Table of Contents
- Less is more: You do not need to answer the agent’s questions
- Speak to your solicitor before you agree to anything, including a letter of offer
- Decide who is buying before you sign
- There is no cooling-off period: do not rush to exchange
- Secure the property without locking yourself in
- Auctions, tenders and expressions of interest: do your homework first
- Get the GST treatment agreed up front
- Buying a tenanted property: the lease is the asset
- Anything can be negotiated: stand your ground
- Treat it as an investment, not a dream purchase
Negotiating the purchase of a commercial property is a different exercise from buying a home. The price is usually higher, the contract is more complex, and the law gives buyers fewer protections.
Whether you are an owner-occupier buying premises for your business, an investor buying a leased asset, or a self-managed super fund buying its first property, the terms you negotiate before exchange will shape the return you get for years.
How do you make sure you are getting the best deal? What strategies can you use to shift the terms in your favour? In this article, we take you through the essential tactics to use when negotiating a commercial property purchase.
Top 10 tips when negotiating as a commercial property buyer
Here are our tips to help you negotiate with confidence and avoid the most common (and costly) mistakes:
- Less is more: You do not need to answer the agent’s questions
- Speak to your solicitor before you agree to anything, including a letter of offer
- Decide who is buying before you sign
- There is no cooling-off period: do not rush to exchange
- Secure the property without locking yourself in
- Auctions, tenders and expressions of interest: do your homework first
- Get the GST treatment agreed up front
- Buying a tenanted property: the lease is the asset
- Anything can be negotiated: stand your ground
- Treat it as an investment, not a dream purchase
1. Less is more: You do not need to answer the agent’s questions
The selling agent is usually your first point of contact. Commercial agents are experienced negotiators, and their questions are designed to work out how motivated you are and how much you can pay.
You should be asking the questions, not the other way around. Common questions to deflect include:
- What do you plan to use the property for?
- Is your finance approved, and who is your lender?
- Are you buying through a company, trust or SMSF?
- How soon do you need to move in or settle?
- What other properties are you looking at?
For example, if you tell the agent your business must relocate before your current lease expires, you have handed them a deadline to negotiate against. If you reveal the property suits a higher-value use (such as a redevelopment or a change of use), expect the price to move.
2. Speak to your solicitor before you agree to anything, including a letter of offer
Keep your cards close to your chest. Do not disclose information or agree to terms without speaking to your solicitor first.
Commercial agents often ask buyers to sign a letter of offer, heads of agreement or expression of interest form before a contract is issued. These documents can set the price, deposit, settlement date and conditions, and some are drafted to be binding. Your solicitor should review them before you sign, and they should be clearly marked “subject to contract”.
If you have already negotiated something with the agent, tell your solicitor before you sign the contract. If the agent has agreed to a rent guarantee, a repair, the removal of a tenant or the inclusion of plant and equipment, your solicitor will make sure it is written into the contract of sale. A verbal promise from an agent is not enforceable once you have exchanged.
Example: revealing too much to the agent
A buyer looking for a warehouse for their logistics business told the agent they had been searching for months and that this was the only property near their main client. The agent passed this on to the vendor, who withdrew a price reduction that had been on the table and refused to agree to a due diligence period. The buyer’s leverage was gone before their solicitor had seen the contract.
When we negotiate for a client, we have one rule: don’t speak to the agent and don’t disclose anything without speaking to your solicitor first.
3. Decide who is buying before you sign
In commercial transactions, the identity of the buyer matters. Many commercial properties are bought through a company, a family trust or a self-managed super fund (SMSF), and the right structure depends on your tax, asset protection, lending and succession goals.
Settle this with your solicitor and accountant before exchange. Changing the purchaser after exchange usually needs the vendor’s agreement and may attract additional stamp duty. If you are buying through an SMSF with borrowed funds, a bare trust (holding trust) structure must be in place, and getting the order of steps wrong can be costly to fix.
Telling the agent you are “still deciding on the entity” is enough. They do not need the details.
To learn more about tax structuring and the pros and cons of different ownership structures, see our article on the topic [insert link].
4. There is no cooling-off period: do not rush to exchange
This is the biggest difference between buying a home and buying commercial property. In NSW, the statutory 5 business day cooling-off period applies only to residential property. When you exchange on a commercial contract, you are bound from that moment.
Agents will still push you to exchange within days. There is no legal obligation to do so, and there is no legal relationship between you and the vendor until contracts are exchanged. The trade-off is the risk of being “gazumped” by another buyer while you complete your checks.
Because you cannot cool off, your due diligence must be done before you exchange, or the contract must give you a way out. Commercial due diligence typically covers:
- Zoning and permitted use (section 10.7 planning certificate) and any development consents
- Building compliance, including the annual fire safety statement, cladding and any council or fire safety orders
- Leases, tenancy schedules, rent arrears, incentives and outgoings recovery
- Contamination and environmental risks, particularly for industrial sites
- Strata records and levies, if the property is a strata lot
- Building and pest inspection, and the condition of plant such as lifts and air conditioning
- Finance approval and valuation
The findings from your due diligence are also your best negotiating tools. A defect, an expiring lease or a compliance issue is a legitimate reason to ask for a lower price.
5. Secure the property without locking yourself in
In a residential purchase, a buyer can use a 0.25% deposit to exchange with a cooling-off period and hold the property. That option does not exist for commercial property, but there are other ways to secure the deal while keeping an exit:
- Due diligence period: a special condition giving you a set number of days to complete your checks and end the contract if you are not satisfied, with your deposit refunded.
