What to disclose when selling commercial property

What to disclose when selling commercial property

August 9, 2019

If buying and selling commercial property wasn't already complex enough you also need to factor in pre-contractual disclosure.

If you are preparing to sell your commercial property there are legal obligations to disclose defects in a commercial title before a contract is signed. That means that you need to ensure you have completed this aspect before the contract is drawn up for your buyer.

Avoiding legislative disclosure requirements, or not completing them correctly can have consequences that include being sued by the seller for damages, termination of the sales contract or a fine for lack of compliance.

Because of the expense and stress involved with getting it wrong, it's essential that you take the time and invest in professional legal advice when you are preparing your documents and executing the sale, to get it right.

Why are these legal requirements so complex?

Just like with every aspect of commercial property, every clause and contract item can be unique to the property, titles can have a number of restrictions and leases can have complex agreements depending on negotiations between the previous owner and tenant, the purpose and use of the building, deals and offers and restrictions placed before the building was even erected.

Defects in the title can include covenants, easements, and leases. Covenants include restrictions or requirements in place that can include the business use and operating hours, as well as many more items. These need to be contained or mentioned in the title of the property, as they can be enforced against successive property owners, even if they were imposed years before.

Easements are rights given to other companies and bodies to use the property or part of it for a specific purpose. Common easements are around lines and pipes for water, power, sewage and natural gas as well as cabling for phone lines and TV.

Some of the more significant variations that can occur from property to property include; off the plan sales, which may not yet have titles as they are still part of sub-division, these require significant additional legal work, as well as body corporate or strata titles, which usually come with additional disclosure requirements and can even go as far as necessitating implied statutory warranties.

Another part of the complexities involved with commercial disclosure arrangements is that there are several elements that need to be taken into account that varies from state to state. These differences occur due to unique temperaments of the land that have previously caused, or could possibly cause, financial loss to a property owner or business provider, such as fire or flooding.

Some of the differences in legislation from state to state include:

New South Wales: You must disclose all flood information as well as whether the property is inside a bush fire prone zone.
South Australia: You need to disclose if a mining tenement has been granted for the property.
Victoria: You must disclose if the property is within a bush fire-prone zone
Tasmania: You need to disclose any graves on the property.

Even though vendors are required to disclose any faults, buyers must do their research, ask questions, pay for building checks and carry out the required due diligence on titles, leases, covenants, and easements before signing an agreement. This means you will have a sound knowledge of any faults disclosed on the title as well as an awareness of anything that's omitted or overlooked. It's important to remember that while all this information is on public record, it's not always accurate, especially when it comes to unmarked convict graves in Tasmania, easements that may reduce land availability and even property size if previous owners have mortgaged part of the property in the past, it may have a different deed listing.

The only way to know if you have met your pre-contractual disclosure obligations before signing the contract is to have a commercial property legal professional go over your title and contract with a fine-tooth comb. It's important to allow adequate time for this and to hire a certified commercial conveyancer as soon as a verbal agreement is made for the property sale. They will be able to take into account the many regional variations as well as the unique differences that your commercial building will have in the preparation and execution of your sale contract.

It's always best to be aware of any issues and to disclose defects in title to prospective buyers before the contract signing rather than trying to resolve them after you've signed.


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