One of the most common assumptions made by commercial property buyers is that if a business is currently operating from a property, that use can simply continue after settlement.
At first glance, the assumption seems reasonable. After all, if a warehouse has been operating for years, a manufacturing business has occupied the site for decades, or a retail tenant has traded from the premises without issue, surely the use must be lawful. Unfortunately, that is not always the case.
In commercial property transactions, buyers often focus their due diligence on title, leases, rental returns, environmental matters and the physical condition of the property. While these investigations are important, one critical issue is frequently overlooked: whether the property’s existing use is actually authorised under applicable planning and development laws.
The distinction between an existing use and a lawful use can have significant consequences. A buyer may acquire a property expecting to continue the current business operation, only to discover after settlement that the use was never properly approved, no longer complies with planning requirements, or cannot lawfully continue in its current form.
For investors, owner-occupiers and commercial landlords, verifying that a use is lawful should form a fundamental part of every commercial property acquisition.
Why Buyers Often Assume the Existing Use Can Continue
Commercial and industrial properties are commonly sold with an established use already in place. This may include:
- Warehouses and distribution facilities;
- Workshops and manufacturing operations;
- Retail businesses;
- Professional offices;
- Trade and service businesses;
- Food production facilities; or
- Transport and logistics depots.
In many cases, the property’s value is closely linked to the business activity being carried out from the site. Buyers may be attracted to an established operation, a long-standing tenant or a proven trading history. As a result, many purchasers make a simple assumption:
“If the business is operating there now, I should be able to continue doing the same thing after settlement.”
The problem is that planning and development laws do not necessarily work that way. The fact that a use currently exists is evidence only that the activity is occurring. It is not proof that the use is lawful, properly approved or capable of continuing indefinitely.
How These Issues Commonly Arise in Commercial Property
The Business Has Changed Over Time:
Many compliance issues arise because businesses evolve. A warehouse may gradually become a distribution centre. A workshop may expand into manufacturing. A storage facility may begin operating heavy transport activities. Each individual change may appear relatively minor. However, over time the actual use of the property can become materially different from the use originally approved. When this occurs, the current operation may no longer be authorised, despite having existed for many years.
The Building Is Not Approved for the Activity Being Conducted
Another common issue relates to the building itself. A purchaser may assume that because a business is operating from a property, the building must be appropriately approved for that activity. That assumption can be dangerous. Buildings are classified and approved for particular purposes. If the building classification, occupancy requirements or approval conditions do not support the current use, significant compliance issues may arise. This is particularly common where premises have been adapted over time without obtaining the necessary approvals.
Previous Owners Never Verified Compliance
Commercial properties often have long ownership histories. Over time, assumptions can become accepted as fact. One owner assumes approvals exist because the previous owner never raised any concerns. The next owner makes the same assumption. Eventually, a purchaser discovers that no one has ever properly investigated whether the use was authorised in the first place. Unfortunately, discovering a problem after settlement is significantly more expensive than identifying it during due diligence.
What Happens If the Existing Use Cannot Lawfully Continue?
For commercial property buyers, discovering after settlement that an existing use cannot lawfully continue can have significant consequences, including:
- Regulatory Action: Local governments and regulatory authorities have the power to investigate unlawful uses and require compliance. Depending on the circumstances, this may result in enforcement notices, compliance orders, penalties or court proceedings.
- Business Disruption: For owner-occupiers, the impact can be immediate. If a use cannot lawfully continue, the business may be forced to cease or modify operations while approvals are sought. This can result in operational disruption, lost revenue and uncertainty for staff and customers.
- Reduced Property Value: The value of commercial property is often directly linked to the activities that can lawfully be conducted from the site. If a buyer discovers that a use cannot continue, the property’s value may be significantly lower than originally anticipated.
- Costly Rectification: Attempting to resolve planning or approval issues after settlement can be both time-consuming and expensive. Retrospective approvals are not guaranteed and often require the involvement of planners, architects, engineers, certifiers and legal advisers. Even after significant expenditure, approval may ultimately be refused.
What Should Commercial Property Buyers Investigate Before Settlement?
Commercial property due diligence should extend beyond title searches and lease reviews. Buyers should take steps to verify that the property’s existing use is properly authorised and supported by the necessary planning and building approvals. This may include investigating:
- The property’s zoning and whether the current use is permitted under the applicable planning scheme.
- Development approvals relating to the use and development of the property.
- Building approvals for any buildings, fitouts, alterations or improvements carried out on the site.
- Certificates of Occupancy or Certificates of Classification to confirm that the building is approved for its current use.
- Building classifications and whether they align with the activities being undertaken from the premises.
- Conditions attached to approvals and whether those conditions are being complied with.
- Compliance notices, enforcement actions or outstanding council requirements affecting the property.
- The buyer’s intended future use and whether that use can lawfully continue following settlement.
Identifying these issues before a contract becomes unconditional can provide an opportunity to assess risk, negotiate contractual protections or reconsider the acquisition altogether.
Why Legal Due Diligence Matters
Commercial property acquisitions often involve substantial financial commitments. Buyers should avoid relying solely on historical occupation, existing tenants or assumptions that a business has “always operated that way.”
Proper legal due diligence allows buyers to investigate whether the property’s use is supported by the necessary approvals and whether any planning or compliance risks exist.
The earlier these investigations are undertaken, the greater the opportunity to identify and address potential issues before ownership changes hands.
Need Advice Before You Commit to a Commercial Property Purchase?
At Ardor Legal, we can help you understand whether a property’s existing use is supported by the necessary approvals and identify potential issues before you proceed.
If you are considering purchasing commercial or industrial property, we invite you to book a complimentary 15-minute discovery meeting with one of our experienced commercial property lawyers.
Frequently Asked Questions
If a Business Has Operated from a Property for Many Years, Doesn’t That Mean the Use Is Lawful?
Not necessarily. The fact that a business has operated from a property for an extended period does not automatically mean the use was properly approved or remains compliant with current planning and building requirements. Historical use and lawful use are not always the same thing.
Why Is a Certificate of Occupancy or Certificate of Classification Important?
A Certificate of Occupancy (previously Certificate of Classification) can help confirm that a building has been approved for a particular use and complies with relevant building requirements. If the certificate does not align with the current use of the property, further investigations may be required.
What is a Building Classification?
A building classification is a category assigned to a building under the National Construction Code that identifies the purpose for which the building has been approved. Common examples include offices, retail premises, warehouses and factories. Building classification is an important part of commercial property due diligence because a business may be operating from a building that was not approved for that particular activity. Where the building classification does not align with the existing use, additional approvals, upgrades or compliance works may be required before the use can lawfully continue.
What Is a Building Approval?
A building approval is an approval that authorises building work to be carried out on a property, such as the construction of a building, a fitout, an extension or structural alterations. Building approvals are an important part of commercial property due diligence because a building may have been modified over time without the necessary approvals being obtained. Even where a business has operated from the premises for many years, unapproved building works can create compliance risks and may affect whether the existing use can lawfully continue.
What Is the Difference Between Zoning and Building Classification?
Zoning determines what activities can occur on the land. Building classification determines what activities the building has been approved to accommodate. A property should comply with both for the existing use to lawfully continue.
