The commercial contract of sale is the legal foundation of every commercial property acquisition. Once signed, the contract is the only protection the buyer has against problems discovered later. Cooling-off does not apply to commercial transactions in any Australian state; the buyer must rely on the conditions negotiated and signed.
This article covers what a buyer should review in a commercial contract of sale, the conditions that are typically available (and not available) to negotiate, and the buyer-side framework for moving from offer to signed contract with appropriate protection in place.
The contract is the work. Everything before is preparation; everything after is execution. A two-hour solicitor review at the contract stage saves more cost than any other single piece of buyer-side spending in the acquisition.
The Standard Contract Structure
Commercial property contracts in Australia follow a broadly common structure (with state-specific variations) covering:
- Parties (vendor, purchaser, addresses).
- Property description (address, title reference, plan).
- Price and deposit.
- Settlement date and adjustments.
- GST treatment.
- Tenancies disclosed.
- Special conditions.
- Vendor warranties and disclosures.
- Default and remedy provisions.
The standard form is often a state Law Society or Real Estate Institute template, modified by special conditions to suit the specific transaction. The special conditions are where the buyer-side negotiating power lives.
1 Price and Deposit
Purchase price
The agreed price. For commercial property where GST applies, the contract should specify whether the price is GST-inclusive or GST-exclusive. A "plus GST" contract can produce a settlement number 10% higher than the buyer expected if the GST treatment was misunderstood.
Deposit
Typically 5% to 10% paid on contract signing, held in the agent's or vendor's solicitor's trust account. The deposit is the buyer's risk capital between exchange and settlement; if the buyer defaults, the deposit can be forfeited.
Deposit guarantee
Some contracts allow the buyer to provide a deposit guarantee (an insurance product) instead of cash. Cheaper than tying up working capital but the policy terms should be reviewed.
2 Settlement Date and Adjustments
Settlement date
Typically 30, 60, or 90 days from contract signing. The buyer needs to clear all settlement conditions by this date: finance, title transfer, fund settlement, stamp duty payment.
Adjustments at settlement
Rates, land tax, rent in advance from tenants, body corporate levies, and other recurring costs are adjusted as at the settlement date. The vendor receives the share covering their ownership period; the buyer pays the share covering theirs. The contract specifies the adjustment basis.
Tenant security deposits and rent arrears
Tenant bond money typically transfers to the buyer at settlement. Rent arrears can be transferred or retained by the vendor depending on the contract. The buyer-side review should confirm how disclosed arrears are handled.
3 GST Treatment
The GST treatment must be specified in the contract. Three principal options:
- Going concern. GST-free supply. The contract recites the agreement that the supply is of a going concern and the buyer's GST registration.
- Margin scheme. Vendor elects to apply the margin scheme; the GST is calculated on the vendor's margin rather than the full sale price.
- Standard taxable supply. 10% GST on the sale price.
The treatment affects the buyer's settlement number, the stamp duty calculation, and the buyer's ability to claim input tax credits. Buyer-side review of the GST clauses is essential.
4 Tenancies Disclosed
For tenanted commercial property, the contract should disclose:
- Tenants in occupation, with start and end dates, current rent, and option terms.
- Disclosed rent arrears.
- Outstanding tenant works or landlord obligations.
- Existing leasing agreements or commission obligations.
- Tenant security deposits or bank guarantees held.
The buyer-side review reads each disclosed tenancy against the underlying lease documents. Discrepancies between the disclosure and the actual leases are a material point for negotiation or contract amendment.
5 Special Conditions
Special conditions are negotiable contract provisions added by either party. Common buyer-side special conditions include:
Subject to finance
The contract is conditional on the buyer obtaining specific finance by a stated date. If finance is not obtained, the buyer can terminate without penalty. Common but not always agreed by vendors for commercial.
Subject to satisfactory due diligence
The contract is conditional on the buyer's satisfaction with specified due diligence items (lease review, building inspection, environmental review, planning review) by a stated date. The "satisfaction" can be drafted as objective or subjective; subjective gives the buyer more flexibility.
Subject to FIRB approval
For foreign-linked buyers, the contract is conditional on FIRB approval. The buyer-side review must confirm this is included if FIRB applies.
Subject to existing tenant exercising option
Where the asset's value is materially dependent on an option exercise, the contract can be conditioned on the tenant exercising the option by a stated date.
Vendor warranties
Specific warranties the vendor provides about the property. Common: title good and clear, no undisclosed encumbrances, no undisclosed leases, no current notices from authorities, building complies with applicable regulations.
6 Vendor Warranties and Disclosures
Standard disclosures
Section 10.7 certificate (NSW) or equivalent (Vendor's Statement in Victoria, Form 8 in Queensland, etc.). Title search, plan, current rates, easements, caveats. Tenancy disclosures.
Negotiated warranties
The buyer can negotiate additional warranties beyond the standard. These are particularly important for:
- Environmental status (no contamination, no current notices).
- Building compliance (current certificates, no current orders).
- Tenancy disclosures (no undisclosed side arrangements with tenants).
- GST treatment (vendor's representations about going concern eligibility).
Warranty enforceability
A warranty is only as valuable as the vendor's ability to pay if it is breached. Vendor solvency at the time of breach matters; warranties from a vendor entity that may dissolve post-settlement are weaker than warranties from a substantial parent entity.
7 Default Provisions
Vendor default
If the vendor fails to complete, the buyer typically has options: terminate and recover deposit, sue for specific performance, sue for damages. The contract should set these out clearly.
Buyer default
If the buyer fails to complete, the vendor typically has options: terminate, retain deposit, sue for damages including resale shortfall. The buyer's downside on default can be substantial; the deposit is the minimum loss.
8 The Buyer's Pre-Sign Checklist
- Solicitor has reviewed the contract and reported.
- All material due diligence items are either complete or covered by special conditions.
- Finance is pre-approved or covered by a subject-to-finance condition.
- GST treatment is correctly recited and matches the buyer's understanding.
- Tenancy disclosures match the underlying lease documents.
- Deposit amount and form are agreed.
- Settlement date is achievable.
- Special conditions reflect the negotiated agreement, not the agent's verbal assurances.
- Vendor warranties are documented in the contract.
- The buyer's entity is correctly named and signing authority is in place.
Frequently Asked Questions
Can I add conditions after signing?
Generally no. The contract is fixed at signing. Variations require both parties to agree in writing.
What if the vendor refuses my special conditions?
Either accept the contract without the conditions (and absorb the risk), withdraw the offer, or counter-offer with different conditions. The vendor's position is also negotiable; standard practice is to expect some conditions to be agreed.
Is the deposit refundable if I withdraw?
Only if a contract condition allows withdrawal (e.g., subject to finance, subject to DD). Without a condition that fails, the deposit is at risk.
How long does a typical settlement take after signing?
30 days is the standard minimum for straightforward commercial. 60 to 90 days is common where finance, planning, or other conditions need time to clear. The settlement date should be realistic; an unachievable date creates default risk.