Conveyancing simply means, transferring ownership and rights of a property from the seller to the buyer through lawful means. The distinction between residential from commercial conveyancing is on the nature of the property involved and is usually based on various factors including:
- How the property is being used;
- The zoning of the property; and
- Whether there are any GST requirements.
Residential conveyancing involves the sale or purchase of a property that is going to be lived in, such as a house or unit. Commercial conveyancing is the sale or purchase of a commercial property which can be an industrial property, an office building, retail shop, hotel, motel, or farming property.
A standard residential contract in Queensland includes a cooling-off period and conditions for building and pest and finance. The cooling-off period allows the buyer a 5-business day period in which they can terminate the contract for a small penalty. The penalty amount is equal to 0.25% of the purchase price. The amount will be charged from the deposit paid by the buyer and the balance refunded by the deposit holder. This cooling-off period does not apply to the purchase of a commercial property.
Special conditions can also be added to a standard residential contract of sale. Some of these conditions may be:
- Buying the property on an “as is” basis;
- Buyer requiring a due diligence condition;
- Seller waiting on final certificates for the improvements to be issued; or
- Soil tests if purchasing vacant land
Non-resident foreign purchasers generally need to apply for (and receive) approval from the Foreign Investment Review Board (FIRB) before purchasing residential or commercial property in Australia. The list is not exhaustive. In Queensland, the majority of all residential conveyances follow either the REIQ or ADL standard terms contract.
For commercial conveyancing, there are 2 forms of standard commercial sale contracts. One is for commercial land and buildings and the other is for a commercial lot in a community titles scheme. In the latter, an additional disclosure statement is required for the seller to provide to the buyer before entering into the contract. This statement includes information about the body corporate. Further, there is no provision for a buyer’s guarantee in the standard form commercial contract. One of the usual conditions for sellers in commercial conveyancing is to add this special condition in the standard contract.
In both types of conveyancing, the parties may agree to stipulate on building and pest inspections, as well as finance application. By then, the buyer is obliged to set a schedule for a licensed building and pest inspector to assess the property and issue a report. Notice must then be made to the seller of either satisfaction or waiver of the inspection condition; otherwise, non-compliance would allow for either party to terminate the contract. The same goes to the agreement on the buyer’s finance approval that again must be communicated to the other party. Failure otherwise allows the innocent party to rescind or terminate the contract.
As to the date when deposits are to be paid, in residential conveyancing, the contract will have to state the date for payment. It is important for the buyer to pay the deposit strictly in accordance with the terms of the contract otherwise, risk being in breach of the contract which gives the seller the right to terminate or entitled to claim for compensation. For commercial conveyancing, the contract will also nominate the due date for payment. The deposit should not exceed 10% of the purchase price, otherwise the contract becomes what is known as an instalment contract which comes with its own body of complicated rules and law.
In terms of taxes, the GST Withholding law applies to ‘new residential premises’ or ‘potential residential land’ with some limited exceptions. GST generally needs to be withheld where the buyer is the recipient of a taxable supply of new residential premises or potential residential land. In commercial conveyancing, however, the GST withholding laws usually do not apply, however, if the ATO considers the property to be ‘new residential premises’ or ‘potential residential land’ it may be obliged to withhold. The definition of potential residential land is very broad and for that reason, it is usually a safer option to withhold rather than not withhold the GST liability. The GST Withholding regime, however, will not apply to the sale of commercial residential properties such as hotel, boarding house or caravan park.