Buying commercial property in New Zealand is a major investment and should be approached with careful planning and thorough due diligence. The key considerations are outlined below.
1. Conduct Thorough Due Diligence
- Review building reports, LIMs, and zoning and planning rules to confirm compliance and permitted use.
- Confirm all required consents are in place and that there are no unresolved compliance issues.
- Review all leases and tenant payment history, including term, renewals, rent reviews, outgoings, insurance responsibilities, guarantees, and termination provisions.
- Check the Building Warrant of Fitness history, identify any past issues, and understand the ongoing cost and process of maintaining compliance.
- Obtain legal and financial advice before committing to the purchase.
2. Consider the Property Type
Consider whether the property suits your business objectives and long-term plans, including its age, likely repair needs, quality of fit-out, and ease of reletting.
3. Ownership Structure and Tax Considerations
Choose an ownership structure that fits your objectives, particularly if buying with others, and assess the GST and income tax implications.
4. Title and Ownership Details
- Clarify whether the property is freehold, leasehold, cross lease, or unit title, as each has different rights and obligations.
- If it’s a unit title, understand the body corporate rules and fees involved.
5. Finance and Ongoing Budgeting
Arrange suitable finance prior to the purchase and know your limits! Budget for ongoing costs, including maintenance not recoverable under the lease, to avoid unexpected expenses.
6. Assess the Return on Investment (ROI)
Assess expected returns by modelling rental income, outgoings, tax costs, and potential capital growth, then compare the property with similar assets in the area and other investment options.
7. Insurance Requirements
Confirm the insurance required for the property, including building and public liability cover where appropriate, before settlement.
8. Purchase Price Allocation and Chattels
Confirm whether a purchase price allocation will apply and ensure any fit-out, chattels, or equipment included in the sale are clearly identified.
This is not an exhaustive list, but careful review of these matters will help reduce risk and support a sound investment decision. Professional legal, financial, and property advice remains essential throughout the purchase process.
