Buying a Commercial Property With an Existing Tenant in Australia
Property Lending
Existing leases · Notice of attornment · Settlement adjustments
You are buying more than a building and a rent figure. You are buying an existing lease, the income and obligations behind it, the tenant security that may need to be transferred or replaced, and a set of settlement and lender conditions that have to line up on the same day. This guide follows the buyer from the listing and offer, through due diligence and finance, into settlement and the first year as landlord.
Quick Answer
If you buy a commercial property subject to a binding existing lease, the tenant generally stays and you become the landlord at settlement. Before you go unconditional, check the executed lease and every variation, remaining term and options, rent ledger, recoverable outgoings, incentives, tenant security, arrears or disputes, and the building approvals relevant to the current use. At settlement, rent and outgoings are adjusted, tenant security must be dealt with, the tenant should be formally told where future rent is payable, and your lender's release conditions must be satisfied. Commercial property finance therefore starts with the same document pack your solicitor and valuer need, not with the rent figure on the listing.
Also called: tenanted commercial property, leased investment, buying subject to existing tenancies, sitting tenant.
Where are you in the deal?
- You are still reading the listing and want to know whether the quoted rent or yield is real. Start with the documents behind the income.
- You are about to make an offer and need to know what the tenant actually means for the purchase. Start with what you are buying.
- You want to occupy the property yourself later. Check whether buying subject to the lease fits that plan.
- Due diligence has uncovered a fitout, missing approval, fire-safety record or vacant unit. Go to the compliance and vacancy section.
- Your broker or lender has started asking for lease documents. Go to the lender document pack.
- You are approaching settlement and the guarantee, insurance, GST treatment or adjustments are unresolved. Go to the settlement checklist.
- The tenant has stopped paying, vacated or gone into administration after exchange. Go to the pre-settlement failure path.
- You have settled and now need to know what a commercial landlord actually does. Go to the first-week and first-year actions.
What does buying a commercial property with an existing tenant mean?
Buying a commercial property with an existing tenant means acquiring the property subject to a commercial lease that is already running, so the buyer becomes the landlord at settlement rather than starting with an empty building. That is different from buying the premises your own business already leases, taking over a lease when you buy a business, holding title as tenants in common, or buying with vacant possession. Those transactions can look similar in search results but they have different legal, tax and finance consequences.
One of those mix-ups is caused by a phrase rather than by a misunderstanding, so it is worth clearing first. Sitting tenant is a British term. In the United Kingdom it means a protected residential tenant under the Rent Act 1977, and almost everything written about it concerns houses, flats and rent control that has no Australian equivalent. It has drifted into Australian usage as a loose way of saying there is already a tenant in the building, and it is used here as a synonym for that reason, but it is also used in Australia to describe the opposite party, the business that already rents the premises and buys them from its own landlord. If that is you, this is not your page.
The other two are worth naming in plain words. A business buying the premises your own business leases is not inheriting a tenant at all, because your own lease disappears into the ownership; the question there is whether the deal is priced and funded as an owner occupier purchase. A business buyer taking over a shop lease when they buy a business is going the other way entirely: they become the tenant, by assignment from the outgoing tenant, and the landlord stays where they are.
There is also a word that trips people up. Co-owners who hold as tenants in common are describing how they hold the title between themselves, not a tenant in the building. And there is the buyer who wants the building empty, which is a real decision with real consequences rather than a mistake, and it has its own comparison further down. If you have not yet decided whether you will occupy it or let it out, settle that first, because it changes the property you should be looking at as well as the funding. Buying the freehold with a tenant already in it is an income purchase from the day you settle.
