For Commercial Property Lawyers

For Commercial Property Lawyers

A Purchase Price Allocation is more than another clause in the agreement.

Commercial property transactions involve significant financial commitments, detailed contractual arrangements and multiple professional advisers.

The Purchase Price Allocation (PPA) is one area where the agreement can have tax consequences extending beyond settlement.

Under New Zealand’s PPA rules, the allocation of consideration between different classes of property can affect the tax treatment adopted by both purchaser and vendor.

Where the allocation is agreed between the parties, the legislation can restrict their ability to subsequently adopt different values.

Getting appropriate valuation advice before the allocation is finalised can help avoid problems later.

The issue isn’t just agreeing on the numbers.

A commercial property transaction may include land, buildings, separately depreciable fit-out, plant, machinery and other property assets.

Different classes of assets can have different tax treatments.

The purchaser and vendor may also have different interests in how the consideration is allocated.

An allocation that appears straightforward in the agreement may involve underlying questions about:

›Which assets are included in the transaction.

›Whether those assets are owned by the vendor.

›How the relevant assets should be classified.

›
What values can reasonably be attributed to them.

›Whether the proposed allocation satisfies the relevant tax requirements.

These are matters where specialist valuation information can assist.

Where Valuit adds value

Valuit provides specialist commercial property asset valuations and purchase price allocation assessments.

Our role is to establish and document appropriate asset values so the parties and their advisers have reliable information when considering the allocation.

Asset identification

We assess the property to identify relevant assets and components.

This can include plant and machinery, specialised fit-out, equipment and other potentially separately depreciable assets.

Asset ownership considerations

Commercial properties frequently contain assets installed by tenants.

Depending on the lease arrangements, some fit-out may belong to the landlord while other items remain the property of the tenant.

We review relevant ownership information and identify matters requiring clarification.

Where ownership depends on the interpretation of lease provisions or other legal rights, we refer those questions to the parties’ legal advisers.

Valuation methodology

We assess the identified assets using appropriate valuation methodology and the available supporting information.

Our objective is to establish supportable values rather than produce figures designed to achieve a predetermined tax outcome.

Asset classification

We consider the physical characteristics and relevant classifications of the identified assets.

This can assist accountants and lawyers in determining how the assets should be treated under the applicable tax rules.

Documented reporting

We provide valuation information and supporting explanations relevant to the proposed allocation.

This can assist the parties and their advisers in considering and documenting the transaction.

Common PPA issues in commercial transactions

1. Allocations agreed without valuation advice

Parties may agree to a purchase price allocation without first obtaining specialist information about the assets involved.

Where the allocation is subsequently questioned, supporting the agreed values may become difficult.

2. Buildings and depreciable property combined

An allocation that combines buildings and separately depreciable assets into a single figure can create uncertainty about the values attributed to different property classes.

This deserves particular attention where the relevant assets have different depreciation treatments.

3. Tenant-owned fit-out

The physical presence of an asset within a property does not necessarily establish that it is owned by the vendor.

Lease provisions, ownership arrangements and the assets actually transferred must be considered.

4. Different purchaser and vendor interests

The purchaser and vendor may have different tax consequences arising from the same allocation.

Obtaining appropriate valuation information can assist the parties and their advisers when considering proposed figures.

5. Attempting to change an agreed allocation

Once an allocation has been agreed and the relevant statutory requirements apply, the parties may be restricted in their ability to change the tax values subsequently adopted.

This reinforces the importance of addressing the allocation before it becomes final.

When should Valuit be involved?

Ideally, before the parties finalise the purchase price allocation.

Early involvement allows time to identify the relevant assets, establish their values and provide the information needed for the parties to consider the proposed allocation.

Valuit can also assist where valuation questions arise during negotiations, due diligence or the preparation of transaction documentation.

A specialist resource for commercial property transactions

Valuit has provided property asset valuation services throughout New Zealand since 1998.

Since 1998

Specialist property asset valuation services throughout New Zealand

Our experience includes the identification and valuation of depreciable assets across a wide range of property types.

We combine practical property knowledge, specialist valuation methodology and established systems to provide information that can be used by the parties and their professional advisers.

We understand the distinction between valuation advice, tax advice and legal advice.

Our role is to provide the specialist valuation evidence.

Your role is to advise on the contractual and legal implications.

Supporting better-informed PPA decisions.

Whether you’re acting for a purchaser or vendor, appropriate valuation information can assist when negotiating and documenting a commercial property purchase price allocation.

Valuit can help establish the asset values underlying that allocation.