Commercial Property Law FAQ — New Zealand

We are a free commercial property lawyer matching service. You tell us about your matter — the type of transaction, property location, scale and timeline — and we personally match you with the most suitable vetted commercial property specialist in our New Zealand network.

Unlike a legal directory or a Google search, our matching is done by a real person who reads every enquiry and makes a considered decision about the right lawyer for your specific situation. We introduce you directly, provide context to your matched lawyer, and your first consultation is free and obligation-free.

Yes — completely free to you, with no hidden fees, no subscription and no obligation ever. We receive a referral fee from the law firm when an introduction results in a matter proceeding. This fee comes from the firm’s revenue and does not affect the rates you are charged as a client — your matched lawyer’s fees are exactly what they would be if you had approached them directly.

Our business model means our incentives are perfectly aligned with yours: we only succeed when we make the right introduction and it results in a good outcome for the client.

We guarantee a lawyer match within 24 hours of receiving your enquiry during business days. For enquiries received during business hours, we typically make introductions within a few hours. For urgent matters — where you have an imminent deadline, a contract already signed, or a settlement date approaching — we prioritise same-day matching.

If your matter is time-sensitive, please state this clearly in your enquiry and we will treat it as a priority from the moment it arrives.

Tell us and we will make another introduction. Your initial consultation is completely obligation-free — if after speaking with your matched lawyer you feel they are not the right fit for any reason, simply let us know and we will identify an alternative from our network.

We do not consider our job done until you have a lawyer you are genuinely confident in. There is no limit on how many introductions we will make to find the right match for your matter.

Yes. We regularly assist clients who need a second opinion, who are dissatisfied with their current legal representation, or who have inherited a legal matter without having chosen the lawyer themselves. Changing lawyers mid-transaction is not uncommon in commercial property — and it is often in a client’s best interest to make that change sooner rather than later when a matter is not progressing well.

Tell us where things currently stand and we will match you with a specialist who can step in, review the file quickly, and take the matter forward effectively.

We cover all commercial property asset classes — retail, office, industrial, mixed-use, development sites, hospitality and accommodation, rural commercial, and specialist assets such as service stations, childcare facilities and medical centres. We also cover all transaction types: purchases, sales, leasing, development, due diligence, refinancing and disputes.

If you are unsure whether your matter falls within scope, simply enquire and we will advise you directly. We would rather tell you honestly that we can’t help than match you with an unsuitable specialist.

Yes. New Zealand law requires a qualified lawyer to handle settlement and the transfer of legal title on any property transaction. This is a legal requirement — not just a recommendation. Only a licensed lawyer can lodge documents with Land Information New Zealand (LINZ) to effect a legal transfer of ownership.

Beyond the legal requirement, commercial property carries substantially higher financial risk than residential property — and the consequences of an undiscovered encumbrance, a defective title, or an unfavourable contract term can far exceed any legal fee over time.

During a commercial property purchase in New Zealand, your lawyer will typically: review and negotiate the agreement for sale and purchase before you sign; advise on the due diligence conditions and manage the due diligence process; review the title, LIM report, tenancy documents, and any encumbrances, easements or covenants; advise on the GST position; coordinate with your financier and the vendor’s lawyer; prepare and lodge transfer documents with LINZ; and manage settlement including funds flow and title registration.

For a complex purchase, your lawyer may also advise on the ownership structure, tax implications, and any resource or building consent issues identified during due diligence.

The agreement for sale and purchase (sometimes called the sale and purchase agreement or S&P) is the binding contract between buyer and seller. In New Zealand, commercial property is typically sold on a bespoke agreement — unlike residential property which commonly uses the ADLS/REINZ standard form.

You should get legal advice before you sign, not after. Once the agreement is signed and becomes unconditional, your options for renegotiation or withdrawal are extremely limited. Having your lawyer review and negotiate the contract before you sign is the single most important thing you can do to protect your position in a commercial property purchase.