| What you are looking at | What it actually is | Covered here? |
|---|---|---|
| An investor buying a building with a commercial tenant already in it | The purchase this guide covers. You become the landlord at settlement and the lease keeps running | Yes, this is the page |
| The phrase sitting tenant, used of a commercial building | A British residential term for a protected tenant under the Rent Act 1977, borrowed loosely in Australia to mean a tenant is already in place | Yes, as a synonym only. The Australian commercial term is an existing tenant |
| The phrase sitting tenant, used of the buyer | The business that already rents the premises and buys them from its own landlord. The opposite party to this page | No, see buying your premises from your landlord |
| Taking over a shop lease when you buy a business | An assignment from the outgoing tenant to you. You become the tenant, not the landlord | No, that is a tenant side transaction |
| A house or unit sold with a renter in it | A residential tenancy under state residential tenancy law, with its own notice rules | No, residential tenancies are a different regime |
| Co-owners holding as tenants in common | A way of holding title between owners. Nothing to do with a tenant in the building | No, that is co-ownership of title |
| A strip or complex with several tenants, or one unit empty | The same mechanics repeated lease by lease, plus a partial income question your lender assesses differently | Yes, the partial vacancy question is covered below |
| Buying a tenanted commercial property inside your superannuation fund | A different lender pool with its own borrowing and arm's length rules on top of everything here | No, that is a question for your accountant and a specialist first |
| Wanting the building empty so you can move in | A vacant possession purchase, and whether you can get there depends on the lease you are buying | Partly, the comparison below covers the choice |
Scroll the table sideways to see every column.
Does an existing commercial lease bind the buyer after settlement?
Yes, and no further step is needed to make the sale valid. The Property Law Act 1958 (Vic) at section 151, and the Property Law Act 1974 (Qld) at section 114, both provide that where land is subject to a lease, the conveyance of the reversion, which is the landlord's interest in the land, is valid without any attornment by the tenant. The lease does not restart, it is not re-signed, and the tenant does not have to agree to anything for the sale to work. You take over the landlord's side of a contract that is already running, on the terms it already has.
There is a second limb in the very same provisions, and almost nothing written for buyers carries it. Until the tenant is given notice of the sale, rent the tenant pays to the seller is still a valid payment, and the tenant is not liable for any breach of the covenant to pay rent because they failed to pay you. Those two limbs sit in one section for a reason. The sale being valid without the tenant doing anything, and the tenant being safe to keep paying the seller until they are told, are the same rule seen from each end.
That second limb is a funding issue, not an administrative one. The first rent after settlement is the rent your loan was assessed on, and whether it lands in your account or the seller's is decided by whether the tenant has been told. Giving that notice is your solicitor's job and it belongs on the settlement checklist next to the adjustment sheet, not in the pile of things to do in the first quiet week. It is also the reason the tenant's contact details, and confirmation that the notice was actually served, are worth chasing before the day rather than after it.
You do not only inherit the rent. In New South Wales the Conveyancing Act 1919 at section 118(1) says the obligation of a covenant entered into by a lessor with reference to the subject matter of the lease is annexed and incident to, and goes with, the reversionary estate, and can be enforced against whoever is entitled to it. In plain terms, the landlord's promises travel with the building. The make good obligation at the end of the term, the promises about plant and services, the repair obligations and the rent review machinery are all yours from settlement, whether or not the seller ever mentioned them. That is why how a commercial property loan works on a tenanted asset starts with the lease document rather than the rent figure, and why it is worth reading what your facility documents say about the security at the same time.
One caution on scope. The provision exists across the states but its wording and its numbering differ, and this guide names only the jurisdictions actually read for it. Which provision applies to your purchase, and what it means for your contract, is a question for your own solicitor.
What does notice of attornment mean?
A notice of attornment is the notice the new owner gives the tenant telling them the property has changed hands and where the rent is now payable. It usually identifies the new owner, states the date the change took effect and gives payment instructions for future rent. You will also see it called a letter of attornment, which is the same document under another name.
Almost everything published about it is written to the tenant rather than to the buyer, which is why a buyer searching for it finds explanations of what to do when you receive one. The more useful question from your side is what happens when it is not given, and the answer is in the sections quoted above rather than in the notice itself: until the tenant has been told, rent they pay to the seller is still a valid payment and they are not in breach for not paying you. The notice is what closes that gap.
Which makes it a funding document as much as a legal one. It decides whether the first rent after settlement reaches the account your repayments come out of, or reaches the person who no longer owns the building. Preparing and serving it is your solicitor's work, and this guide deliberately does not offer a template or a required form, because nothing read for it supports one and the content and timing are matters for the lawyer running your settlement.
What documents should you check before buying a tenanted commercial property?
