Commercial property conveyancing in Queensland: what buyers and sellers need to know

How a commercial contract differs from a residential one

Most commercial deals in Queensland use the REIQ commercial land and buildings contract or a solicitor-drafted contract, and the terms are genuinely negotiable rather than standard-form. Two differences matter immediately.

First, the statutory cooling-off period that applies to residential contracts does not apply to commercial property. Once you sign, you are bound unless the contract itself gives you an exit. Second, the price is usually expressed plus GST, and whether GST is actually payable depends on the going concern rules rather than on what the parties would prefer.

• No statutory cooling-off — your protection is the due diligence and finance conditions you negotiate before signing
• Deposits are commonly 10 per cent and may be released to the seller in stages, so confirm who holds it and on what terms
• Settlement periods are longer, typically 30 to 90 days, to allow for searches, finance valuation and lease enquiries
• Warranties about the building, plant, compliance and tenancies are matters of negotiation, not statute

Due diligence: the searches that matter

A due diligence condition of 21 to 45 days, expressed as subject to the buyer's satisfaction in the buyer's absolute discretion, is the single most valuable clause in a commercial contract. Use the period properly — commercial searches take longer to come back than residential ones, and some depend on council response times you cannot control.

• Title, registered easements, covenants, leases and any statutory charges
• Council rates, land tax (which is a real cost on commercial holdings) and water
• Town planning and zoning — the lawful use of the premises, any existing approvals and conditions, and whether your intended use is permitted
• Building and development approvals for all structures, including whether past works were approved
• Contaminated Land Register and Environmental Management Register searches — a listing can restrict use and trigger remediation obligations
• Asbestos register and, for buildings over the relevant threshold, fire safety and evacuation compliance
• Flood, overland flow and coastal hazard mapping, which is a live issue on much of the Sunshine Coast
• PPSR searches over plant and equipment included in the sale
• A building and pest inspection plus, where relevant, structural, electrical, air-conditioning and lift condition reports

GST, going concern and transfer duty

If the property is sold with a lease in place, the sale can usually be treated as a GST-free supply of a going concern — but only where the seller supplies everything necessary for the continued operation of the leasing enterprise, carries it on until settlement, both parties are registered for GST, and they agree in writing before settlement that it is a going concern. Vacant premises generally cannot be a going concern, because there is no enterprise being supplied.

Get the treatment confirmed by your accountant before signing, not after. If the going concern clause fails, the seller still owes the ATO the GST and the contract will usually let the seller recover it from the buyer, so the buyer wears an unexpected ten per cent.

Transfer duty is assessed on the higher of the price and the market value of the property, and there are no home concessions on commercial land. Duty is a substantial line item — factor it into the deposit and finance calculations at the outset rather than discovering it at settlement.

Buying a leased property: the tenancy is the asset

Where the property is tenanted, you are buying the income. Verify it rather than accepting the tenancy schedule at face value. Ask for the executed leases and every variation, and reconcile the schedule against the actual documents.

• Term, remaining term and options — and whether option notice periods have already lapsed
• Rent, review mechanism (CPI, fixed, market) and the date of the next review
• Outgoings: what is recoverable, how it is apportioned, and whether estimates and audited statements have been given as the lease requires
• Bank guarantees, bonds and personal or director guarantees — and whether they can actually be transferred to you at settlement
• Whether the lease is registered, and any registered or unregistered interests affecting priority
• Make good obligations, permitted use, exclusivity clauses and any incentive deeds sitting behind the lease
• Arrears, disputes and the tenant's payment history

Retail shop leases add another layer

If any tenancy is a retail shop lease under the Retail Shop Leases Act, statutory obligations attach that a buyer inherits as the incoming landlord: disclosure statement requirements, restrictions on recovering certain outgoings and land tax, limits on ratchet clauses in rent reviews, and compensation rights for tenants in defined circumstances.

A failure by the outgoing landlord to give a compliant disclosure statement can give the tenant rights that survive the sale. Check the disclosure history during due diligence and adjust the price or require an indemnity if it is deficient.

Settlement readiness

Commercial settlements are conducted electronically through PEXA and fail for practical reasons far more often than legal ones. Working backwards from the settlement date, the following need to be locked down:

• Unconditional finance, with the lender's valuation completed and the bank's own settlement requirements satisfied — banks are slower on commercial security
• Tenant notices of attornment prepared, so tenants know to pay rent to the new owner from settlement
• Bank guarantees reissued in the buyer's name, or an adjustment agreed where reissue cannot happen by settlement
• Adjustments calculated: rates, water, land tax, rent paid in advance, outgoings contributions and any arrears
• Insurance in place from the contract date or settlement, depending on where the contract puts the risk
• Releases of any registered mortgages, caveats and PPSR security interests over included plant
• Keys, access cards, alarm codes, plans, warranties, compliance certificates and service contracts identified for handover
• GST position confirmed in writing and the tax invoice or going concern documentation prepared

Sellers: preparation is what protects the price

A seller who goes to market with clean documents keeps control of the process. Assemble the leases, variations, guarantees, outgoings statements, approvals, compliance certificates and service contracts before listing, and resolve any unapproved building work or lapsed approvals early.

Where the sale is of tenanted premises, tidy the tenancies: get option exercises documented, arrears addressed and any handshake variations recorded in writing. Every gap in the paperwork becomes a due diligence issue, and due diligence issues become price reductions.

Frequently asked questions