5 Things You Need to Disclose When Selling Your Commercial Property

Commercial sales contracts must include disclosures about unregistered easements, land contamination, notices issued by authorities, and leases.

These points will vary depending on a commercial property’s asset class while individual states may also have different legislation requirements that need to be checked off.

While it can be difficult to disentangle these details, professional legal advice can help sellers sort through the stack and ensure a great sale.

Read on to find out more:

What are pre-contractual disclosure obligations?

Under the common law, sellers are required to disclose defects in title to prospective buyers.

Such defects in title can include easements, covenants and leases. If you fail to disclose such issues to a buyer then you can be sued for damages arising out of such non-disclosure, or the contract can even be terminated.

One of the simplest and easiest ways for buyers to do their disclosure due diligence is to examine their current contract, according to FC Lawyers’ associate director, Tom Wood.

“This is not an exact science but it’s a great way to suss things out and remind buyers of what they have to disclose,” he said.

Work closely with your lawyer on your sales contract disclosures. Picture: Getty

Alternatively, start with section 32, or the vendor’s statement.

Lawyers are able to order statutory certificates for this legal document which will meet the majority of disclosure requirements, said real estate and projects special counsel, Rupert Lugo.

The Victorian HWL Ebsworth lawyer explained these certificates could include council rates and state revenue notices as well as those from the land title’s office and water authority.

“But in order of critical disclosure importance, particularly in Victoria, vendors need to disclose any leases and licences that deals with rights and occupancy including deeds of variation or incentives deeds, as well as COVID rent relief agreements,” Mr Lugo said.

“Also, disclose unregistered easements or any other unregistered agreements which give rights to a third party relating to the property, such as a tenant’s first right of refusal.”

“Finally, don’t forget notices issued by any authority.”

Common items requiring disclosure for commercial property contracts

These items can include unregistered easements, powerlines, checking if the property is on the contaminated land register and authority notices.

1. Unregistered easements

Property easements featuring powerlines can often be unregistered. Picture: Getty

Unregistered easements are very common, Mr Wood explained, and as such buyers should be extra careful that they are disclosed in commercial sales contracts.

While some obvious easements are registered on the title, such as those for access, services and drainage and stormwater types, many others aren’t, he said.

Disclosure of powerlines

“But then there are easements not registered on the title, such as when you’ve got overhead power lines that run across the property.

“By law, you’re not allowed to rip these powerlines down and so this is definitely something that needs to be identified and disclosed in the sales contract.”

Common issues with industrial properties

Mr Lugo added that industrial warehouses could also face unregistered easement issues.

“It’s not uncommon for the separate owners of three or four industrial warehouses in a small precinct to agree to sign something about a shared easement – and then this just doesn’t get registered,” he said.

2. Contaminated Land Register [CLR] and Environmental Management Register [EMR]

You may think there’s nothing wrong with your property but Mr Wood said this is often not the case.

Commercial properties most commonly found on these registers can include past or present service stations, cattle sale yards and dips, or landfills, according to Mr Wood.

These records are available online for free in most cases, however, he explained sellers should already know if their property is on these registers.

“They [the seller] would have received a notice about this register or when they bought the property themselves, they would have done a contaminated land search and found out for themselves,” he said.

3. Notices issued by authorities

Again while this is largely a Victorian issue, authority notices can also be important when it comes to adhering to legislation in other states as well.

Authority notices can include building notices issued by councils regarding a defective detail at a property, Mr Lugo explained.

“Or the Environmental Protection Agency might have issued a notice requiring some sort of contamination to be remediated,” he added.

Mr Lugo said lawyers may pick up these kinds of notices through the certificates they receive from authorities – but not always.

“So if you receive any notices from a government body, council or any other authority, bring them to the attention of your lawyer,” he said.

4. Tenant’s first right of refusal

Landlords need to check if their lease gives a tenant a first right of refusal, with this point coming back to the importance of disclosing any agreements that grant rights to a third party, Mr Lugo said.

Check to see if your tenant has first right of refusal. Picture: Getty

“Sometimes, the lease might say that the landlord won’t sell the property without first offering it to the tenant,” he said.

“This would be picked up if the full lease is disclosed but if it’s in a separate document, for example, this document would need to be disclosed.”

5.  Who can use your property

It might seem strange but other people and companies can use your land – and pay you to do so.

Although fairly unusual, some property contracts permit the use of telecommunication towers or other government infrastructure on the land.

“Property owners who have telecom towers on their land have normally been paid by the telecom company for a long term lease, so it’s a good rental income stream for them,” Mr Wood said.

“But whoever buys this property will be taking over this income stream.

“This is where the fine print of a contract kicks in and it’s a good idea for the seller to get legal advice on what to do about this situation.”