How to buy a commercial property
Finding your property
If you are intending to buy a commercial property, you should contact a real estate agent specialising in commercial property.
Obtaining information on the property
If you find a suitable property you should have a valuation prepared for it. You should also obtain a Land Information Memorandum (LIM) on the property from your local council. These documents will provide you with much information important in assessing the property's value and potential uses.
The LIM will include, among other things, any special characteristics, the permitted uses of the land, and any relevant consents or notices issued by the council. See How to obtain a Land Information Memorandum (LIM).
What should be the ownership vehicle for the purchase?
You will need to decide what type of entity you should use to buy the property. The options include:
- buying as an individual
- buying through a company (see How to form a company)
- buying through a trust (see How to form a trust)
Your lawyer and accountant will help you in deciding on the best ownership vehicle for your situation.
The return from the property
The basis of any successful purchase of a commercial property is the return from the property. The value of the lease is therefore paramount. You should check the term of the existing lease and the financial strength of the tenant. Where the tenant is a company, you should check whether any personal guarantee has been given by a representative of the company. For information on commercial leases generally, see How to enter into a commercial lease.
Making an offer
Before you make any offer on the property you should discuss it with your lawyer.
If this is not practicable, you should make the offer conditional on your lawyer giving his or her approval that the title to the property is in order, and also his or her approval of zoning matters and of any matters disclosed by the Land Information Memorandum obtained from the council.
Your offer should also be subject to your approval of the terms and conditions of all leases and, where appropriate, to your borrowing being approved on terms satisfactory to you.
- At an early stage it is advisable to discuss with your bank the upper limits for any borrowing that you may need to do.
- A lawyer will ensure that all documents are correct and will generally protect your interests. As well as checking the LIM, your lawyer will check the certificate of title to ensure that any prior mortgages are discharged and that any easements are correctly established (see How to create an easement). Your lawyer will also advise you on relevant tax matters such as whether the purchase price includes or excludes GST.