Commercial property transactions in New Zealand typically settle between 20 and 60 working days after the agreement becomes unconditional — though this varies considerably depending on complexity, the due diligence period, financing arrangements, and any conditions that need to be satisfied first.

Larger or more complex transactions — involving multiple tenancies, development potential, complex ownership structures, or foreign investment approvals — may take considerably longer. Your lawyer will manage the settlement timeline and coordinate with all parties to ensure everything proceeds smoothly on the agreed date.

Yes, in certain circumstances. The Overseas Investment Act 2005 regulates the acquisition of “sensitive land” and “significant business assets” by overseas persons. For commercial property, the key trigger is whether the land is classified as sensitive under the Act — which includes rural land, land adjoining the foreshore, and certain other categories — or whether the transaction exceeds the business asset threshold.

If you are an overseas person or a New Zealand entity with significant overseas ownership, your lawyer will need to assess whether Overseas Investment Office (OIO) consent is required before the purchase proceeds. This is a critical step that must be identified early in the process, as OIO consent can take several months to obtain.

Encumbrances are legal interests registered against a property’s title that affect how it can be used or dealt with. Common types include mortgages (which will need to be discharged on sale), easements (rights granted to others to use part of the land — for access, drainage, electricity lines etc.), covenants (restrictions on what can be done with the land), caveats (which signal that a third party claims an interest in the property), and notices under various legislation.

Your lawyer will conduct a thorough title search as part of due diligence and advise you on every encumbrance registered against the property, what it means for your intended use, and whether any need to be discharged or negotiated before settlement.

Your options after settlement depend on what has gone wrong and what was disclosed or misrepresented during the sale process. The general rule in NZ commercial property is caveat emptor (buyer beware) — the buyer is expected to have investigated the property thoroughly during due diligence. However, there are exceptions where the vendor has made misrepresentations, where specific warranties were given in the agreement, or where there has been fraudulent concealment.

If you discover a problem after settlement, contact a commercial property lawyer immediately. The time limits for bringing claims can be short and acting promptly is essential to preserve your options.

The ADLS lease (Auckland District Law Society lease — now published jointly as the ADLS/REINZ lease) is the standard-form commercial lease used throughout New Zealand. It is used for the vast majority of commercial tenancies across all property types — retail, office and industrial — and provides a common framework for the landlord-tenant relationship.

However, “standard form” does not mean “non-negotiable.” Every substantive term in an ADLS lease can be varied by agreement between the parties in the Schedule and any special conditions. Rent, rent reviews, outgoings, term, renewals, make-good, subletting rights and many other provisions are all routinely negotiated. Having a specialist lawyer negotiate these terms on your behalf before signing is essential.

Absolutely — and you should. Even when a landlord presents a lease as “our standard form,” virtually every substantive term is open to negotiation. In practice, experienced commercial tenants and their lawyers routinely negotiate: the base rent and any rent-free period; the rent review mechanism (market review vs CPI vs fixed increase); the term length and rights of renewal; the outgoings obligations (what costs the tenant is required to contribute to); the permitted use clause; subletting and assignment rights; make-good obligations at lease end; and any landlord contribution to fit-out.

The relative bargaining power of landlord and tenant varies by market conditions and property demand, but in most cases there is meaningful room to negotiate — particularly on outgoings, make-good and permitted use.

A make-good obligation requires the tenant to return the premises to a specified condition at the end of the lease — typically by removing all fit-out and returning the space to base build standard. Make-good costs can be substantial: in some tenancies, stripping out fit-out and repairing the premises can cost tens of thousands or even hundreds of thousands of dollars.

A specialist lease lawyer can negotiate the scope of the make-good obligation before you sign, potentially limiting it to: leaving the premises clean and tidy rather than full strip-out; excluding landlord-approved alterations from make-good requirements; capping the monetary value of make-good obligations; or agreeing that the landlord may waive make-good if they intend to refit the premises for the next tenant anyway. Getting this right before you sign is far easier — and far cheaper — than disputing it at lease expiry.

Outgoings are the operating costs associated with the property that the landlord passes on to tenants. They can include council rates, building insurance premiums, body corporate levies, property management fees, building maintenance and repairs, cleaning of common areas, and other costs depending on the property type.