Before you rely on the rent or let the finance clause start running, ask for one complete tenancy and property pack. The same core documents are used by your solicitor to test the contract, by the valuer to understand the income and property, and by the lender to decide whether the lease income is usable. A rent figure without the executed lease, variations and payment history is marketing, not due diligence.
Ask the seller or selling agent for the document set early, in one request, and read it before you price the deal.
- The executed lease, with every annexure and special condition attached
- Any deed of variation, extension or renewal since the lease was signed
- The rent ledger, not a summary of it
- The outgoings schedule and the most recent reconciliation
- The security details, whether that is a cash bond or a guarantee, and who holds it
- Any rent review notice that is on foot
- Any default or breach notice issued by either party
- Any incentive deed, side letter or rent free arrangement behind the headline rent
- Any licence, works approval or fitout deed covering alterations the tenant has made
- The current tenancy schedule where there is more than one occupant
- Available building approvals, occupation or occupancy records and fire or essential-safety maintenance records relevant to the current use
- The contract of sale and any special conditions dealing with tenancy changes, security, adjustments or vacant possession
Request that pack before you make the offer where the seller will provide it, or make production of the missing items an explicit due-diligence task immediately after contract. The reason is a timetable collision: the lease and ledger your solicitor needs are also the evidence the valuer and credit team may need. Every day spent waiting for a managing agent or tenant's bank to produce a document is a day coming out of the finance and settlement timetable. On a compressed deal that pressure multiplies, which is the subject of settling on a short timetable.
Two of those documents repay the effort more than the rest. The annexures are where the promises about plant, services and make good usually live, and the fitout position, including who owns the leasehold improvements at the end of the term, is often settled in a special condition rather than the body of the lease. And the incentive position matters more than it looks: a lease at a headline rent with a long incentive behind it is not the same asset as a lease at that rent without one, which is the point of rent free periods and incentives. Both feed straight into how the valuation is instructed.
| What | Comes with the building? | What to do about it |
|---|---|---|
| The lease and its remaining term | Yes | Read the executed lease and every annexure before you rely on the rent |
| The landlord's obligations under it | Yes | Price the repair, services and make good promises you are taking on |
| Rent already in arrears | Depends on the contract and adjustment arrangements | Confirm who keeps the right to recover it, who bears any credit risk and how settlement treats it |
| The tenant's bank guarantee | Not automatically | Check the guarantee wording and issuing bank process, then arrange the agreed reissue, replacement or other treatment before settlement |
| A cash security bond | Sometimes, if the contract passes it over | Confirm where it is held and that it actually reaches you at settlement |
| Rent paid in advance | Usually dealt with by settlement adjustment | Check the adjustment sheet and the period the payment covers |
| An incentive or rent free period still running | Potentially, depending on the lease, incentive deed and sale arrangements | Ask for every incentive document and confirm what obligation the buyer assumes at settlement |
| Unapproved works a tenant carried out | Potentially, as an owner-side compliance issue | Separate the regulator or owner issue from any contractual right to recover the cost from the tenant, and see what you inherit outside the lease |
| Side agreements not written into the lease | Only if you knowingly take them on | Ask the seller and the tenant to confirm in writing that none exist |
Scroll the table sideways to see every column.
A recognised brand can still sit behind a weak covenant if the lease is with a thin local entity and there is no stronger guarantee. The opposite can also be true: a less familiar tenant with a long clean payment history, strong security and sustainable rent can be better evidence than the shopfront suggests. This is why the tenant's legal identity, payment history and security belong in the same due-diligence pack as the lease itself.
- Exact legal tenant name, ACN or ABN and current entity status
- Any assignment, transfer, change of control or lease variation since commencement
- Who gave the bank guarantee, cash bond, personal guarantee or parent-company guarantee
- Whether a franchisee, subsidiary or related party is being presented as though it were the larger brand or group
- Rent ledger and arrears history for the entity that is actually liable under the lease
- Tenant financial information or other covenant evidence where it is available and material to the purchase
Match the tenant name and ACN or ABN in the lease against the current entity record, then trace every assignment, variation and guarantee. If the premises trade under a national brand, confirm whether the franchisor is actually the tenant or guarantor rather than assuming the brand itself stands behind the lease. If the tenant is related to the seller, ask what evidence supports the rent as market rent and whether the arrangement is genuinely arm's length.
