Signing a commercial property contract is an important step, but it is not the end of the transaction. There are still several legal, financial and practical matters to complete before settlement.
In NSW, exchange of contracts is the point at which the buyer and seller become legally bound by the agreement. From exchange, the transaction moves towards settlement, when the financial and legal requirements are completed and the relevant transfer documents are lodged for registration.
For buyers, understanding what happens during this period can help avoid unnecessary delays and ensure you are prepared for settlement.
Signing vs Exchanging Contracts: What’s the Difference?
Signing a contract and exchanging contracts are not necessarily the same event.
The parties may sign their respective copies of the contract, but the transaction becomes legally binding when the contracts are formally exchanged. The contract then sets out the agreed terms, including the purchase price, settlement date and other conditions applying to the transaction.
For a commercial property, those terms may also address matters such as:
- Existing leases and tenancy arrangements
- GST treatment
- Special conditions
- Property inclusions
- Settlement requirements
- Other obligations agreed between the parties
Once contracts have been exchanged, the parties should not assume that changes can simply be made informally.
What Happens Between Exchange and Settlement?
Once exchange has occurred, the conveyancing process moves into the settlement preparation stage.
Your conveyancer will work through the requirements of the contract and coordinate with the relevant parties. Depending on the transaction, this may involve:
- Checking outstanding conveyancing requirements
- Communicating with the seller’s solicitor or conveyancer
- Coordinating with your lender where finance is involved
- Preparing settlement figures
- Addressing outstanding enquiries or documentation
- Preparing the electronic settlement
NSW property transactions that require electronic lodgment are completed through an Electronic Lodgment Network. PEXA and Sympli are currently approved Electronic Lodgment Network Operators in NSW. The exact work required will depend on the property and the terms of the contract.
How Are Commercial Property Adjustments Worked Out?
The amount you need to provide at settlement may differ from simply paying the remaining purchase price. Certain property expenses and other amounts may be adjusted between the buyer and seller according to the settlement date and the terms of the contract. These can include relevant rates, water charges and other property outgoings.
For a tenanted commercial property, rental income or other tenancy-related amounts may also need to be considered where the contract provides for an adjustment. The important point is that commercial property adjustments are not identical for every transaction. Your conveyancer should review the applicable figures and explain how the adjustments affect the final settlement amount.
What About GST and Transfer Duty?
GST can be an important consideration when purchasing commercial property.
The GST treatment depends on the circumstances of the transaction and the terms of the contract. It can also affect the amount taken into account for transfer duty purposes. Revenue NSW provides specific guidance on determining the dutiable value of property where GST is included or payable in addition to the purchase price.
Transfer duty also needs to be dealt with as part of the transaction. Revenue NSW confirms that commercial and industrial property transactions can be subject to transfer duty, and the duty generally needs to be paid before settlement where settlement is occurring first. Because GST can have tax consequences beyond the conveyancing process, buyers should consider obtaining appropriate tax advice where the transaction is complex.
Can a Commercial Property Contract Be Changed After Exchange?
Sometimes circumstances change after contracts have been exchanged, and the parties agree to amend the transaction.
For example, the parties may negotiate a change to:
- The purchase price
- A contractual condition
- Property inclusions
- Another agreed term
If the parties agree to a change, it should be properly documented. Depending on the nature of the amendment, this may involve a deed of variation or deed of amendment.
Revenue NSW specifically recognises variations made after exchange and before transfer, and the duty consequences can depend on what has been changed. This is why buyers should discuss proposed changes with their conveyancer before relying on an informal agreement.
What Happens on Settlement Day?
Settlement is when the financial side of the transaction is completed and the relevant conveyancing documents are dealt with through the electronic settlement process.
In general, the process involves:
- Confirming that the settlement requirements have been met.
- Providing the required balance of funds.
- Completing the electronic financial settlement.
- Electronically lodging the relevant transfer and other documents with NSW Land Registry Services.
- Having the transfer examined and registered through the land registration process.
NSW Government guidance explains that once settlement has successfully occurred, the buyer’s conveyancer or solicitor will advise them of completion and the relevant title transfer process follows. Settlement and registration are related but should not be treated as exactly the same event.
Should You Inspect the Property Before Settlement?
Yes. A final inspection can provide an opportunity to check the property’s condition before settlement.
NSW Government recommends that buyers conduct a final inspection on the morning of settlement to make sure the property is in the same condition as when contracts were exchanged. For commercial property, the inspection may also provide an opportunity to check relevant inclusions or other matters specifically covered by the contract. If you identify a significant issue, contact your conveyancer promptly rather than attempting to resolve the matter informally.
What Should You Do Before Commercial Property Settlement?
As the buyer, you can help keep the transaction moving by:
- Keeping your conveyancer informed of any changes
- Ensuring your finance arrangements are ready
- Reviewing settlement figures when provided
- Having the required funds available
- Providing requested identification and documentation promptly
- Arranging a final inspection where appropriate
- Raising any concerns before settlement
You should also take care when transferring large amounts of money. Independently verify payment instructions with your conveyancer using trusted contact details, particularly if bank details have been provided or changed by email.
Why Commercial Conveyancing Support Matters After Exchange
The period between exchange and settlement involves several moving parts. Commercial transactions may require attention to existing leases, property outgoings, GST treatment, contract variations, transfer duty and settlement arrangements.
Professional commercial conveyancer in Sydney NSW can help ensure these requirements are addressed according to the contract and relevant NSW processes.
A conveyancer can also coordinate with the other parties involved in the transaction, including the seller’s representative and, where applicable, your lender.
The Bottom Line
Exchange of contracts does not mean the commercial property transaction is finished. It begins the final stage of the process, where the contractual, financial and settlement requirements need to be completed before the transaction can settle.
If you are purchasing commercial property in NSW, commercial conveyancing services can provide professional assistance throughout the transaction, from exchange through to settlement.
Alexis Conveyancing can assist with the conveyancing process and help you understand the requirements that apply to your commercial property transaction. Contact us!
Phone Number: 0403 726 223
P.O. Box 4096, Kingsway West NSW 2208
info@alexisconveyancing.com.au
Licensed Conveyancer- Licence No. 05007821
This article provides general information only and is not a substitute for legal, financial or tax advice. Commercial property transactions can vary depending on the contract, property and circumstances. Obtain professional advice specific to your transaction where appropriate.
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