In NZ commercial leases, tenants typically pay either a proportion of the total outgoings for a multi-tenancy building or all outgoings for a single-tenancy property. However, what is included in “outgoings” is negotiable — and a specialist lawyer will review the outgoings schedule carefully to ensure it is clear, reasonable, and does not include costs that should be the landlord’s responsibility. You should always request an estimate of outgoings before signing and understand what you are committing to pay.

A market rent review is a mechanism in the lease that allows the rent to be reset to current market levels at specified intervals — typically every three to five years. The new rent is determined by comparing the premises to equivalent properties in the market at the time of review.

The standard ADLS lease provides for ratchet rent reviews, meaning the rent can only go up (never down) on a market review — even if market rents have fallen. This is a significant risk for tenants in a falling market and a key clause that experienced lease lawyers often seek to modify. Alternatives include CPI (Consumer Price Index) reviews, fixed percentage increases, or a combination of review mechanisms. Understanding and negotiating the rent review clause before signing can have a very significant financial impact over the full lease term.

What happens at the end of a commercial lease depends on the terms of your lease. If you have rights of renewal, you must exercise them strictly in accordance with the notice provisions in the lease — typically by written notice given within a specified window before the expiry date. Missing this window can result in losing your renewal right entirely, even if you intend to stay.

If your lease has no further rights of renewal, or you choose not to exercise them, you will need to either negotiate a new lease with the landlord, or vacate the premises. At this point you will also need to comply with any make-good obligations. A commercial property lawyer should be involved well before the lease expiry date to ensure your rights are protected and your options are clearly understood.

Under the standard ADLS lease, subletting and assignment (transferring the lease to another party) are permitted with the landlord’s consent, which must not be unreasonably withheld. However, the standard conditions the landlord can impose — including requiring the incoming tenant to meet certain financial criteria and potentially requiring the outgoing tenant to remain liable under the lease — vary by lease and are negotiable.

If you anticipate needing flexibility to sublet or assign — for example if your business may grow, downsize or change ownership — it is important to negotiate clear subletting and assignment rights before you sign. A specialist lease lawyer can ensure these provisions protect your flexibility while remaining acceptable to the landlord.

In a gross lease, the tenant pays a single all-inclusive rent and the landlord is responsible for most or all outgoings (rates, insurance, maintenance). In a net lease (sometimes called a triple-net or NNN lease), the tenant pays a base rent plus a proportion or all of the property’s operating costs on top.

Most New Zealand commercial leases under the ADLS form are effectively net leases, with tenants paying outgoings in addition to rent. The distinction matters because it affects the true cost of occupancy — a headline rent that looks competitive may be much more expensive when outgoings are factored in. Always compare the gross effective cost (rent plus outgoings) when evaluating alternative premises.

Commercial property due diligence in New Zealand typically involves: a full title search (checking for mortgages, encumbrances, easements, covenants and caveats); review of the Land Information Memorandum (LIM report) from the relevant council; assessment of zoning compliance and permitted use under the relevant district plan; review of all existing leases and tenancy arrangements including rent review history and current rent; review of building and structural inspection reports; asbestos reports where relevant; confirmation of GST registration status; and investigation of any resource or building consent issues.

The scope of due diligence should be tailored to the specific property and its intended use. Your lawyer will advise on what investigations are most important for your particular transaction.

A Land Information Memorandum (LIM) is a report issued by the local council that summarises all information the council holds about a specific property. It includes zoning classifications, permitted land uses, any outstanding resource or building consents, enforcement notices, unpaid rates, flood and natural hazard information, and any other matters the council is required to record.

The LIM is a critical due diligence document for commercial property. It can reveal issues that are not visible on a physical inspection — such as outstanding enforcement notices for illegal works, flood risk classifications that affect insurance and financing, or consents for previous uses that may have created contamination issues. A LIM should be obtained and reviewed by your lawyer as a standard part of every commercial property acquisition.