The name above the door is not necessarily the entity that owes you the rent. The lease might be with the national operating company, a local franchisee, a special-purpose company, a related business of the seller or another entity entirely. For the buyer, tenant quality starts with the exact legal name on the executed lease and only then moves to the strength of the business behind it.
Who is actually the tenant, and does the brand on the building matter?
The tenant is whoever is named as lessee in the executed lease, which is often not the name painted on the building. A listing will describe the tenancy by its trading name, because that is what makes the asset sound solid, while the party actually bound to pay you is a company or a trust that may have been incorporated for that site alone. Those are different facts and only the second one appears in a credit assessment.
So read the lease for the legal name and the entity number, then check who else, if anybody, stands behind it. A lease may be supported by a director's guarantee, a guarantee from a parent company, a bank guarantee, a cash bond, or by nothing at all beyond the tenant entity itself. A recognisable brand operating under a franchise or a licence tells you very little about the covenant, because the franchisee, not the franchisor, is usually the party on the lease.
Two checks are worth doing before you offer. Search the tenant entity and note when it was registered, because an entity incorporated shortly before the lease was signed changes how the security behind it reads. And ask directly whether the tenant is related to the seller, because a landlord who has leased the building to their own business has set both sides of the rent, which is the mechanism described in the listing yield question below. Neither check is a reason not to buy. Both are things you want to have found yourself rather than have a credit team find for you.
Is the return quoted on the listing the return you will actually get?
Not usually, and the gap is almost always in the outgoings and the incentives rather than in the rent. Most buyers arrive at this topic holding one number from a listing, and it is worth taking that number apart before it becomes the basis of an offer, because the lender is going to take it apart anyway.
Three things commonly sit between the advertised figure and the money in your account. The first is whether it is a gross or a net return. A yield calculated on gross rent assumes every outgoing is recovered from the tenant, and what is actually recoverable is set by the lease and, where retail lease legislation applies, restricted by it. The second is an incentive: a rent free period, an abatement or a fitout contribution granted by the seller reduces the real income below the headline rent, and the obligation follows the lease to you. The third is whether the rent is a market rent at all, which matters most where the tenant is related to the seller.
That last one deserves naming plainly, because it is the mechanism by which a return gets inflated. Where a seller has leased the building to their own business, or sold and leased it back, the rent is a number two related parties agreed rather than a number the market set. It may be perfectly reasonable. It may also have been set to produce a yield, and if it is above market the valuer will usually look through it to a sustainable figure and the credit team will ask what happens at expiry. Ask who the legal tenant is, whether they are connected to the seller, and how the rent compares with what the space would let for today.
The arithmetic itself is not a secret and it is not the differentiator. Australian commercial finance and property analysis sites publish how net operating income and a capitalisation rate produce a value, and at least one Australian commercial finance company publishes the join between lease income, yield and interest cover directly. What almost none of them do is start where the buyer starts, which is a marketing figure on a listing, and walk it back to the number a credit team will run a cover test on. Those are two different numbers with three adjustments between them, and the adjustments are in documents the agent has not sent you yet. If you want the assessment side in full it is set out in what your tenant does to your loan to valuation ratio.
Does a commercial lease require a disclosure statement?
Two entirely different documents are called a disclosure statement, and buyers get answered with the wrong one constantly. The first is the lessor's disclosure statement, which a landlord gives a tenant when a retail lease is entered into or renewed. The second is seller or vendor disclosure, which a seller gives a buyer when the property is sold. Different parties, different moments, different documents.
Your question as a buyer is answered by the second. Your inherited risk sits in the first, because you take the tenancy as it stands, including whatever was or was not given to the tenant at the start of it. That is a distinction, not a rule, and it is the reason to ask what the tenant received rather than assume the file is complete.
On the seller side, the states publish their own material and this guide sends you to them rather than attempting a state by state answer. Queensland runs a seller disclosure scheme that started on 1 August 2025 and covers commercial property as well as homes and vacant land, under which the seller gives the buyer a disclosure statement and prescribed certificates before the buyer signs the contract. Victoria requires a vendor to give the purchaser a signed statement of matters affecting the land before the purchaser signs, under section 32 of the Sale of Land Act 1962, and that duty is written about contracts for the sale of land rather than being confined to housing.
