Buying Commercial Property: Know your Intentions
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Commercial property is an attractive investment for many, and buying commercial property is becoming more and more popular. What should you consider when buying commercial property? There is far more to consider than just the possible rental return on the property.
Other than the purchase price, one of the most important things to consider is whether you intend to lease the commercial property to a tenant, or whether you intend to use it for your own business operations. Most people lease to other parties. If you intend to lease the commercial property, consider if there is already a tenant in place. An existing long standing and reliable tenant in a property can be a very comforting thought. However, you need to check the existing Lease. When does the Lease expire? Are there options for the Tenant to renew? How will the rent be increased during the period of the Lease? Does the tenant pay the outgoings for the property (eg rates, water, body corporate levies) or are these still the responsibility of the commercial property owner? Who is responsible for maintenance of the property?
It may be that you intend to set up your own business in the commercial property. If so, to get the best tax position, what entity should be used to purchase the property? Should it be a different entity to that which runs the business? A very important aspect to consider is whether the particular business may be carried out under the town planning requirements for that area. In addition, is the commercial property what is generally termed as “strata titled”? That is, it may be located within an existing Body Corporate. If so, a Community Management Statement will be in place which dictates the “rules” (by-laws) for the Body Corporate. It is imperative that this document be checked to see if there are any prohibitions on the type of use you want to make of the property. For example, is equipment used for cooking or heating prohibited by the by-laws, and you want to open a café? This is something you need to know before you are bound under the contract for sale. Or perhaps you are a veterinarian looking for a new clinic, and the by-laws strictly prohibit the keeping of animals on the property. These types of issues can result in disaster if you have signed a contract and there is no avenue for you to terminate should you discover such an issue.
You don’t have to find out every detail before you sign the contract. If you have an effective due diligence clause in the contract and your solicitor knows what you want to do with the property, your interests can be protected and you can still sign that contract.
At MMLaw we do not take a “one size fits all” approach to conveyancing, and when you are buying commercial property we will discuss with you exactly what it is that is important to you. We may not be as low priced as the “Sausage Factory” conveyancing firms, but we will do our best to ensure there are no unpleasant, and expensive, surprises for you that may turn your prized investment into a financial disaster.
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The content published in this Blog is in the form of academic papers and the opinions expressed herein are generalised. The information provided is for educational purposes, not specific legal advice.
The application of any principles referred to can alter from case to case and accordingly you should seek independent legal advice in respect of your individual circumstances.