Buying commercial property in Victoria: legal issues before signing

What is being acquired — land, business or entity?

The first legal question is what the transaction is actually acquiring. Each pathway has different assets, liabilities, documentation, duty and GST consequences, and different due diligence requirements:

• Direct purchase of land and buildings. The buyer takes the freehold (or leasehold) estate in the land, subject to registered and disclosed interests, and becomes the landlord under any existing leases from settlement.
• Purchase of a business. The buyer takes specified business assets (goodwill, plant and equipment, stock, contracts, intellectual property, leases and possibly employees) under a business sale agreement, with its own warranties, restraints, apportionment and transitional provisions. See our guide to buying a business in Victoria.
• Purchase of shares or units in a landholding entity. The buyer acquires the equity in the entity that owns the land or business. The entity retains its historical liabilities and tax attributes, and the acquisition may engage the landholder duty provisions of the Duties Act 2000 (Vic) rather than land transfer duty, together with tailored warranties, indemnities and completion adjustments.

The three pathways are not interchangeable. The choice drives the form of contract, the due diligence scope, the duty and GST analysis, the treatment of employees and contracts and the risk profile after completion.

Contract and vendor statement

Commercial contracts of sale in Victoria commonly build on an industry-standard form but are usually heavily varied by special conditions dealing with GST, going concern, adjustments, existing leases, condition of the property, vendor warranties, limitation of liability and default. The special conditions are where the substantive risk allocation occurs and must be read alongside the general conditions.

Section 32 of the Sale of Land Act 1962 (Vic) requires a vendor to give a signed statement disclosing prescribed matters before a purchaser signs a contract of sale of land. The section is not confined to residential land; it applies to sales of land in Victoria and is therefore generally relevant to commercial acquisitions. Disclosure typically includes title particulars, registered and certain unregistered encumbrances, planning information, rates and outgoings, services and specified notices. The vendor statement is a disclosure document. It does not warrant that the property is in any particular physical condition, that the buyer's intended use is lawful, or that any future planning or building outcome will be achieved.

The statutory cooling-off period in section 31 of the Sale of Land Act does not apply to most commercial acquisitions. Once a commercial contract is signed, the buyer is generally bound.

Title and off-title due diligence

Title due diligence normally covers the certificate of title, plan of subdivision, boundaries, easements, covenants, restrictions, caveats, mortgages, registered leases and any registered agreements affecting the land. It is equally important to identify off-title interests that searches may not reveal, including unregistered leases and licences, statutory agreements, works and access agreements, party wall and encroachment issues, and unrecorded rights of way or drainage. A search establishes what is on the register at a point in time; it does not guarantee the absence of off-title rights, defects or unrecorded arrangements. Contractual warranties, disclosure requests and physical inspection are needed alongside the searches.

Planning and permitted use

Use of commercial land is controlled by the applicable planning scheme under the Planning and Environment Act 1987 (Vic). Due diligence should identify:

• the zone and any applicable overlays affecting use, buildings and works;
• whether the buyer's intended use is a section 1, section 2 or section 3 use in the zone;
• any existing planning permits on the land and their conditions, including endorsed plans and expiry dates;
• whether existing-use rights are relied on and whether the factual basis for those rights can be evidenced; and
• likely referrals, notice requirements and objector risk on any permit that would be needed for the buyer's proposed use or works.

Council property information statements, planning certificates and informal advice from agents or officers do not guarantee that a proposed use is or will be permitted or that a permit will be granted. Where use, works or subdivision approvals are essential to value, the contract should be made conditional on those approvals or on the buyer's satisfaction with a planning assessment obtained during a due diligence period.

Building compliance and works

Building due diligence under the Building Act 1993 (Vic) and associated regulations typically considers:

• building permits and occupancy permits for existing buildings, including any works completed without permits or contrary to endorsed plans;
• essential safety measures maintenance obligations and current maintenance determinations;
• fire services and any outstanding building notices or orders;
• disability access and, where relevant, compliance with the Premises Standards under the Disability Discrimination Act 1992 (Cth); and
• the condition of building services and structural elements that will fall to the new owner.

Legal review of contract and permit documents is separate from the technical work done by a building surveyor, structural or services engineer and, where relevant, an environmental consultant. Each professional has a distinct role and their reports should be commissioned as part of a coordinated due diligence programme.

