To assist you in buying commercial property in South Australia, I have set out below some matters to be considered by both vendors and purchasers.
WHAT IS COMMERCIAL PROPERTY?
To determine if a property is a commercial property, we must look at the Land Use Code provided by the State Valuation Office. All property is coded according to its actual use and the main activity which is carried out on the property. Land coded as commercial property will have a Land Use Code between 2000 and 2990. This includes properties that are used for wholesale trade, retail trade, finance, assurance (ie banks) and real estate services, personal services (such as a café, restaurant, beauty or hairdresser salon), business services (such as office or warehouse buildings), professional services (ie accountants, lawyers and conveyancers and even a dentist), construction services (ie builder, plumber or civil engineer) and also repair services (where a workshop is used for motor vehicle repairs or even a car wash).
From conducting searches through Revenue SA or the Land Services Group we as your conveyancer we are able to determine the Land Use Code for a property to establish if it is coded as a commercial property.
ASBESTOS IN THE WORKPLACE
When buying or selling a commercial property, it is a requirement that particulars regarding asbestos in the workplace be addressed in the Form 1. In particular, the following questions need to be answered:
- Is there a workplace on the land?
- Is there an asbestos register?
Pursuant to section 8 of the Work Health and Safety Act 2012 (“WHS Act”), “A workplace is a place where work is carried out for a business or undertaking and includes any place where a worker goes, or is likely to be, while at work”.
The asbestos register must be passed on with the land to the new owners (or the lessee if the property is leased). If a property is being sold and does not have an asbestos register, one should be prepared to comply with the WHS Act. However, it should be noted that an asbestos register is not required if the building was constructed after 31 December 2003 or no asbestos is identified or not likely to be present in the property. There are penalties for not having an asbestos register if required under the WHS Act.
COMPANY PURCHASER AND COOLING OFF RIGHTS
If a commercial property is purchased by a company (ie a body corporate), it should be noted that the body corporate is not entitled to the usual two business days for the cooling off rights pursuant to the Land and Business (Sale and Conveyancing) Act 1994. Therefore, it is important that a company purchaser complete due diligence prior to signing the Contract. Alternatively, it is a good idea to have a due diligence clause added to the Contract before signing so that the Contract is conditional upon the purchaser undertaking due diligence by a certain date (ie within a week period) on all matters relating to the property (including reviewing the Form 1 documentation and statutory searches provided by the vendor). The vendor may not agree to a due diligence condition being added to the Contract, in which case it is important that the company purchaser complete their due diligence (and order statutory searches themselves) prior to signing the Contract. It must also be noted that if a body corporate enters a Contract to purchase a commercial property, the deposit will usually be payable upon signing the Contract (given that there is no cooling off period).
If an individual or company is purchasing a commercial property as trustee of a Trust (ie Family Trust or Unit Trust) a copy of the Trust Deed (and any amendments) must be provided to your conveyancer and the incoming bank (if applicable).
If the trustee of a Trust (whether an individual or an organisation) owns other property in its name that does not form part of the Trust, the trustee can apply to Revenue SA to have the property assessed separately from the other properties in respect of Land Tax. This must be done by the trustee in writing to the Commissioner of State Taxation (Revenue SA) within the relevant financial year by using a Notification of Land Held on Trust Form. Evidence such as the Trust Deed and any Deeds of Variation need to be provided together with either a copy of the stamped Transfer showing the consideration paid by the Trust or copies of completed and lodged Tax Returns for the Trust showing that the property is an asset of the Trust.
As your conveyancer, we can assist you with applying to Revenue SA to have the property assessed separately for land tax purposes.
NO STAMP DUTY PAYABLE
Commercial properties are classified as Qualifying Land which means land that is being used other than for residential purposes or for primary production. If a Contract is entered into on or after 1 July 2018 and the property is a commercial property (ie Qualifying Land), no stamp duty will be payable by the purchaser. However, registration fees payable to the Lands Titles Office calculated based on the purchase price are still payable.
If the property is leased then the lease will need to be assigned to you as the purchaser. The lease should be checked to see what provisions are in the lease that could affect you once you become the Lessor. For instance how long is the Lease and what renewals are there? These items may affect future income, and you need to be fully aware of what impact a lease with only a short term remaining could have on your bottom line. Your conveyancer will be able to assist with checking the lease if they are proficient in commercial transactions.
It is recommended that professional taxation advice be sought by both vendors and purchasers in commercial transactions. For example, the following matters should be considered:
- Is the vendor registered for GST;
- Is GST applicable and if so, is it included in the purchase price or added to the purchase price;
- Does the margin scheme apply; and
- Is the property leased and being sold as a going concern.
If GST applies, GST would also be added to the adjustment of rates and taxes.
Having a commercial mortgage broker assist you with obtaining finance approval for your commercial property purchase can be beneficial especially if your loan involves multiple entities (such as companies, Unit Trusts and personal finance for the directors involved). It may be that guarantees are needed or perhaps other loans need to be refinanced in the process. A commercial mortgage broker will work with you, the Banks and your accountant.
Title Insurance is available for commercial properties. Stewart Title offers a comprehensive policy for transactions up to $5 million. For transactions above $5 million, title insurance is still available and it can be tailored to suit the risk management needs of the purchaser.
Title Insurance covers matters such as illegal building work (capped at $150,000.00), enforcement action by government authorities such as the council, survey and boundary matters for properties less than 50 acres in size, registration gap, fraud, forgery and identity theft and also planning and title defects. It also covers unmarketability and any losses suffered on resale due to the existence of covered title risks.
There are exclusions to the title insurance policies for commercial properties such as risks and losses regarding environmental contamination, leasing activities and boundary walls and fences. As with other title insurance policies, loss or damage must be suffered in order to make a claim and all known risks must be disclosed.
There is a once off premium payable on title insurance and no excess payable on any claims.
Further information regarding title insurance can be obtained from Stewart Title.
See more: What is Title Insurance
The team at McKay Business Services are all members of the AICSA and are proud Adelaide conveyancers