On the lease side, the small business commissioners publish the forms and the timing. In New South Wales the lessor gives the lessee a disclosure statement at least seven days before the lease is entered into, under the retail leases legislation, and the form itself is published by the state's small business commissioner. In Victoria the landlord must give the tenant a disclosure statement and a copy of the proposed lease no later than fourteen days before the lease is entered into, and no later than twenty one days before the end of the term where the lease is being renewed, as set out by the Victorian Small Business Commission. Retail lease legislation does not reach every commercial tenancy, and whether a given lease is a retail lease is a question for your solicitor, not something to read off the rent.
Do not use one professional's work as a substitute for another's. A bank valuation is not a lease review. A clean lease does not prove the fitout was approved. A solicitor confirming title does not tell you whether the rent has actually been paid. The safest process is to run legal review, property due diligence, valuation and finance in parallel, then resolve the material exceptions before you lose the contractual right to act on them.
- Lease: your solicitor has the executed lease, annexures, variations, options, incentives, security and any notices or disputes that can change what you inherit.
- Income: the rent ledger, outgoings and incentive documents reconcile with the rent and yield used in your offer.
- Property: the current use, material tenant works and the building records relevant to that use have been checked far enough to identify any issue that could affect value, insurability or continued occupation.
- Finance: the lender and valuer have the tenancy and property evidence they need, and any conditions that depend on missing documents are understood before the finance or due-diligence deadline expires.
Before the contract becomes unconditional, you want four separate answers: the lease is legally understood, the income is evidenced, the property is lawful and usable for the current tenancy, and the finance is supportable on the documents actually available. A clean answer in one stream does not cure a problem in another.
What should be resolved before you go unconditional?
Everything that a third party has to produce, because after you go unconditional you have no leverage and no exit. That is the whole test, and it sorts the outstanding items better than a checklist does. A question your own solicitor can answer over a weekend is not the risk. A document that has to come from the tenant's bank, a managing agent, a council or a valuer is, because none of them are parties to your contract and none of them work to your timetable.
- The executed lease and every annexure and variation, produced in full rather than summarised
- The rent ledger in the form the managing agent actually keeps it, not a typed summary
- The tenant security identified, and the path to a replacement or transfer agreed in principle
- The outgoings schedule and the most recent reconciliation, so the recoverable position is known
- Any incentive, side letter or works deed sitting behind the headline rent
- The approvals position for the building, its alterations and the tenant's current use
- The going concern treatment settled in writing with your accountant if it is being relied on
- Your valuation instructed and back, and your lender's conditions in writing rather than in conversation
The reason this belongs before the offer rather than in the finance clause is a timetable collision. The same documents your solicitor needs are the documents your lender needs, and a request that takes three weeks to answer has consumed most of a standard finance clause before anybody has looked at your numbers. If an item on that list cannot be produced, that is information, and it is far cheaper as a reason to extend a condition than as a discovery made after you are bound.
What does the rent ledger actually tell you?
A vendor's summary tells you what the rent is. The ledger tells you whether it arrives, when it arrives, and how often it did not. Those are different facts and only one of them is evidence.
Read it for pattern rather than balance. A tenancy that has been paid late and caught up every quarter for two years is a different proposition from one that has never missed, even where both show nothing outstanding today. Look for the months where the amount changed, for credits that do not have an obvious reason, and for a gap that lines up with a variation or a rent review you have not been shown.
It is also the document your lender's credit team will read, and it is the one most likely to arrive late, summarised, or as a spreadsheet somebody typed out rather than an export from the system that produced it. Ask for it in the form the managing agent actually keeps it in, and ask early, because a request that takes three weeks to answer is a request you want to have made in week one rather than the week before settlement. Call it the rent ledger or the tenancy schedule when you ask.
What building and compliance problems can you inherit outside the lease?
You can inherit owner-side compliance and valuation problems that are not written into the lease at all. Unapproved alterations, missing evidence of building approvals, a mismatch between the tenant's actual use and the approved use, safety systems with poor maintenance records and partial vacancy can all change the property a valuer and lender think they are funding. The legal responsibility and the right to recover a cost from the tenant are separate questions, so both need to be checked before exchange.
