short, a Buyer who becomes the new Landlord as the successor in title may not have all of the rights of the original Landlord. This is because some covenants do not ‘touch and concern’ the land. When purchasing commercial property which is subject to ongoing leases or tenancies, the Buyer should always ensure that the contractual rights of the original Landlord, presumably the Seller, are passed to the Buyer. As part of our conveyancing process on commercial property, we ensure that these rights are passed and the Buyer enjoys the same rights as the original Landlord.

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