Many Asian investors and family property groups move from residential into commercial property: a tenanted shop, an office suite, a warehouse or a medical building. A commercial purchase works differently from buying a home. There are fewer consumer protections, the leases come with the property, and GST and Victoria’s newer property taxes can change the numbers.
For families buying from overseas, or with relatives abroad, the choice of buyer and foreign investment rules add another layer. This article outlines the legal issues commonly raised in commercial property due diligence in Melbourne and regional Victoria. It explains issues to raise, not answers for your purchase.
Choose the buying entity before you sign
A commercial property can be bought by an individual, a company, the trustee of a family or unit trust, or a self-managed superannuation fund (SMSF). Each has different consequences for tax, asset protection, borrowing, succession and family law. Changing the buyer after signing, by nomination or a later transfer, may raise duty and other issues.
An SMSF may buy business real property, including from a related party at market value, and may lease it to a related party on arm’s length terms. The superannuation rules on borrowing and related-party dealings are strict and involve the fund’s adviser.
Where anyone involved is overseas, Victoria’s foreign surcharges need checking. Foreign purchaser additional duty is generally aimed at residential property, though the classification of a mixed-use or development site can depend on its use. The absentee owner surcharge on land tax can apply to land of any type held by an absentee individual, a foreign corporation or an absentee trust, and a discretionary trust whose deed does not deal with foreign beneficiaries may be caught. Land held on trust is also generally assessed at trust surcharge rates unless an exception applies. Our articles on foreign owners’ property tax discuss this further.
The contract and section 32 statement
A vendor’s statement under section 32 of the Sale of Land Act 1962 (Vic) is still required, and our article on section 32 statements and cooling-off covers the general rules. The cooling-off right under section 31 generally does not apply where the land is used primarily for industrial or commercial purposes, or where the buyer is a company, among other exceptions.
GST. A tenanted property may be sold GST-free as a going concern, but only if the conditions are met, including that the leases are part of the sale, the buyer is registered or required to be registered for GST, and both parties agree in writing. If the conditions fail, GST may be payable, so whether the price includes GST matters. The margin scheme is available in some cases and also needs written agreement. The GST position is a point for your accountant before signing.
Leases and outgoings. Buyers commonly request every lease, variation, side letter and rent roll and compare them with the particulars of sale. Under a retail lease some outgoings, such as land tax, generally cannot be recovered from the tenant, so the net return can differ from the marketing figures.
Commercial and industrial property tax. Since 1 July 2024, commercial and industrial land in Victoria enters a new regime on its first qualifying transaction. Duty is paid on that entry transaction, and eligible buyers may be able to spread it through a government transition loan. Later sales are generally exempt from duty while the land keeps a qualifying use, and an annual tax applies after a transition period. Whether the property has already entered the regime should be confirmed through a property clearance certificate from the State Revenue Office.
Planning, contamination and building compliance
Due diligence usually covers the zone and any overlays, such as heritage, flooding or environmental audit overlays, and whether the current or intended use is permitted. Former service stations and industrial sites can carry contamination risk. Under the Environment Protection Act 2017 (Vic), duties to manage and notify contaminated land fall on whoever manages or controls the land, which can include a new owner who did not cause the contamination. Owners are also responsible for building compliance: occupancy permits, permits for past alterations, cladding, and essential safety measures such as fire systems, which must be maintained and reported on annually.
Leases you are taking over
When you buy a tenanted property you generally step into the landlord’s shoes, including obligations under the Retail Leases Act 2003 (Vic) for retail tenants. Rent arrears, existing disputes and options to renew need checking. Security deposits need to be transferred, and bank guarantees usually name the vendor, so they may need to be reissued or transferred. Our article on commercial and retail leases discusses lease terms in more detail.
Finance and guarantees
Commercial lenders look closely at the leases, the valuation and the borrowing structure, and may require personal guarantees from directors or family members. A guarantee can bind the guarantor’s estate, and the finance condition should match the lender’s timetable. Our article on private lending documents covers non-bank finance.
FIRB and foreign persons
Foreign persons are generally required to notify the Treasurer before acquiring an interest in Australian commercial land above a monetary threshold. The thresholds depend on the investor and the land: vacant commercial land, sensitive land and national security land are treated more strictly, and foreign government investors generally need approval whatever the value. Approvals may carry conditions, and certain acquisitions of commercial land must be notified to the Register of Foreign Ownership of Australian Assets. Our article on buying property from overseas and FIRB covers the process.
Settlement and adjustments
Settlement is generally electronic, with rent, outgoings and bonds adjusted. Since 1 January 2024, many Victorian contracts cannot require the buyer to reimburse the vendor’s land tax, although contracts above an indexed price threshold may still provide for it, so the adjustment clause needs checking. The buyer must also withhold part of the price for the ATO unless the vendor provides a foreign resident capital gains withholding clearance certificate.
Questions to ask before signing
- Which entity should buy, and have our accountant and lender agreed?
- Is anyone involved a foreign person for FIRB or Victorian surcharge purposes?
- Is the sale a going concern for GST, and does the price include GST?
- Have we seen every lease and side letter, and which outgoings are recoverable?
- Has the property entered the commercial and industrial property tax regime?
- Does the zoning allow the use, and is there any contamination history?
- Are the occupancy permit and essential safety measures records in order?
- Who will guarantee the loan, and do they understand it?
How we work with property investors
With your consent, we coordinate with your agent on the contract, your accountant on the entity and GST, your broker on finance timing, and your building inspector on their findings, so issues reach the right person before you are bound. We advise in English, Mandarin and Cantonese, including for family members overseas.
Frequently asked questions
Do I pay GST when buying commercial property in Victoria?
It depends. A tenanted property may be sold GST-free as a going concern if the conditions are met; otherwise GST may apply. The GST clause should be checked with your accountant.
Should I buy commercial property in a trust or company?
There is no single answer. The choice affects tax, land tax, borrowing, asset protection and succession, and needs advice on your circumstances before you sign.
Can a foreign investor buy commercial property in Australia?
Generally yes, but foreign persons may need to notify the Treasurer and obtain approval depending on the investor and the land. Registration obligations and state surcharges may also apply.
Every family’s situation is different, and the answer often turns on details. Book a consultation so we can review your documents and circumstances before you act.
How Chua Tan Associates can help
Chua Tan Associates has practised in Melbourne since 1990 and acts for investors and family property groups buying commercial and investment property in Victoria, from contract and lease review to settlement. Justin Chua trained in accounting (Bachelor of Commerce, accounting major), is an affiliate member of STEP (the Society of Trust and Estate Practitioners), and advises on the legal and tax structure of family wealth together. He is a Nationally Accredited Mediator and an Accredited Family Business Advisor. We work with your accountant and registered tax agent and with lawyers in Asia, our notary public prepares documents for use overseas, and we advise in English, Mandarin and Cantonese.
Important: This article is general information only and must not be relied on. It is not legal, tax or financial advice, does not take your circumstances into account, and may not reflect changes in the law after publication. Laws of other countries may also apply. Do not act or refrain from acting on the basis of this article. Reading it or contacting us does not create a lawyer–client relationship. Please book a consultation for advice on your situation.
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Chua Tan Associates acts for families, executors, trustees and their professional advisers in estate planning, estate administration and estate disputes in Australia and across borders. To arrange a confidential consultation, please contact our Melbourne office on +61 3 9602 3988 or submit an enquiry. Advice is available in English, Mandarin and Cantonese.
Justin Chua (蔡智勋), lawyer and mediator, Chua Tan Associates, Melbourne. General information only, not legal or tax advice.
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