While this column has long been dedicated to residential real estate, every now and then its worth remembering that commercial property has its own special place in our market, with its own peculiarities and unique features.
Commercial contracts are a bit more complicated, but do offer a bit more certainty for a seller, with no cooling off period applicable (unlike a standard residential transaction), and a greater expectation that both parties will have a reasonable amount of commercial knowledge.
For a tenanted property in particular, a commercial sale will have far more particulars as the specific terms of a lease have a much greater bearing than they might otherwise for a home or apartment. Where a residential tenancy covers rent, bond and term; a commercial lease will have rent, and outgoings, and fit-out, and options (and often more), with the term of the lease and its options often intrinsically tied to the property’s real value. After all, not much good having a headline lease for squillions, if it only has 6 months left to go, a tenant with one foot out the door and no likely replacement in sight. Much better the reliable tenant, that is freshly into their 2nd 10 year lease (though of course the squillions are more than welcome under those terms).
Distinct from the majority of residential transactions, a commercial sale also brings up the topic of GST – our beloved Goods and Services Tax. The first question of course being of whether a negotiated sale price is inclusive or exclusive of GST – is the price the price, or do you still need to add 10% on top? Depending on whether you are registered for GST in order to claim it back later, that can be the $100,000 question.
Thankfully, for a tenanted property the answer is straightforward, as a “going concern” does not incur GST on the sale – woohoo! A vacant property however, can incur that cost, leaving it up to buyer and seller to negotiate how that is dealt with. Quite often there may be an agreement between buyer and seller for an initial lease to be entered into, with a subsequent sale ticking all the right boxes for GST exemption. There are also exceptions for productive farmland – though again, there are hoops to jump through to fit the bill.
Bringing residential and commercial a bit closer together, both have less than 6 months to go before new seller disclosure requirements fall into place. We’ll leave that for another week though…