Commercial Property Transfers: How They Differ from Residential Transfers | Barter McKellar

Investing in commercial property is a significant financial decision, requiring careful legal and financial planning. While both commercial and residential property transfers involve a legal conveyancing process, there are several key differences, particularly regarding lease agreements, zoning laws and financing.

At Barter McKellar, we specialize in commercial property transactions, guiding investors, developers, and business owners through the transfer process to ensure compliance with South African property laws. In this article, we explore the key differences between commercial and residential property transfers, helping buyers navigate the complexities of commercial property transactions with confidence.

1. Understanding Commercial vs. Residential Property Transfers

A residential property transfer involves buying or selling a home, townhouse, or apartment for personal use. A commercial property transfer, on the other hand, involves the purchase of properties used for business activities, such as office buildings, retail stores, warehouses, industrial sites and mixed-use developments.

The legal and financial requirements for commercial property transactions are more complex due to:
✔ Higher purchase values and transaction costs
✔ The need for zoning approvals and land use compliance
✔ Complex lease agreements affecting ownership rights
✔ Different financing options and tax implications

2. Key Differences Between Commercial and Residential Property Transfers

A. Lease Agreements & Tenant Rights

One of the biggest differences between commercial and residential property transfers is the existence of lease agreements.

• Commercial properties are often sold with existing tenants, meaning buyers must review and honor existing lease agreements.

• Residential property buyers typically take vacant possession of the property or manage standard lease agreements under the Rental Housing Act.

• Commercial lease agreements can be long-term, often exceeding 5–10 years, and include provisions for escalating rental rates, maintenance obligations, and triple-net leases where tenants cover operating expenses.

Legal Tip: Before buying a commercial property with existing tenants, conduct due diligence on lease agreements to understand potential obligations and risks.

B. Zoning Laws & Land Use Restrictions

Zoning regulations play a major role in commercial property transactions.

• Residential properties fall under single-use zoning (e.g., suburban homes), limiting them to personal living spaces.

• Commercial properties require specific zoning approvals, allowing for office spaces, retail outlets, warehouses, industrial operations, or mixed-use developments.

• Some commercial buyers may need to apply for rezoning to legally operate their business, which requires approval from local municipal authorities.

Legal Tip: Before purchasing a commercial property, verify zoning approvals, environmental impact assessments, and building use compliance to avoid regulatory complications.

C. Financing & Mortgage Bond Differences

Commercial property financing is more complex than residential mortgages due to higher investment risks and longer repayment terms.

• Residential property buyers typically apply for a home loan with a 20–30 year repayment term and lower interest rates.

• Commercial property financing is often structured as a commercial bond, with shorter loan terms (10–15 years), higher deposit requirements, and stricter lending criteria.

• Commercial buyers may also use alternative financing options, such as private equity funding, joint ventures, or notarial bonds over business assets.

Legal Tip: Lenders often require a business plan, lease agreements, and proof of rental income before approving a commercial bond. Buyers should work with property attorneys and finance specialists to structure the best financing deal.

D. Transfer Costs & Tax Implications

Commercial property transactions involve higher costs due to transfer duties, legal fees, and tax obligations.

• Transfer duty:

  • Applies to commercial property purchases unless the transaction is VAT-inclusive.

  • If the property is sold by a VAT-registered seller, VAT (15%) may be applicable instead of transfer duty.

• Capital Gains Tax (CGT):

  • If the seller is a company or trust, CGT is calculated at a higher rate than for individuals selling residential property.

• Municipal rates & service charges:

  • Commercial properties often have higher municipal rates and utility costs than residential properties.

Legal Tip: Consult a tax expert and property attorney before purchasing commercial property to understand tax structuring options and possible cost savings.

E. Conveyancing & Legal Compliance

Both residential and commercial property transfers require a conveyancing attorney to manage the registration of ownership at the Deeds Office. However, commercial property transfers often require additional legal steps, such as:

• Verifying existing lease agreements

• Ensuring compliance with zoning laws

• Reviewing commercial tenant rights and obligations

• Handling VAT structuring and tax considerations

Due diligence is critical for commercial property transactions. Buyers should request:
✔ Title deed searches to confirm ownership and encumbrances.
✔ Zoning certificates to verify land-use approvals.
✔ Lease agreements and tenant payment records to assess rental income reliability.
✔ Environmental compliance reports if the property involves industrial or manufacturing activities.

3. Steps in a Commercial Property Transfer

The commercial property transfer process includes:

1️⃣ Offer to Purchase (OTP) Signed – The buyer and seller sign a legally binding agreement.
2️⃣ Due Diligence Conducted – The buyer verifies zoning approvals, lease agreements, and financial records.
3️⃣ Bond Approval (If Applicable) – The buyer secures financing for the purchase.
4️⃣ Transfer Documents Prepared – A conveyancing attorney drafts legal transfer documents.
5️⃣ Transfer Duty or VAT Paid – The buyer pays applicable SARS tax obligations.
6️⃣ Deeds Office Registration – The property transfer is lodged and registered.
7️⃣ Final Property Handover – The buyer takes ownership, subject to lease agreements or tenant arrangements.

Why Choose Barter McKellar for Your Commercial Property Transfer?

At Barter McKellar, we provide expert legal services for commercial property buyers, developers, and investors. Our team of specialist property attorneys ensures that your commercial property transfer is handled smoothly, legally and efficiently.

✔ Expert Conveyancing Services – We handle all aspects of commercial property transfers.
✔ Zoning & Land Use Compliance – We ensure your investment aligns with municipal zoning laws.
✔ Lease Agreement Review & Structuring – Protecting buyers from hidden liabilities.
✔ Financing & Tax Structuring Advice – Helping you save on costs and optimize your investment.
✔ Comprehensive Due Diligence – Ensuring risk-free transactions.

Need Assistance with a Commercial Property Transfer? Contact Us Today!

If you’re purchasing or selling a commercial property, trust Barter McKellar to handle the legal transfer process with expertise and efficiency. Contact us today to schedule a consultation.