Tips for buying a commercial property

If you’re thinking about buying a commercial property to house your own business, an investment to lease out or a combination of the two, there a number of considerations that may affect your final choice of property. Whether it’s an office, light industrial unit, retail premises or a part of a larger complex there are some common considerations that apply to commercial properties. Here are some tips to help in your decision-making process.

1. Structuring the purchase

The options include buying as an individual, as a partnership, through a company or a trust. Your accountant will likely be able to provide guidance on the best form of ownership structure for your individual circumstances. Your accountant and lawyer will also be able to discuss the GST implications of the purchase with you to ensure you are aware of your GST obligations.

2. Properties that already have tenants

Include a careful review of the existing lease and any renewals or variations. Once the property is transferred to you, you step into the shoes of the outgoing landlord and become bound by the terms of the lease. It is therefore important that you understand and accept the terms of any leases, which are to continue beyond settlement. If you would prefer to buy a particular property without a tenant, you could try to negotiate the surrender of any existing leases. This is where you and the tenant mutually agree to terminate the lease. There is usually some financial compensation required to achieve this.

3. Finance

As with a residential purchase, ensure that you talk to your bank before you enter into negotiations so you are clear on how much you can borrow and the terms of that borrowing. The process to obtain commercial bank lending is more complex than for residential lending and you should get the process underway as soon as possible to avoid any delays down the track. You should also ensure that the agreement for sale and purchase is signed subject to you obtaining finance, if finance isn’t unconditionally approved before the agreement is signed.

4. LIM and Building Reports

Given the health and safety obligations on landlords, it is important that you arrange for a qualified person to complete a building inspection of the property as part of your investigations into the property. Your lawyer should also check the property title and a LIM Report for the property to ensure that the property is suitable for your intended use and that there are no underlying issues.

5. Insurance

Make sure you know what you are in for in terms of premiums before you buy. Also make sure you check with your insurer around what types of insurance you will need e.g. public liability, contents etc. Check zoning around such physical issues such as projected flooding or land stability as well, as this will impact on what insurance you may require and potentially also on whether insurance is available.

6. Unit titles

If the building or unit you’re buying is this form of ownership, you will become part of a body corporate, which will have its own set of rules and legal obligations, including levies.

7. Get professional advice

These are just a few areas to consider before entering into the purchase process and the key advice is to get advice. It’s a lot more technical and complicated than buying residential property and purchasing mistakes can be costly, so sound legal advice is essential.

For more information contact:>

Clare North
Associate
Pitt & Moore
E: clare.north@pittanmoore.co.nz
P: 03 548 8349 

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Tips for buying a commercial property