If you have decided you want to use the equity in your home to
buy a commercial property, or perhaps you have an inheritance you
want to use for that purpose. In either case you will want to
choose a legal structure that is the best fit for your personal
One question you may ask yourself is whether it will be a good
idea to use a Trust to purchase a commercial property. The pros and
cons and the various options available to you are discussed
You may consider that a number of factors are important:
You will want to protect your family home.
You will want the ownership structure you choose to purchase
the commercial property to be tax effective, and if possible reduce
your own personal tax liability as much as possible.
You may want some flexibility in case your circumstances
Option 1: You establish a separate trust to purchase the
A Trust is likely to be one of several suitable methods of
ownership if a Trust is formed to specifically
only own investment properties. We recommend that
if possible you should try to keep your investment properties in a
stand-alone structure, separate from the ownership of your family
In this way your family home will be kept separate from the
activities of the commercial investment, and the risks which
inevitably come with it e.g. issues with the commercial
property's tenants or liability for payment of the commercial
It may then be prudent to keep the family home in a separate
family trust which protects the home from personal creditors. This
may be particularly if you are involved in any other business as an
Borrowing and Security
If you need to borrow money to fund the purchase of the
commercial property (as realistically most people do!) it will be
very important to protect your family home. You should attempt to
persuade the bank if you can that it is not necessary to include
your family home (irrespective of how it is owned) as part of the
Bank security. If this is not possible, then we recommend that you
negotiate that your home forms only a "limited" part of
the bank's security. Whether the Bank will agree to leave your
house free of any charges will depend on how much you are borrowing
and your ability to service the loan
Option 2: Using a combination of trust and company
The investment property could be purchased in a company for
which you (and perhaps other members of your family) are
shareholders. Either from the beginning or in future years
(depending on your accountant's advice), shares can be
transferred to your family trust and that Trust may also own your
Borrowing and Security
Your new company could then borrow the funds needed to purchase
the commercial property, with the company offering a mortgage
security over the property.
If the bank requires more security, then the bank may insist
that the family home forms part of the bank's security. If the
family home is owned by a trust then the trustees and you
personally will likely be asked for guarantees in favour of the
Bank. When the loan amount reduces you can ask the bank to release
the family home from their security.
Even before you have found a commercial property to buy, it is
best to discuss the structuring options with your professional
If you discuss the possible ownership discussions early then
this will hopefully allow you more time to enter into productive
negotiations with your bank as to what security they will settle
for. If you go into a property purchase with an idea as to what
ownership structure you will use then this can also have the
benefit of reducing some of the time pressures on you that will
inevitably pop up during the purchase process e.g. you will be able
to dedicate more time to carrying out your due diligence
investigations on the commercial property you have under
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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