Short comings of a Section 32

Commercial,Property ManagementFriday 24 June 2016

Landlords are often unaware of all the detailed information that should be requested from a potential vendor prior to purchase. This can often be to their detriment.

When purchasing a commercial property, the purchaser receives the contract of sale, the Section 32, but not much else – this is particularly common in the case of a single tenant property.

The Section 32 includes a copy of title, details of the outgoings, service connections, past building permit history, zoning certificate, the lease and Owners Corporation Certificates (if applicable).

However, there is a lot more to know.

It is important that as an investor, you ask the right questions early in the purchase process of a potential commercial investment property.

Being well informed and obtaining necessary documentation can impact the successful financial return on your investment:

  • 1. Tenant’s Disclosure Statement: Management fees (for retail premises) are only recoverable if the amount, or rate for calculating the fee, is stated in either the lease or the disclosure statement. If the lease is silent, review the disclosure statement to check for this figure.
  • 2. The Essential Safety Measures sign off: This is an annual compliance requirement due on the anniversary of the Certificate of Occupancy. It will show that the Essential Safety Measures are compliant, and current.
  • 3. The Certificate of Occupancy: The Certificate of Occupancy should be requested. If unavailable the local council can generally provide a copy for a small fee. If the Certificate of Occupancy cannot be located it will be necessary to arrange a Maintenance Determination in order to meet the Section 251 requirements for annual sign off. This is an additional expense that can be avoided if it is provided by the vendor at the time of purchase.
  • 4. Plans: Many vendors have these, and simply do not think to provide as part of the sale process. Obtain whatever is available – they will be invaluable points of reference for contractors in the future, should maintenance problems arise.
  • 5. Small Business Commissioner 5 year waiver form: Should be obtained for any retail lease under 5 years.
  • 6. Formal market review: Obtain a copy of any previous reviews.
  • 7. Building Inspection Report: Definitely worth considering.
  • Speaking with a trusted property manager for guidance prior to purchase of a commercial investment property is always advantageous, to ensure you know what questions to ask the vendor, and are armed with all necessary documentation.

    Certainly the best management decision a landlord can make is to appoint a knowledgeable and trusted managing agent as soon as the property is purchased.

    For further information and assistance contact:

    Ingrid Filmer
    Director – Asset Management, Burgess Rawson