What is the Difference between Residential and Commercial Conveyancing

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While there are many similarities between residential and commercial conveyancing – that necessary legal process for transferring ownership from seller to buyer – there are also some important differences, which we’ll address in this article.

Expert legal advice should be sought for the conveyancing of either a residential or commercial property as there are a number of important steps to ensure the process is trouble-free and meets all legal requirements.

Key differences between residential and commercial property

While it’s more common for Australians to have the experience of investing in residential property, either to live in or rent out, than owning commercial property, the latter investment is often considered more attractive because it can result in higher yields (return relative to purchase price), better cash-flow and a broader variety of asset choices and purchase prices, among other advantages.

But compared with residential property, purchasing a commercial asset is usually a more complex process, requiring more extensive due diligence and a larger initial deposit. Some of the risks inherent in commercial property investment include the asset’s over-reliance on wider economic conditions (to keep or attract a tenant/s, for example) and the higher costs for repairs and maintenance.

Residential property conveyancing

In terms of conveyancing, when selling a residential property an experienced solicitor can help you with the disclosures to the buyer required by law, including the obligation to provide a pool safety certificate or notice of no pool safety certificate if the property has a pool; any encumbrances affecting the property; and if the property is recorded on the contaminated land or environmental management register. Information about the body corporate must be provided to the buyer if the property is a townhouse or unit. A seller must also inform the buyer on whether the property has compliant smoke alarms and an approved electricity safety switch.

Failure to provide these disclosures before settlement can provide the buyer with the right to terminate the contract and claim for compensation from the seller.

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    Unlike commercial property, residential property sales in Queensland are also subject to a buyer’s cooling-off period of five business days commencing on the date a copy of the contract signed by both the buyer and the seller is received by the buyer or their solicitor.

    These days, contracts for residential property sales are fairly straightforward, the Real Estate Institute of Queensland (REIQ) and Queensland Law Society offering a standard contract for the conveyancing of this type of property.

    Legal advice should still be sought so that the standard contract can be amended to address your individual circumstances. This might include clauses which deal with the fact the purchase depends on the sale of an existing property; that the property is not subject to flooding; and that the sellers hold and have complied with all necessary statutory approvals. Obtaining an independent valuation of the property is also vital before you sign the contract.

    Commercial property conveyancing

    By contrast, conveyancing of commercial property is generally a lengthier process which includes investigation of permitted uses of the land, the details of commercial leases, land tax implications, zoning, and much more.

    The most time consuming part of the conveyancing process for commercial property is the due diligence required to investigate whether there are any claims on the property, titles, encumbrances, environmental notices or other issues which might impair the seller’s ability to transfer title to a willing buyer.

    While in Queensland these investigations are the responsibility of the buyer, the seller of commercial property is advised to conduct their own title search and property investigation. Why? To avoid any liability for non-compliance should the buyer’s investigation turn up any issues regarding property and land regulations and laws.

    Another important issue to consider in the conveyancing of a commercial property is GST, which is payable on the purchase of this type of property. An extra 10 per cent on the property’s purchase price should be factored in, which can potentially be claimed back later as an input tax credit if you’re an investor.

    Generally speaking, a larger deposit of about 30 percent of the property’s value is required to secure approval for a commercial property mortgage, with lenders offering a maximum loan-to-value ratio of 70 per cent.

    While residential property lease arrangements are quite standard, most terms of a commercial lease agreement are negotiated between the tenant and landlord and unique to their arrangement. Therefore, where the commercial property has a tenant already in place, it’s essential to have a solicitor look over the existing lease before agreeing to buy the property, particularly if you’re unfamiliar with commercial leases. Options, rent increases, and which party is responsible for the property’s ongoing expenses are all matters addressed in commercial leases which a prospective buyer should be aware of. This process should also include background research on the tenant’s financial situation. Should a tenant declare bankruptcy and the property is suddenly without a tenant, the property’s value will be adversely impacted.

    Where the property is vacant with no current tenant, it’s important that the conveyancing process ensures any new proposed use of the property is compliant with permitted use and other zoning regulations.

    Your conveyancer must also create the contract of sale based on mutual consideration for the purchase; ensure payment of fees (land tax, water consumption charges, fees, rates, governmental regulations, etc.); undertake negotiations with their financiers to make certain that their prerequisites are satisfied pre-purchase; and oversee final settlement of money and documents.

    In summary

    Good advice and guidance from legal representatives with experience in conveyancing is crucial to a smooth transferal of ownership, whether you’re investing in or disposing of residential or commercial property.

    At Big Law we are specialists in residential and commercial property conveyancing and can help you methodically check off all the issues raised in this article in order to ensure a stress-free, efficient and legally compliant sale process. Call us today on (07) 3482 6999.

    At Big Law we provide holistic legal solutions to legal matters.

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