Buying a commercial property can be a great investment or an effective way to secure an excellent location for your business. However, there are certain factors that you should consider when purchasing a commercial premise. This article will outline seven key factors that you should consider when buying a commercial property in New Zealand.

1. The Property Type

There is a wide range of commercial property types available on the market that you can choose from. These properties include:

  • office spaces, ranging from single floor spaces to entire buildings;
  • light industrial spaces, such as showrooms with smaller warehouses attached;
  • heavy industrial premises; 
  • retail spaces; 
  • hotels and motels; and
  • development projects. 

If the commercial property that you end up purchasing is part of a shared development, such as a premise in a shopping centre, it will likely be a unit title property.

As a unit title owner, you own a defined part of the premises, such as a space in the shopping mall. You share common areas, such as lifts or parking spaces, with other unit title owners.

When you purchase a unit title property, you and the other owners form a body corporate. This body corporate is responsible for managing the commercial building as a whole. As a unit title owner, you will have to:

  • participate in an AGM to discuss and vote on matters affecting the property. These AGM’s have to be held at least once a year; and
  • contribute to the annual body corporate levy. This levy will cover the costs of maintaining the premises

2. Ownership

You also have to consider how you wish to buy and own the commercial property. You can purchase the property:

  • as an individual or sole trader;
  • as a partnership;
  • through a company; or
  • through a trust.

3. Finance Approval

It is best practice to determine how you will pay for the property before you enter into any agreements. You may have to get a loan from your bank. Banks are typically more strict with loaning clients money for commercial premises, in comparison to residential properties. You may be required to place a large deposit to secure the loan. To ensure that you can afford your desired commercial property, you should:

  • get pre-approval on a loan from your bank before you start seriously looking at commercial properties; and
  • make any purchase agreement you enter into conditional on finance approval. 

4. Building Report and LIM

Once you have found a commercial premise that you are interested in purchasing, you should secure two documents, a:

  • building report; and 
  • land information memorandum, or a LIM.

Obtaining these two documents will help you determine whether you wish to purchase that particular commercial property.

Building Report

It is best practice to get an independent, experienced inspector to thoroughly examine the property you are considering and provide you with a written building report. This report will detail the state of the property’s structure and condition. It will also bring to your attention any issues that could be costly for you to repair. 

Land Information Memorandum 

You should also request a land information memorandum, or a LIM. A LIM is a written report that details everything the local council knows about the commercial premises you wish to purchase. A LIM will typically address:

  • any special land features, such as potential erosion, slippage or possible hazardous substances that could impact your property or its value;
  • the permitted use of the property. You may be prevented from using the premises in a particular way;
  • stormwater and sewerage drains;
  • if there are any unpaid rates; 
  • any documentation affecting the property, such as consents, notices or requisitions; 
  • district plan classifications that relate to the property; and
  • any information supplied by network utility operators. 

5. Insurance

When you are looking at purchasing a particular property, you should also seek out an insurance broker to consider:

  • what kinds of insurance you will need for that premise; and
  • whether the property you are looking at is insurable.

6. Tenants

If there are tenants in place in the property you wish to purchase, it is best practice to:

  • review the lease agreement. It is crucial to look over the key terms in the agreement, such as the length of the lease or the right of renewal;
  • confirm that there are no other agreements between the tenant and the current owner, such as a verbal agreement; and
  • confirm that the tenant will be reliable and able to fulfil their tenancy obligations. You may wish to check the tenant’s credit and ask for references from previous landlords.

7. Tax Implications

Once you have secured a commercial property that you wish to buy, it is best practice to consult with your lawyer about any tax implications before the sale. You may be required to pay the Goods and Services Tax (GST) on the property, on top of the purchase price. However, you will not have to pay GST if:

  • both you and the seller of the property are registered for GST;
  • you intend to use the premises for taxable purposes; and
  • the property is not your primary place of residence. 

Key Takeaways

Purchasing a commercial property can be an excellent investment or a great first step in opening your business. However, there are certain matters that you should consider when buying a commercial premise. It is best practice to consider:

  • the property type;
  • the business structure under which you wish to own the property;
  • how you are going to pay for the property;
  • obtaining a building report and a LIM;
  • the insurance;
  • whether there are any tenants currently occupying the property; and
  • the tax implications.

If you need assistance with purchasing a commercial property, contact LegalVision’s property and leasing lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

What defines a commercial property?

Commercial property is any property that is used for commercial activities. Examples of commercial property include office spaces, light industrial spaces, heavy industrial premises; and retail spaces.

What do I need to know before buying commercial property?

When purchasing a commercial property, you may wish to consider the property type, the business structure under which you wish to own the property, how you will pay for the property, and obtain a building report and a LIM. You should also consider the insurance, whether there are any tenants currently occupying the property and the tax implications.

Do you have to pay GST when buying commercial property?

You may be required to pay Goods and Services Tax (GST) on the commercial property you have purchased. However, you will not have to pay GST if both you and the seller of the property are registered for GST, you intend to use the premises for taxable purposes or the property is not your primary place of residence.

How much deposit do I need for a commercial property?

The deposit price for a loan to purchase commercial property will vary from bank to bank. However, deposits for commercial property tend to be larger than residential property.

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