Take the fitout first, because it is a common source of surprises. Commercial tenants alter premises constantly, and the alterations may require the landlord's consent under the lease as well as separate planning or building approval. Those two approvals are not interchangeable. A previous landlord can agree to a shopfit in writing while the regulatory approval position remains unresolved. If that surfaces, ask two separate questions: what can the relevant authority require of the current owner, and what rights does the lease give the owner against the tenant for the cost or make good? Do not assume one answer decides the other.
Then the occupation evidence, and here the vocabulary itself is a trap. Victoria uses an occupancy permit for building work where one is required, while New South Wales uses an occupation certificate for a new building or a change of use. Older buildings, later alterations and other states can involve different records, so do not ask only for a supposedly "current certificate". The phrase "certificate of occupancy" circulates widely in Australian search results and is American, not an Australian document, so use the term your own state uses when you ask. Ask your solicitor and building consultant what approvals should exist for this building, its alterations and the tenant's current use, and whether the available file proves that position. Where fire or other safety systems apply, also ask for the maintenance and certification records required in that jurisdiction.
Finally the empty unit, which changes the arithmetic rather than the compliance. A lender assesses the income that exists, not the income the building could produce. On a strip where two units are let and one is not, the cover test runs on the two leases you actually have, you carry the outgoings on the third, and some lenders will additionally ask what the whole property is worth with nobody in it. None of that stops the deal. It does mean the marketing figure and the assessable figure are further apart than usual, so present the leases you do have cleanly and name the vacancy yourself rather than letting it emerge at valuation.
| What you inherit | Who the authority looks to | What it does to your finance |
|---|---|---|
| Alterations a tenant made without building or planning approval | Potentially an owner-side compliance problem after settlement; the exact authority and liability depend on the jurisdiction and facts | Can affect the valuation and can become a condition on the loan |
| Missing evidence of the approvals relevant to the building or current use | A solicitor or building adviser needs to identify what should exist in that jurisdiction | Can create a due-diligence, valuation or settlement condition before the lender is comfortable |
| Safety systems with no maintenance records | The owner, as an ongoing obligation rather than a one off | A recurring cost you did not price, and a question at the next valuation |
| A unit that is empty on settlement day | Nobody. It is an income question, not a compliance one | The cover test runs on the leases that exist, and you carry the outgoings on the rest |
| A fitout the tenant owns and must remove at the end | Settled between you and the tenant by the make good clause | Affects what the building is worth at lease end, not what it earns now |
| A use the tenant is putting the premises to that the approval does not cover | Both, and it is a solicitor question before it is anything else | The riskiest of the set, because the income and the compliance are the same problem |
Scroll the table sideways to see every column.
Should you buy with the tenant in place, or with vacant possession?
Neither is the better answer in the abstract, because they answer different questions: a tenanted purchase buys income you did not negotiate, and a vacant purchase buys control you pay holding costs for. A tenanted purchase gives you rent from settlement on terms somebody else agreed, with a term you cannot shorten and a review mechanism you inherit. A vacant purchase gives you the building and every decision about it, and hands you the holding costs until somebody is in it.
Two cautions before the table. Almost everything written about buying tenanted property in Australia is written about houses, and the notice periods, the termination rules and even the vocabulary in that material do not apply to a commercial lease. And if what you actually want is the building empty, the route to that runs through the lease you are buying and the contract you are signing, not through a notice period. What the lease permits is the first question, and it is a question for your solicitor before it is a question for anybody else.