Due diligence periods for commercial property in New Zealand are negotiated as part of the sale and purchase agreement and typically range from 10 to 30 working days, depending on the complexity of the property and the transaction. For a straightforward single-tenancy property, 15 working days is common. For a multi-tenancy investment property, a complex development site, or a property with environmental considerations, 20 to 30 working days may be required.

It is important to negotiate a due diligence period that gives you enough time to complete all investigations properly — including obtaining a LIM (which councils typically take 10 working days to issue), commissioning building reports, and reviewing all documentation. Your lawyer will advise on an appropriate period for your specific transaction.

It depends on the nature of the problem and the terms of your due diligence condition. If your agreement contains a general due diligence condition (also called a “buyer satisfaction” condition), you have broad discretion to cancel the agreement if due diligence reveals anything you are not satisfied with — including subjective matters of judgment. If you have a specific condition (e.g. satisfactory building inspection), the issue must relate to that specific matter.

In practice, many issues discovered during due diligence are resolved through negotiation rather than cancellation — by adjusting the purchase price, requiring the vendor to remedy the issue before settlement, or obtaining specific warranties or indemnities. Your lawyer will advise on the best course of action for your specific situation.

Yes — environmental due diligence is an important part of commercial property investigations, particularly for industrial properties, service stations, dry cleaners, and any site with a history of manufacturing or chemical storage. Contaminated land in New Zealand is recorded on the Hazardous Activities and Industries List (HAIL) maintained by the Ministry for the Environment and referenced in LIM reports.

A Phase 1 Environmental Site Assessment (a desktop review of historical uses and known contamination) is recommended for any property with a history of potentially contaminating activities. If contamination is found or suspected, a Phase 2 investigation (physical testing of soil and groundwater) may be required. The cost of remediating contaminated land can be enormous and should be identified and allocated clearly in the agreement before purchase.

Commercial property development in New Zealand involves a range of legal requirements depending on the nature and scale of the project. Typically this includes: site acquisition (including due diligence, agreement negotiation and title investigations); RMA resource consent advice and applications; building consent coordination; development agreement and construction contract negotiation and review; subdivision or unit titling; pre-leasing documentation for anchor tenants; financing and security documentation; and body corporate establishment where applicable.

Development projects often require a team of legal specialists working together — a property lawyer, a resource management lawyer, and sometimes a construction law specialist. We can match you with a lead lawyer who has the right experience and connections for your project’s specific requirements.

The Resource Management Act 1991 (RMA) is New Zealand’s primary environmental and land use planning legislation. It governs what activities can occur on any piece of land through district and regional plans administered by local councils. For commercial property developers, the RMA is highly relevant because it determines whether your proposed development is a permitted activity (no consent required), a controlled or restricted discretionary activity (consent required but with limited grounds for refusal), or a discretionary or non-complying activity (full discretion for the council to approve or decline).

Navigating the RMA correctly — particularly for developments that require resource consent — requires specialist advice. An experienced commercial property lawyer will assess your proposal against the relevant district plan, advise on your consent pathway, and work with planning consultants to give your application the best chance of success.

A development agreement is a contract between two or more parties who are collaborating on a development project — typically a landowner and a developer, or a developer and a council. It sets out each party’s rights, obligations, contributions and entitlements in the development process, and provides a framework for resolving disputes and managing risk throughout the project lifecycle.

Development agreements are not always required, but they are strongly recommended for any joint venture or staged development where the interests of multiple parties need to be clearly defined and protected. They are also commonly used when a developer is purchasing land conditional on obtaining resource consent, where infrastructure agreements with the council are required, or where pre-sale or pre-lease arrangements with anchor tenants need to be documented.

A body corporate is a legal entity that is automatically created when a unit title development is established under the Unit Titles Act 2010. It consists of all the unit owners within the development and is responsible for managing the common property, enforcing the body corporate rules, and administering the body corporate funds (including the long-term maintenance plan).

