Purchasing or selling commercial property is a big investment decision which you should seek advice from experienced professionals about including a solicitor, accountant and finance broker before signing a legally binding contract.
Commercial contracts generally do not include a cooling off period which is why it is important to engage a solicitor prior to entering into it. Your solicitor will ensure there are no unfavourable terms in the contract for you and assist in negotiating terms that have been agreed between the parties. It is hard to vary terms of a contract once it has been executed by the parties which is why it is important to negotiate all the terms at the outset.
Generally, when purchasing commercial property in Queensland the contract used will be the Real Estate Institute of Queensland (REIQ) contract for either commercial land and building or community title scheme. The buyer or seller may request special conditions be drafted into the contract that can alter or replace the standard conditions. Your solicitor will ensure there are no contradictory conditions to remove any area for error. Should a dispute arise between the parties then what is included in the contract will determine the result of the dispute.
Controlling and Protecting your Commercial Property
There are various ways the property may be purchased which includes the following:
- In your personal name;
- In joint names as a partnership if there is more than one of you;
- In a company name;
- As a family or discretionary trust where you are the trustee/s;
- As a family or discretionary trust where the company controlled by you as the trustee/s; or
- A self managed superannuation fund where the purchaser is the trustee (which may be a company of members of the fund).
It is important you consult with your accountant and solicitor about the purchasing entity prior to executing the contract. Purchasing the property in the right entity can help you control and protect the property.
If you are purchasing a property within a community title scheme you will receive a disclosure statement providing some limited information about the body corporate. The disclosure statement will not provide all the information and as such you should include a special condition in the contract to allow you to terminate the contract with no penalty if you are not satisfied with the body corporate records inspection report. You will likely be unaware of the potential risks and liabilities of the body corporate before obtaining such report. Therefore, this special condition will ensure you can make an informed decision before becoming an owner and jointly liable for any body corporate issues.
Due Diligence Special Condition
As a purchaser it is important to ensure that a due diligence special condition is drafted into the contract to allow you to undertake searches of the property and review any related documents such as leases, service contracts, financial information, etc. which your solicitor and accountant will be able to assist with. If the property is subject to a lease/s, you should arrange for your solicitor to review the terms of the lease and provide you with advice regarding the key terms during the due diligence period. Buyers need to be aware of the tenants as well as their own responsibilities under the lease to prevent disputes occurring. It is also important to note whether the tenant has any options under the lease to extend the term.
Where the property is subject to any service contracts, it is important to have your solicitor review the terms and conditions of them as you will be liable to continue with the service contracts upon becoming the owner of the property. If you are unsatisfied with the leases, service contracts, financial information or due diligence searches, etc. you will be able to terminate the contract under the due diligence special condition, without penalty and receive any deposit back that was paid.
Goods and Services Tax (GST) is payable by the seller unless an exemption applies. It must be determined prior to the contract being executed as to how GST will be dealt with. If a seller is registered for GST they must provide the buyer with a GST tax invoice to allow them to claim a credit for GST on the purchase price. The options for GST under the contract are as follows:
- The property is sold as a going concern where there is no GST payable on the purchase price;
- The seller adopts the margin scheme where the purchase price includes the seller’s GST amount for the property;
- The purchase price does not include GST meaning the buyer must pay an additional 10% GST at settlement; or
- The purchase price includes GST.
The REIQ contract outlines that the property will be at the buyer’s risk from 5pm on the next business day after the contract is signed. Accordingly, the buyer should insure the property as soon as the contract is signed.
The purchase price payable at settlement will be adjusted on a pro rata basis to take into account factors including outgoings, rent, land tax, council rates, water rates and body corporate levies.
As the buyer of commercial property, transfer duty (formerly known as stamp duty) will also be payable and is calculated based on the purchase price.
If you have any questions about buying or selling commercial property in Queensland and you would like to discuss the requirements, please contact our office on (07) 3733 2574 for an obligation free consultation.
Kayleigh Whittaker, Senior Lawyer
About the author
Kayleigh Whittaker is a senior lawyer on our Commercial and Property team who assists with Employment Law matters. With a high level of experience in commercial and retail leasing, voluntary and involuntary purchase and sale acquisitions, property development and employee relations, Kayleigh provides practical advice to ensure smooth business transactions.