- Finance or approval conditions: the contract is conditional on finance approval, a development approval, landlord consent or similar.
- Call option: you pay an option fee for an exclusive right to buy the property within a set period. If you do not exercise the option, you usually lose the fee, but nothing more.
- Exclusivity agreement: the vendor agrees not to deal with other buyers for a set period while you complete your checks.
The deposit itself is also negotiable. The standard deposit is 10%, but vendors often accept 5%, a deposit bond or bank guarantee, or a deposit paid in instalments. Be cautious about agreeing to release the deposit to the vendor before settlement, as it may be hard to recover if the deal falls through.
The vendor is free to sell to someone else until contracts are exchanged, so ask your solicitor to propose these conditions early and keep the process moving.
6. Auctions, tenders and expressions of interest: do your homework first
Commercial properties are often sold by auction, tender or an expression of interest (EOI) campaign. Each works differently, but in all of them the vendor sets the timetable and you have less room to negotiate later.
Auctions are unconditional. If you are the successful bidder, you sign the contract on the day with no cooling-off period and no conditions. Your due diligence, finance and contract review must be finished before the auction, and you should register to bid in the name of the correct buying entity.
Tenders and EOIs give you more flexibility. You can usually submit an offer that includes your own conditions, such as a due diligence period, a lower deposit or a longer settlement. The vendor will weigh your price against your terms, so a clean, well-drafted offer can beat a higher one with too many conditions.
Use the campaign period to buy time and gather information. Ask the agent:
- Why is the vendor selling?
- How many parties have inspected or requested the information memorandum?
- Will the vendor consider offers before the auction or closing date?
- Are there any current notices, disputes or tenant issues?
If your research shows the property ticks your boxes, you can make an offer before the auction or closing date. A strong early offer can take the property off the market, but an unconvincing one shows your hand and may set a floor for other buyers. Use this strategy sparingly, and always speak to your solicitor before making an early offer.
7. Get the GST treatment agreed up front
GST rarely comes up in a home purchase, but in a commercial purchase it can change the price by 10%. Before you make an offer, find out whether the price is GST-inclusive or “plus GST”, and how the contract deals with it.
The three common outcomes are:
- Taxable supply: GST is payable on top of the price. If you are registered for GST you may be able to claim it back, but you still need to fund it at settlement.
- Going concern: if the property is leased and the sale meets the requirements for a supply of a going concern, the sale can be GST-free. Both parties must be registered for GST and agree to this in writing.
- Margin scheme: the vendor calculates GST on the margin rather than the full price. The buyer cannot claim an input tax credit, and the scheme can affect how GST applies when you later sell.
GST should be negotiated as part of the price, not discovered in the contract. Speak to your accountant and solicitor before you make your offer.
To learn more about GST, see our article on minimizing transactional tax in commercial property transactions [insert link].
8. Buying a tenanted property: the lease is the asset
If the property is leased, much of what you are paying for is the income. The value depends on the lease, so review it as carefully as the building.
Ask for copies of every lease, any variations and side agreements, and a tenancy schedule. Check:
- The rent, review dates and how rent is reviewed
- The lease term, any options to renew, and when the lease expires
- Rent arrears, disputes and any default notices
- Incentives such as rent-free periods or fit-out contributions, which can inflate the rent on paper
- Which outgoings the tenant pays, and whether the Retail Leases Act 1994 (NSW) limits what can be recovered
- Security deposits and bank guarantees, and how they will be transferred to you
These findings give you room to negotiate. You can ask the vendor for warranties about the leases, a rent guarantee for a vacant tenancy, an adjustment for arrears, or an agreement that the vendor will deliver vacant possession if you are buying for your own business.
9. Anything can be negotiated: stand your ground
Confidence is key, and confident negotiation is built on knowledge. Commercial contracts usually come with many special conditions, and almost all of them can be negotiated.
Find out whether the local market favours buyers or sellers, and why the vendor is selling. A vendor who needs to sell quickly may accept a lower price or more flexible terms. A vendor who is not in a rush may hold out for the right offer.
Beyond the price, you can negotiate:
- The deposit amount and how it is paid
- The settlement period, including early access for fit-out
- GST treatment and the adjustment of land tax and outgoings
- Repairs, compliance works or a price reduction for defects
- Warranties about the leases, building and environmental condition
- Inclusions such as plant, equipment, signage and fit-out
- Vacant possession, or the vendor leasing back the property after settlement
Understanding these factors will help you decide how to present your offer and where you have the most room to move.
10. Treat it as an investment, not a dream purchase
A commercial property is a business decision, and the numbers should drive it. Be prepared to walk away if you cannot get terms that work.
Do not show the agent how much you want the property. Show interest but stay measured, so the vendor does not assume you will pay any price.
Know your numbers before you negotiate: the yield, the lease expiry profile, the quality of the tenant, upcoming capital works, and the price at which the deal stops making sense. If you are buying for your own business, factor in fit-out, relocation and any approvals you need.
We recommend keeping 3 to 5 properties in mind. Having options means you can walk away when a deal goes stale, and vendors often become more flexible once they know you are prepared to.
Need help negotiating your commercial property purchase?
Being a good negotiator does not guarantee everything will go your way. Negotiation is give and take, and you may need to compromise on some terms to secure the ones that matter most.
Commercial property negotiations involve high stakes, complex contracts and no cooling-off period. This is where Arver Law comes in. Our experienced property lawyers can review letters of offer and contracts, negotiate special conditions, run your due diligence and guide you through to settlement.
Book a free consultation with us or call us today on (02) 299327143 to get the best out of your deal.