If your commercial development involves separate unit titles for individual tenancies, retail units, or carparks (which allows individual sale or financing of each unit), a body corporate will be established automatically by the unit title process. Setting up the body corporate rules, operational rules and long-term maintenance plan correctly at the outset is important — and requires specialist advice to ensure the governance structure works for the specific development.

Construction contracts for commercial developments in New Zealand involve significant legal risk for both owners and contractors. Key legal issues include: the contract form (NZS 3910, NZS 3916, NEC, bespoke agreements); payment provisions and the Construction Contracts Act 2002 (which provides a statutory adjudication regime and strict payment rules); variation and change order mechanisms; delays and extensions of time; liquidated damages for late completion; defects liability; retentions; insurance and indemnity; and dispute resolution.

The Construction Contracts Act 2002 has specific requirements that override contract terms in some cases — including mandatory payment provisions and a right of adjudication that cannot be contracted out of. Having a construction-experienced commercial property lawyer review and negotiate your construction contract before you sign is essential for any significant development project.

If your commercial tenant fails to pay rent, you have several legal remedies available under the ADLS lease and the Property Law Act 2007. The typical process is: issue a formal Notice to Remedy (giving the tenant the opportunity to pay the arrears within the timeframe specified in the lease, usually 12 working days for rent); if the tenant fails to remedy the breach within the notice period, you may issue a Notice of Cancellation, cancelling the lease and requiring the tenant to vacate; if the tenant does not vacate, you can apply to the court for an order for possession.

In practice, many rent disputes are resolved through negotiation rather than formal proceedings — particularly where the tenant has a genuine cash flow issue and a viable business. A commercial property lawyer will help you choose the most effective and commercially sensible approach for your specific situation.

Tenants have equivalent rights to landlords when it comes to lease breaches. If your landlord fails to comply with their obligations under the lease — for example by failing to maintain the building structure, interfering with your quiet enjoyment, or failing to insure the building — you can issue a Notice to Remedy requiring them to rectify the breach. If they fail to do so, you may have grounds to cancel the lease or claim damages.

Tenant remedies against landlords in NZ commercial property disputes also include: rent abatement (reducing or withholding rent) where the premises are unusable due to damage or disrepair; specific performance orders compelling the landlord to carry out required works; and claims for damages for losses caused by the breach. Get legal advice before taking any action — the correct process must be followed carefully to preserve your rights.

Commercial property disputes in New Zealand can be resolved through a range of mechanisms depending on the nature of the dispute and what the lease or agreement provides for. These include: direct negotiation between the parties (often the fastest and cheapest); mediation (a structured process facilitated by a neutral third party — the standard ADLS lease requires mediation before formal proceedings for most disputes); arbitration (a private binding process where an arbitrator hears evidence and makes a determination — commonly used for rent review disputes); and court proceedings in the District Court or High Court depending on the value of the claim.

Most commercial property disputes are resolved well before reaching a full court hearing. Having a specialist commercial property lawyer involved early — to advise on your legal position and negotiate firmly on your behalf — is the most effective way to achieve a swift and commercially sensible resolution.

A Notice to Remedy is a formal written notice issued under the Property Law Act 2007 that requires the party in breach of a lease to remedy the specified breach within a defined period. It is a prerequisite to cancelling a lease in most circumstances — a landlord cannot cancel a lease for breach without first issuing a valid Notice to Remedy and allowing the specified period for the breach to be remedied.

For rent arrears, the notice period is typically 12 working days. For other breaches, it may be longer depending on the nature of the breach. The notice must be served correctly (in accordance with the service provisions in the lease and the Property Law Act) and must specify the breach precisely. A defectively drafted or incorrectly served Notice to Remedy can be challenged by the defaulting party — which is why having a lawyer prepare and serve this document is strongly recommended.

Yes — but only after following the correct statutory process. Under the Property Law Act 2007, a landlord must first issue a valid Notice to Remedy giving the tenant a minimum of 12 working days to pay the arrears. If the tenant fails to pay within this period, the landlord may then issue a Notice of Cancellation. The tenant has a further period after the Notice of Cancellation to apply to the court for relief against cancellation — which the court may grant if the tenant pays the arrears and costs and the court considers it just to do so.

