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7 Factors to Consider When Buying Commercial Property

If you’re looking for legal advice on property, look no further – here we’ve put together a guide to seven key factors when buying commercial property. Some you may already be aware of, as there are similarities to buying residential property, but others are unique and particular to the commercial space.

1.  Due Diligence

Commercial buildings have a range of features that have the potential impact significantly on the purchase decision.  Due diligence conditions are now common.  They provide a period following completion of the agreement during which the purchaser can investigate a range of matters relevant to the property including building condition, condition of services such as air-conditioning and elevators, leases and district plan restrictions.  They are usually general in scope and the purchaser is a broad discretion as to whether or not to treat the condition is satisfied (subject to acting in good faith).  The wording of a due diligence condition needs to be carefully considered before an agreement is signed.

2. LIM Report

A Land Information Memorandum (LIM) Report tells you whether or not the property complies with Council permits and parameters. It also provides data that is necessary for further development; if you want to build new structures on the land, a LIM report is a requirement. You LIM report will also clarify relevant zoning, ensuring any businesses you want to run on the property are allowed by the council. Finally, a LIM report should tell you if the current structure on the property has an up-to-date Building Warrant of Fitness. This statement should ensure the building has been meeting standards for the last twelve months and is expected to continue to do so.

3. Finance

Finance approval from your bank is a major priority when it comes to buying commercial land. Generally speaking, banks are far more scrupulous when it comes to commercial property loans,. Talk to your bank before you begin the purchase process.

4. Unit Titles

If the commercial property you are purchasing is a unit title, you may have duties you’re unaware of at first. Together with the owners of other units, you are part of a ‘body corporate,’ which will entitle you to attend meetings and help in making decisions that will affect all units. You’ll also need to be aware of your body corporate levies – these are payments that go toward maintenance of common areas, admin, and insurance. Typically, this body corporate insurance is the only policy that exists on a unit title apart from contents insurance.

5. Insurance

If you’re not part of a body corporate, insurance becomes its own issue. Insurance premiums for commercial property significantly outweigh residential premiums.  Finance will always be conditional upon insurance being in place and post the Christchurch earthquake the availability of insurance or the level of premium should not be assumed.  Your insurance agent will be able to help you.

6. Taxes

Since 2011, New Zealand tax laws state that if:

A)      both vendor and buyer are registered for GST at the time of settlement;

B)      the buyer intends to use the property to make taxable supplies; and

C)      the buyer will not use the property as a principal residence;

then no GST should be claimed or paid on the transaction. If even one of the three requirements are not applicable, then GST becomes payable for the transaction. This means it’s best to ensure that both parties are registered for GST.

Finally, it’s best to understand the GST options on the standard ADLS form of agreement. You will be faced with a choice of circling ‘plus GST if any’ or ‘inclusive of GST if any’. As a vendor, it makes sense to select ‘plus’ as that way, if it comes to pass that GST is applicable, then it will not eat into your list price. Therefore, as a buyer, you would select the other option: ‘inclusive’. This way you ensure you will pay no more than the listed price.

After more commercial property law advice?

Buying commercial property is a major decision – it’s important to know what you’re doing and have solid legal advice to help you navigate the red tape. For the best advice from a property lawyer Wellington-wide, contact Gillespie Young Watson. We aim to help private clients who need a bespoke legal service that can be tailored to your needs.