Buying Commercial Property

Buying Commercial Property

Commercial property comes in three main forms:

• Office;
• Retail; and
• Industrial.

There are important factors to consider when purchasing commercial property such as:

• Tenants in the Property

Tenants already in possession of the property may have a Lease. The Lease may also have further options that grants the Tenant further Lease terms. This could see a Tenant occupying a property for a substantial amount of time. Purchasing a commercial property does not allow you to bring a Lease to an end or to not honour any option periods.

A Tenant may prevent you from being able to occupy the property for your own use. It may also prevent you from developing the property if it will substantially impact the Tenants business.

If there are Tenants in the property than ensure that the rental return is sufficient to meet the return on investment. Is the rent in line with market rent and if not then what are the rent increases and when can you or the Tenant carry out a market review?

Consequently, a future owner occupier or investor should give careful attention to any Lease when buying a tenanted building.

• Entity of the Purchaser

Always consider who should be purchasing the commercial property. This could be through you as a person, a company or a company as trustee for a self-managed superannuation fund. Small to medium incorporated business owners can gain several benefits from buying properties in the name of their self-managed super funds.

Property developers can incorporate new entities for land acquisitions for future development. This allows them to obtain some benefits.

• Suitability for Use

Each parcel of land is zoned for its use, such as commercial and industrial. Certain industries will almost always require approvals from council and other authorities before permission can be granted for their business to operate. Others will not. Accordingly, businesses need to give careful consideration to the zoning of the land and the intended use of the land before acquiring the land.

There are various factors to consider, when a planning application is required for a specific use of the land. For a business, this could involve parking, noise, traffic and various other factors, which a Council or authority will have to consider. The same would apply to any development application for the land.

• Potential Problems

Land can have many hidden problems attached to it. If overlooked, these problems can have horrendous outcomes. Some of these problems, such as potential water inundation, road proposals, easements, soil contamination and soil infill can sometimes be easily identified from looking at the Section 32 Disclosure Statement, but not always.

Consequently, careful consideration should be given to the Section 32. Some external research should also be conducted to ensure that the site has no hidden secrets.

• GST and tax matters

You should consider whether GST is payable on a property purchase. Generally new land purchases will be subject to GST, but existing properties will not. You should also consider other long term tax implications on the depreciation possibilities and other factors.

How we can Help

These types of purchasers generally don’t just involve large amounts of money, but there is often a lot at stake. We can help you carefully evaluate the sale, point out all the areas of concern and handle the transaction process for you once an agreement is reached.

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