The process must be followed precisely. Attempting to cancel a lease without following the statutory process — or changing the locks, removing the tenant’s property, or otherwise interfering with the tenant’s possession without a court order — can expose the landlord to significant liability for unlawful eviction. Always get legal advice before taking action.

Make-good disputes at lease expiry are among the most common commercial tenancy disputes in New Zealand. They typically arise when the landlord claims the premises have not been returned in the required condition and demands payment for reinstatement works — and the tenant disputes either the extent of the make-good obligation or the cost of the works claimed.

These disputes are resolved by reference to the specific make-good clause in the lease, the condition of the premises at lease commencement (captured in any condition report or photographic record), and the agreed standard of reinstatement. Having a clear make-good clause, a comprehensive ingoing condition report (with photographs), and a lawyer who monitors your compliance with make-good obligations throughout the tenancy significantly reduces the risk of a costly dispute at expiry.

Commercial property lawyer fees in New Zealand vary depending on the firm size, the lawyer’s seniority and specialist expertise, the complexity of the matter, and the location. Hourly rates typically range from around $250 for a junior solicitor at a regional firm through to $600 or more per hour for a senior specialist at a top-tier firm in Auckland or Wellington.

Many straightforward commercial property matters — such as a standard lease review, a simple acquisition, or a lease renewal — are handled on a fixed-fee basis, which gives you cost certainty from the outset. For complex transactions, development projects or contested disputes, hourly billing is more common. When matched through our service, your lawyer will provide clear, upfront fee disclosure before any work begins.

Fixed-fee arrangements for commercial property matters in NZ typically cover a defined scope of work for a set price. For a commercial lease review, this usually includes reviewing the lease, advising on the key terms and risks, and negotiating agreed changes with the landlord’s lawyer. For a straightforward acquisition, it typically covers title search and review, due diligence advice, agreement review, and settlement management.

Fixed fees are quoted based on the anticipated complexity of the matter and assume the transaction proceeds normally. If unexpected issues arise — such as a disputed title defect, an adverse LIM finding requiring negotiation, or a protracted settlement dispute — additional fees may apply. A good lawyer will be transparent about this from the outset and seek your approval before incurring additional costs.

In New Zealand court proceedings, the general rule is that costs follow the event — meaning the losing party is ordered to contribute to the winning party’s legal costs. However, the costs awarded by the court (known as scale costs) rarely cover the full actual cost of litigation, so even a successful party typically bears some of their own legal costs.

In the context of commercial lease disputes, the standard ADLS lease typically provides that the defaulting party is responsible for the other party’s reasonable legal costs incurred in connection with the breach or its enforcement. This is a separate contractual entitlement to the court costs regime. The practical ability to recover costs depends on the financial position of the defaulting party.

The deductibility of legal fees for commercial property investors in New Zealand depends on the nature of the legal work and how the investment is structured. Generally speaking, legal fees that are revenue in nature (such as lease negotiation, tenancy management, and dispute resolution) are deductible against rental income. Legal fees that are capital in nature (such as acquisition costs, title transfer, and development work) are typically not immediately deductible but may be added to the cost base of the property for depreciation or capital gains purposes.

The distinction between revenue and capital legal expenses is not always straightforward and has been the subject of considerable Inland Revenue guidance and case law. We strongly recommend seeking advice from both your commercial property lawyer and your accountant or tax adviser before drawing conclusions about deductibility.

Beyond legal fees, a commercial property purchase in NZ typically involves: a LIM report fee (payable to the council, typically $300–$700 depending on urgency); building inspection fees (from $500 to several thousand dollars depending on property size and complexity); registered valuation fees if required for financing; LINZ registration fees for title transfer; and loan establishment fees from your lender. GST at 15% will also typically apply to the purchase price unless the going concern exemption applies.

For development projects, additional costs include resource consent application fees, building consent fees, engineering reports, and planning consultant fees. Your lawyer will give you an estimate of the legal costs and can advise on what other professional fees to budget for your specific transaction.

