Commercial Property — Due Diligence Guide for NZ Buyers
Commercial property encompasses offices, retail spaces, warehouses, and industrial buildings. Ownership is typically freehold or unit title, with commercial leases to tenants governed by the Property Law Act 2007.
How Commercial Property Differs
| Attribute | Commercial Property | Other Types |
|---|---|---|
| Typical use | Business premises, investment | Residential: Personal dwelling |
| Lease structure | Commercial lease (ADLS deed) | Residential: Tenancy agreement (RTA) |
| Tenant protections | Minimal — commercial tenants negotiate terms | Residential: Extensive under RTA |
| Tax treatment | GST applies, depreciation available | Residential: No GST, limited deductions |
Key Risks & Red Flags
Commercial property has different risk factors:
- Vacancy risk: Finding and retaining commercial tenants can be more difficult.
- Tenant quality: Your investment depends on tenants paying rent.
- Market cycles: Commercial property values are more sensitive to economic cycles.
- Compliance costs: Commercial buildings have higher compliance requirements (fire safety, earthquake strengthening, accessibility).
- Environmental liability: Contamination from previous commercial/industrial use.
- Lease complexity: Commercial leases are complex legal documents.
Due Diligence Checklist
- Review all existing lease agreements and tenant financials
- Assess building compliance (earthquake rating, fire safety, accessibility)
- Check for contamination (especially for industrial/former industrial sites)
- Review the BWOF (Building Warrant of Fitness) status
- Obtain a commercial property valuation
- Check zoning and permitted activities
- Review any resource consents and compliance obligations
- Standard checks: LIM report, building inspection, title review
Frequently Asked Questions
What is a BWOF?
A Building Warrant of Fitness (BWOF) is an annual certification that a commercial building's specified safety systems (fire, lifts, etc.) have been inspected and maintained. Building owners must display a current BWOF.
Is commercial property a good investment?
Commercial property can offer higher yields than residential, but comes with higher risk (vacancy, tenant default, compliance costs) and typically requires more capital. It suits experienced investors who can assess these risks.
Related Content
Freehold
GlossaryThe most complete form of property ownership in New Zealand, giving the owner full rights to both the land and any buildings on it.
Unit Title
GlossaryA form of property ownership for apartments, townhouses, and other multi-unit developments where each owner holds title to their individual unit and shares ownership of common property.
Resource Consent
GlossaryPermission from the local council to carry out an activity that affects the environment, required under the Resource Management Act 1991.
LIM Report
GlossaryA Land Information Memorandum — an official council report summarising everything the council knows about a property.
Freehold
Property TypeFreehold (fee simple) is the most complete form of property ownership in New Zealand. The owner has full rights to the land and any buildings on it, with no co-owner dependencies or lease arrangements. Freehold is the most common and most straightforward title type for standalone houses.
Cross-Lease
Property TypeCross-lease is a uniquely New Zealand form of ownership where multiple owners share the freehold of a single parcel of land and lease their individual dwellings from each other. Each owner's dwelling is defined by a flats plan registered with LINZ.
Unit Title
Property TypeUnit title is the standard ownership structure for apartments, townhouses, and multi-unit developments in New Zealand. Each owner holds title to their individual unit and a share of common property, managed by a body corporate.
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