What Is a Going Concern in Commercial Real Estate?
In commercial real estate, the term “going concern” plays a critical role, particularly when it comes to the sale of businesses or investment properties that are fully operational. Understanding what it means when a property is sold as a going concern can offer significant financial and strategic advantages for both buyers and sellers.
What Does ‘Going Concern’ Mean?
A going concern refers to a business or entity that is operating and earning income at the time of sale. In the context of commercial real estate, this often includes properties like retail stores, cafés, warehouses, or office buildings that are leased and generating rental income, or businesses sold with their operational structure intact.
When a property is sold as a going concern, the buyer is acquiring more than just the land and buildings—they’re purchasing a fully functional enterprise. This could include assets like fixtures, equipment, existing leases, and established staff.
Benefits of Buying or Selling a Going Concern
There are several reasons why the sale of going concern is attractive:
GST Exemption: If certain criteria are met, a sale structured as a going concern may be exempt from GST under Australian tax law. This can offer substantial savings for both parties involved.
Immediate Revenue Stream: The buyer inherits an existing income-generating asset, reducing downtime and risk.
Continuity of Operations: Staff, customers, and suppliers are often retained, preserving the business’s momentum.
Valuation Advantage: Buyers can assess the commercial real estate for sale based on existing performance, rather than projected outcomes.
Conditions for a Sale of Going Concern
To qualify as a sale of going concern under the ATO’s guidelines, a few essential conditions must be met:
The seller must be registered for GST.
The buyer must also be registered for GST.
The property must be sold with all elements necessary for it to continue operating as a business.
The business or enterprise must be operational up until and including the day of sale.
Failing to meet any of these requirements can result in GST being payable on the transaction, which could significantly alter the financial outcome of the deal.
What to Consider When Purchasing a Going Concern
If you’re in the market for commercial real estate for sale and considering a going concern:
Conduct detailed due diligence, especially around leases, tenant histories, and operational costs.
Seek legal and financial advice to ensure the transaction qualifies as a sale of going concern.
Review all included assets and contracts to understand exactly what you’re acquiring.
Looking for the Right Offer?
Looking for a commercial property that ticks all the boxes? Get in touch with CPN Commercial Group today to explore current opportunities sold as going concerns. Let us help you find the right investment with income from day one.
