Buying or selling a commercial property or a business is one of the most significant financial decisions a client will make. Unfortunately, too often legal advice is sought after a contract has been signed or key terms agreed between the parties. At that point, any amendments generally require the consent of both parties and provisions that might have appear minor can carry significant financial or legal consequences, once those risks are fully understood, following legal advice.
Modern commercial contracts are no longer ‘standard form’ and they almost always include a set of special conditions which overrule the standard terms. Real Estate Agents play a crucial role in advertising, negotiating deals and progressing transaction, however effective outcomes for both sellers and buyers are best achieved when lawyers and accountants are involved early to assist with drafting the contract, special conditions and annexures. This ensures that the desired commercial terms and parties’ intentions are effectively reflected in legally and financially sound language.
Seller Disclosure
New Seller Disclosure regime pursuant to the Property Law Act 2023, requires that a seller of residential or commercial property must provide a completed Disclosure Statement and Prescribed Certificates to the buyer before the buyer signs the contract. Failure to do so or providing documents that are inaccurate or incomplete in a material way will give the buyer a statutory right to terminate the contract at any time before settlement, even if the contract is unconditional, and to receive a full refund of the deposit including any interest.
Warranties
Warranties are critical risk allocation tool in both commercial property and business contracts, however they are often misunderstood or underestimated. Warranties are legally binding statements about the condition of the property or business at the date of the Contract and are relied upon the buyer when deciding whether to proceed and on what terms. Warranties may relate to matters such as zoning, permitted use, compliance with planning or environmental laws, contamination, leases, outgoing, assets of the business or plant and equipment and any litigation. Poorly drafted, over limited or inadequate warranties can significantly restrict buyer’s ability to make a claim if issues arise post completion, while overly broad warranties may expose seller to unexpected and long-term liabilities. Early involvement of a commercial lawyer ensures warranties are carefully tailored, so that they can operate as intended.
Due Diligence
Due diligence is far more than a simple checklist exercise and its effectiveness heavily depends on how the due diligence clause is drafted in the first place. The important considerations are the scope of enquiries, the timeframes allowed, the standard by which a buyer may be satisfied, seller’s involvement and assistance and the right to terminate. A commercial lawyer assists not only by carefully drafting these clauses to reflect their client’s intentions, but also by coordinating and interpreting key searches and enquiries within the timeframe. Legal advice is crucial in assessing what the search results mean in practice and for identifying the material risks which can be addressed by price adjustments, variations to the contract or termination.
Leases
Leases are a fundamental component of both commercial property transactions and many business sales/purchases. Any errors or omissions in this area can have significant financial consequences. In the sale of commercial property, it is critical that all information provided about the lease is accurate and complete. From buyer’s perspective, careful review of the lease documentation is essential to ensure that the rental income is secure and consistent with the purchase price assumptions. In business acquisitions, where the operation is dependent on premises, the lease is often central to the viability of the business itself. Legal review of any lease in connection with the property or business purchase or sale ensures that the lease terms align with any representations made.
Conveyance
Commercial property and business transactions operate in fundamentally different legal and commercial environments than residential conveyancing and require higher level of legal involvement. Unlike residential transactions they often involve extensive due diligence, leases reviews, complex special conditions and finance and security documentation. An experienced commercial lawyer does not simply manage the conveyance process, but provides strategic advice, coordinates documentation, manages risk allocation and ensures that all legal and commercial aspects of the transaction are properly addressed, reducing the likelihood of disputes and costly issues arising after completion.
Whether buying or selling a commercial property or a business, the legal landscape is evolving and the margin for error is narrowing. Early engagement of an experienced commercial lawyer is not an added cost, but a strategic investment that can protect value, manage risk and ultimately determine the success of the transaction.
If you are considering the purchase or sale of commercial property or business early advice can make a meaningful difference to the outcome. Contact Paulina Sullivan from our Commercial and Property Department to book an initial consultation.