Yes — GST at 15% applies to most commercial property transactions in New Zealand. Unlike residential property (which is GST-exempt in most circumstances), commercial property is a taxable supply when sold or leased by a GST-registered person. This means the purchase price will either be stated as GST-inclusive or GST-exclusive, and getting the GST position wrong in the contract can result in unexpected costs of 15% of the purchase price.

The GST position of a transaction must be clearly documented in the agreement for sale and purchase. Your lawyer will confirm whether GST applies, advise on the correct way to document it in the contract, and ensure the settlement mechanics correctly reflect the agreed GST position.

The going concern exemption allows a commercial property to be sold GST-zero-rated (effectively no GST payable on the transaction) when the property is sold as a going concern — meaning it is a tenanted income-producing property that is being transferred with all the elements necessary to continue operating as a taxable activity. For the exemption to apply, both the vendor and purchaser must be GST-registered, the supply must be of a going concern, and the contract must specifically state that the supply is of a going concern.

The going concern exemption is commonly used for the sale of investment properties with existing tenants. However, it has strict requirements and its application is not always straightforward — particularly where there are vacancies, where the property has mixed residential and commercial use, or where the GST registration status of the parties is unclear. Getting this wrong can result in GST being unexpectedly payable on settlement. Always get specialist advice on the GST treatment of any commercial property transaction.

Yes — commercial rent in New Zealand is subject to GST at 15% when the landlord is GST-registered. This means a tenant pays the agreed rent plus GST unless the lease specifies that rent is GST-inclusive (which is unusual in commercial leases). Commercial leases typically state rent as a GST-exclusive amount, with GST payable on top.

The GST on rent is a regular cash flow consideration for tenants — particularly those who are not GST-registered themselves, in which case they cannot claim the GST back as an input tax credit. For tenants who are GST-registered, the GST on rent is claimable and is effectively neutral from a cost perspective. The GST position of both landlord and tenant should be confirmed before a lease is signed.

The bright-line rules that apply to residential property in New Zealand — which tax gains on residential property sold within a specified period — do not apply in the same way to commercial property. Commercial property in NZ is not subject to the bright-line test.

However, commercial property investors are not free of income tax considerations. Gains on the sale of commercial property may be taxable if the property was purchased with the intention of resale (the “intention test”), if the taxpayer is in the business of dealing in land, or in certain other circumstances. Depreciation recovered on the sale of a commercial building is also taxable. The tax implications of a commercial property transaction can be significant — always seek advice from your accountant or tax specialist alongside your commercial property lawyer.

Depreciation deductions on commercial buildings were reinstated in New Zealand from the 2020/2021 income year, at a rate of 2% per year on a diminishing value basis (or 1.5% straight-line). This applies to commercial, industrial and other non-residential buildings — it does not apply to residential rental properties.

The cost base for depreciation is the acquisition cost of the building (not the land, which is non-depreciable). When the building is subsequently sold, depreciation previously claimed is recovered (clawed back) as income to the extent the sale price exceeds the adjusted tax value. This depreciation recovery can result in a significant tax liability on sale — which should be factored into your investment analysis. Speak to your accountant about the depreciation implications for your specific commercial property investment.

The right ownership structure for a commercial property acquisition depends on your personal circumstances, investment objectives, tax position and risk profile. Common structures used in New Zealand include: personal ownership (simple, no separate entity costs, but no liability protection and income taxed at personal rates); a limited liability company (provides liability protection, can have multiple shareholders, tax at 28%); a trust (useful for estate planning and asset protection, but with additional compliance costs); and a look-through company or LTC (passes income and losses through to shareholders at their personal tax rate).

Each structure has different tax, liability, financing and succession implications. This is an area where your commercial property lawyer and your accountant need to work together — ideally before you sign any agreement, as changing the ownership structure after purchase can trigger stamp duty equivalents and GST issues. We can match you with a commercial property lawyer who is experienced in advising on acquisition structures alongside your existing accounting adviser.