Environmental risk

The Environment Protection Act 2017 (Vic) imposes a general environmental duty on persons engaging in activities that may give rise to risks of harm to human health or the environment from pollution or waste, and separate duties in relation to contaminated land. Where the current or past uses of the site suggest contamination risk (industrial, automotive, chemical, fuel storage, dry cleaning, older buildings with asbestos-containing materials), the transaction should consider:

• EPA public register searches, priority site listings and any environmental audit statements affecting the land;
• a phase 1, and where indicated a phase 2, environmental site assessment by a suitably qualified consultant; and
• contractual allocation of environmental risk through warranties, indemnities, price adjustments and conditions precedent.

A basic public register search does not exclude the possibility of contamination or of duties arising under the environmental legislation after settlement, and does not substitute for specialist environmental advice.

Existing leases and the Retail Leases Act 2003 (Vic)

Where the property is tenanted at settlement, the buyer steps into the landlord's position under each lease. Lease review should cover, at minimum:

• term, options to renew and notice deadlines, particularly options falling shortly after settlement;
• rent, rent review mechanism (fixed, CPI, market or ratchet) and any reviews falling due close to settlement;
• incentives, rent-free periods, fit-out contributions and any side arrangements the vendor has agreed with tenants;
• outgoings recovery, including any caps, exclusions or statutory limits;
• security — bank guarantees, personal guarantees and security deposits — and whether they transfer cleanly to the buyer at settlement;
• permitted use, assignment, subletting and change-of-control provisions;
• repair, maintenance and make-good obligations at the end of the term;
• rental and outgoings payment history, arrears and any current or threatened tenant disputes; and
• disclosure statements previously given by the landlord and any disclosure obligations that will pass to the new landlord.

The Retail Leases Act 2003 (Vic) does not apply to all shops, offices or warehouses. It applies only where the statutory criteria for a "retail premises lease" are met, having regard to permitted use, occupancy cost thresholds where relevant, ministerial determinations and current authority. Whether the Act applies to a particular tenancy is a lease-by-lease question — not a matter of asset class — and it affects the landlord's disclosure obligations, outgoings and land tax recovery and other rights and duties. See our article on when the Retail Leases Act applies in Victoria.

GST and going concern

GST under the A New Tax System (Goods and Services Tax) Act 1999 (Cth) commonly, but not always, applies to commercial property. The analysis depends on whether the vendor is registered or required to be registered for GST, whether the supply is a taxable supply, whether it is or could be input taxed, and whether any specific concession applies.

Section 38-325 of the GST Act makes a supply of a going concern GST-free where, in summary, the supply is for consideration, the recipient is registered or required to be registered for GST, the supplier and the recipient have agreed in writing that the supply is of a going concern, and the supplier supplies to the recipient all of the things that are necessary for the continued operation of the enterprise and carries on the enterprise until the day of the supply. A tenanted property is not automatically a going concern; the statutory requirements must be met on the facts and the contract wording must correctly document the parties' agreement.

The margin scheme under Division 75 of the GST Act may reduce the GST payable on some supplies but is only available where it is legally open and the parties agree in writing. GST treatment materially affects the cash required at settlement and should be confirmed by the buyer's accountant, with the contractual clauses drafted to align with that position.

Duty — land transfer duty and landholder duty

A direct purchase of Victorian land is generally assessed to land transfer duty under Chapter 2 of the Duties Act 2000 (Vic), calculated on the greater of consideration and unencumbered market value at the applicable rates. Concessions and exemptions may be available on their own terms and are not universal.

An acquisition of shares or units in an entity that holds Victorian land can instead engage the landholder duty provisions in Chapter 3, which apply their own thresholds, aggregation and calculation rules and treat significant interests in landholders as dutiable in specified circumstances. The two regimes are not interchangeable and the applicable analysis depends on the transaction structure, the identity of the acquirer, prior acquisitions and current State Revenue Office guidance.

Foreign purchaser duty and FIRB

Foreign purchaser additional duty under the Duties Act 2000 (Vic) is directed at acquisitions of "residential property" (as defined) by "foreign purchasers" (as defined) and is not a general surcharge on all commercial property. Mixed use or development sites with a residential component may still be captured, and landholder acquisitions may be relevant separately, so the property, the intended use and the identity of the acquirer all need to be checked.

Separately, the Foreign Acquisitions and Takeovers Act 1975 (Cth) is a federal regime that may require Foreign Investment Review Board (FIRB) approval and impose application fees on acquisitions of Australian land or interests in Australian entities by foreign persons, with current thresholds and exemptions varying by asset type and acquirer. FIRB requirements should be checked on their current terms before signing.

