The Commercial Contract of Sale: A Buyer's Review

The commercial contract of sale is the legal foundation of every commercial property acquisition. Once signed, it is the only protection the buyer has against problems discovered later. Cooling-off does not apply to commercial transactions in any Australian state, so the buyer relies entirely on the conditions negotiated and signed.

The buyer's leverage sits almost entirely in the special conditions; the vendor's exposure sits in the warranties and disclosures. Read both hard, because after exchange neither is open to change.

The contract is the work. Everything before it is preparation and everything after is execution. A two-hour solicitor review at the contract stage saves more than any other dollar a buyer spends on the acquisition.

The Standard Contract Structure

Commercial property contracts in Australia share a broadly common structure, with state-specific variations. The core sections cover:

• 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 base document is usually a state Law Society or Real Estate Institute template, then modified by special conditions to fit the specific transaction. Those special conditions are where the buyer's negotiating power lives.

1 Price and Deposit

Purchase price

The agreed price. Where GST applies to commercial property, the contract should state whether the price is GST-inclusive or GST-exclusive. A "plus GST" contract can land a settlement number 10% higher than the buyer expected if the GST treatment was misread.

Deposit

Usually 5% to 10%, paid on contract signing and held in the agent's or vendor's solicitor's trust account. It is the buyer's risk capital between exchange and settlement: if the buyer defaults, the deposit can be forfeited.

Deposit guarantee

Some contracts let the buyer lodge a deposit guarantee, an insurance product, instead of cash. It is cheaper than tying up working capital, but read the policy terms before relying on it.

2 Settlement Date and Adjustments

Settlement date

Usually 30, 60, or 90 days from contract signing. The buyer has to clear every settlement condition by that date: finance, title transfer, fund settlement, and stamp duty payment.

Adjustments at settlement

Rates, land tax, rent paid in advance by tenants, body corporate levies, and other recurring costs are adjusted as at the settlement date. The vendor takes the share covering their ownership period and the buyer pays the share covering theirs. The contract sets the adjustment basis.

Tenant security deposits and rent arrears

Tenant bond money usually transfers to the buyer at settlement. Rent arrears can transfer to the buyer or stay with the vendor, depending on the contract. The buyer-side review should confirm how any disclosed arrears are handled.

3 GST Treatment

The contract must specify the GST treatment. There are 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. The vendor elects to apply the margin scheme; 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 drives the buyer's settlement number, the stamp duty calculation, and the buyer's ability to claim input tax credits. The GST clauses need close buyer-side review.

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. Any gap between the disclosure and the actual leases is a material point for negotiation or contract amendment.

5 Special Conditions

Special conditions are the negotiable provisions either party adds to the standard form. The ones a buyer commonly pushes for:

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, though vendors do not always agree to it on commercial deals.

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. "Satisfaction" can be drafted as objective or subjective, and subjective gives the buyer more room.

Subject to FIRB approval

For foreign-linked buyers, the contract is conditional on FIRB approval. Where FIRB applies, the buyer-side review has to confirm the condition is in.

Subject to existing tenant exercising option

Where the asset's value turns materially on an option exercise, the contract can be conditioned on the tenant exercising that option by a stated date.

Vendor warranties

Specific warranties the vendor gives about the property. The usual set: title good and clear, no undisclosed encumbrances, no undisclosed leases, no current notices from authorities, and building compliant with applicable regulations.

6 Vendor Warranties and Disclosures

Standard disclosures

Section 10.7 certificate (NSW) or the equivalent: Vendor's Statement in Victoria, Form 8 in Queensland, and so on. Title search, plan, current rates, easements, caveats. Tenancy disclosures.

Negotiated warranties

The buyer can negotiate warranties beyond the standard set. These matter most 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 good as the vendor's ability to pay when it is breached. Vendor solvency at the time of breach is what counts: a warranty from an entity that may dissolve after settlement is worth far less than one from a substantial parent entity.

7 Default Provisions

Vendor default

If the vendor fails to complete, the buyer usually has options: terminate and recover the deposit, sue for specific performance, or sue for damages. The contract should set these out clearly.

Buyer default

If the buyer fails to complete, the vendor usually has options: terminate, retain the deposit, and sue for damages including any resale shortfall. The buyer's downside on default can be substantial, and the deposit is only the floor.

8 The Buyer's Pre-Sign Checklist

1. Solicitor has reviewed the contract and reported.
2. All material due diligence items are either complete or covered by special conditions.
3. Finance is pre-approved or covered by a subject-to-finance condition.
4. GST treatment is correctly recited and matches the buyer's understanding.
5. Tenancy disclosures match the underlying lease documents.
6. Deposit amount and form are agreed.
7. Settlement date is achievable.
8. Special conditions reflect the negotiated agreement, not the agent's verbal assurances.
9. Vendor warranties are documented in the contract.
10. 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. Any variation needs both parties to agree in writing.

What if the vendor refuses my special conditions?

Accept the contract without them and carry the risk, withdraw the offer, or counter-offer with different conditions. The vendor's position is negotiable too, and it is normal to expect some conditions to be agreed.

Is the deposit refundable if I withdraw?

Only if a contract condition allows withdrawal, such as subject to finance or 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 a straightforward commercial deal. 60 to 90 days is common where finance, planning, or other conditions need time to clear. Keep the settlement date realistic; an unachievable date creates default risk.