Land tax, absentee owner, VRLT and WGT

Land tax under the Land Tax Act 2005 (Vic) is assessed annually on the taxable value of Victorian land held at 31 December in the preceding year, with its own thresholds, trust rules and exemptions. It is separate from:

• the absentee owner surcharge that applies to certain owners under the Land Tax Act;
• vacant residential land tax (VRLT), which applies to specified residential land under its own provisions; and
• the windfall gains tax under the Windfall Gains Tax and State Taxation and Other Acts Further Amendment Act 2021 (Vic), which may apply on rezoning events affecting the land.

Section 10G of the Sale of Land Act 1962 (Vic) restricts a vendor from apportioning or passing on land tax to a purchaser under a contract of sale of land in prescribed circumstances, subject to statutory exceptions (including thresholds tied to contract price and specified excluded contracts). Whether a land tax adjustment is lawful on a particular commercial contract turns on the contract date, price, property and current terms of the section and any regulations. Not all adjustments customary in older commercial contracts remain permissible.

Owners corporation (where applicable)

Where the property is part of an owners corporation under the Owners Corporations Act 2006 (Vic), the vendor statement should include an owners corporation certificate (or a statement that no certificate has been obtained). Review should consider the rules, current and proposed fees and special levies, sinking fund position, insurance, maintenance issues, and any current or proposed major works, disputes or proceedings. The certificate is a disclosure document at a point in time; it is not a warranty about the future financial position or maintenance obligations of the owners corporation.

Finance, deposit and settlement

Commercial finance is generally more heavily conditional than residential lending. Lenders often require valuations, environmental reports, lease reviews, updated financials and legal documentation on the security position, and the terms offered depend on the borrower, the property and the lender's current policies. Loan-to-value ratios, deposit percentages, borrowing costs and approval timeframes are not fixed and should not be assumed. Where funding is not unconditionally approved before signing, the finance condition must be properly drafted, including notice mechanics on non-approval.

Deposit, settlement period, default and interest provisions in commercial contracts are commonly varied from standard residential forms. When risk in the property passes, what insurance is required and by whom, and whether vacant possession or subject-to-tenancy settlement applies, are all matters to be determined by reference to the specific contract and the applicable statute rather than by universal assumption.

PPSR and included personal property

Where the transaction includes items of personal property (for example plant, equipment, fit-out or chattels), a search of the Personal Property Securities Register (PPSR) under the Personal Property Securities Act 2009 (Cth) may be appropriate to identify registered security interests over those goods, and appropriate release or discharge arrangements should be included in the contract. A PPSR search relates to personal property and does not establish title to the underlying land.

Structuring, tax and SMSF considerations

The choice of purchasing entity — individual, company, discretionary trust, unit trust or self-managed superannuation fund (SMSF) — affects contract description, finance and security, duty, GST, land tax, asset protection and future succession. SMSF acquisitions are subject to specific rules under the Superannuation Industry (Supervision) Act 1993 (Cth), including limits on the types of property an SMSF can acquire from related parties (section 66) and the conditions on borrowing through a limited recourse borrowing arrangement (section 67A). Tax outcomes on rent, capital gains and depreciation are case-specific and depend on the entity, the property and current ATO guidance; no particular deduction, tax saving or CGT outcome should be assumed and tailored accounting advice should be obtained.

For broader commercial structuring issues, see our Commercial and Business Law service page.

Practical checklist before signing

1. Confirm what is being acquired — land, business, or shares/units — and the appropriate contract.
2. Confirm the purchasing entity and its signing authority.
3. Obtain the contract, vendor statement and disclosure attachments in advance.
4. Engage a lawyer to review the contract, vendor statement and special conditions.
5. Obtain accounting advice on GST (including any going-concern claim), duty, land tax and structuring.
6. Confirm zoning, permit history and whether the intended use is permitted or requires a planning permit.
7. Undertake building, environmental, services and, where relevant, owners corporation due diligence proportionate to the property.
8. If tenanted, review every lease and any side arrangements, and check whether the Retail Leases Act 2003 (Vic) applies.
9. Where relevant, check foreign purchaser duty exposure and FIRB requirements on current terms.
10. Align finance condition wording with the lender's actual process before signing.

When to seek legal advice

Legal advice should be obtained before signing — ideally before an offer is submitted. Once a commercial contract is signed, the buyer is generally bound and the opportunity to negotiate is significantly reduced. Where disputes arise after signing — for example on disclosure, tenant arrangements or settlement default — early advice is also important. See our Property and Conveyancing and Litigation and Dispute Resolution service pages, or browse other guides in the Information Centre.

Frequently Asked Questions