The reason this comparison belongs on a finance page rather than a property blog is what it can do to settlement cash and to the evidence supporting the loan. Do not reduce the GST going-concern test to "tenanted equals yes, vacant equals no". Under section 38-325 of the GST Act, the question is whether the arrangement supplies all things necessary for the continued operation of an enterprise and the supplier carries on that enterprise until the day of supply, as well as the registration, consideration and written-agreement requirements. A lease in place can be central to a continuing leasing enterprise, but vacancy by itself is not the whole legal test. The detail sits in what a going concern sale means and in the going concern definition, and the contract treatment belongs with your solicitor and registered tax agent or accountant.
| What changes | Tenant in place | Vacant possession |
|---|---|---|
| Income from day one | Rent is running from settlement, once notice has reached the tenant | No income until you let it or move your own business in |
| What the lender assesses | The lease, the term left on it, and evidence the rent actually arrives | Your own capacity to carry the property while it is empty |
| The going concern question | A lease in place can support the supply of a continuing leasing enterprise, if the full statutory test is met | Vacancy does not decide the answer by itself; the enterprise and contract conditions still have to be tested |
| What you can do with the building | What the lease permits, for as long as the lease runs | Whatever the zoning, the planning rules and your own plans allow |
| What you are exposed to if it sits empty | Less, while the lease runs and the tenant pays | Outgoings, holding costs and finance costs with nothing coming in |
| Who sets the rent | The lease and its review machinery, agreed before you arrived | You and the market, at the point you let it |
| What happens at your own refinance | The remaining term and the tenancy come back into the assessment | The property is assessed with no income stream unless you have let it |
Scroll the table sideways to see every column.
What changes at settlement when a tenant comes with the building?
Five things converge at settlement: title and the landlord position change hands, rent and outgoings are adjusted between seller and buyer, tenant security has to be transferred or replaced in a form that actually protects the new owner, any lender insurance condition has to be satisfied, and the GST treatment in the contract has to match the transaction that is actually settling. None of those is just conveyancing paperwork, because each can change the cash required or whether the lender is ready to release.
Start with the security, because it is the item most likely to be late. A cash bond can pass across at settlement if the contract says so, and the small business commissioners publish what a bond is and how it should be held: in Victoria a landlord or an agent acting for them is expected to hold a security deposit in an interest bearing account, and Queensland publishes a factsheet distinguishing a cash bond from a bank guarantee, where the guarantee is an undertaking from the tenant's bank to pay the lessor if the tenant breaches the lease. If the guarantee names the seller as beneficiary, do not assume the original instrument automatically protects you after settlement. Depending on the guarantee wording, contract and issuing bank, it may need to be reissued, replaced or otherwise dealt with so the new owner is the protected party and the original can be released appropriately. Raise that at contract, because the tenant and its bank have to act and neither is controlled by your lender.
The adjustment sheet is the second join. Rent is apportioned between seller and buyer at settlement as standard contract practice, and arrears usually stay with the seller, but the sheet itself is drawn by the parties' solicitors under the terms of your contract rather than by a formula this guide could print. What matters for funding is direction and timing. The sheet moves the cash you bring on the day, in both directions, and it is not final until late. It is not a fee, it is a number your broker needs before it settles, which is the same reason the deposit on a commercial security is worth sizing early rather than on the day the sheet is issued.
The third join is insurance, and it is where buyers most often assume there is a rule when there is not one. There are two separate insurance questions on a tenanted purchase and they get answered as though they are one. The lease question is who has to insure what, which is set by the lease and is well covered by Australian law firms writing about commercial leases. The lender question is different: a lender taking a mortgage over the building will commonly require evidence of insurance with its own interest noted on the policy before it will release funds. Those are not the same document and they are not on the same timetable. Arrange the cover and get the certificate to your lender in the week before settlement rather than on the morning, and check what the lease says about who pays the premium and whether it is a recoverable outgoing, because that feeds your reconciliation later.
The fifth join is the going-concern treatment. A supply of a going concern can be GST-free where the requirements in section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 are met: there is consideration, the recipient is registered or required to be registered, the parties agree in writing that the supply is of a going concern, all things necessary for the continued operation of the enterprise are supplied, and the supplier carries the enterprise on until the day of supply. A leased commercial property can fit that framework where the leasing enterprise continues, but it is not automatic simply because a tenant exists. It can materially change the GST cash position at settlement. Duty and land-tax treatment are separate state questions for your solicitor, while the GST position belongs with your registered tax agent or accountant.
Land tax and stamp duty are live considerations on every one of these purchases and neither is answered here. How they are apportioned depends on your contract and your state, and this guide names them so they reach the right desk: the duty and land tax treatment is a question for your solicitor, and the tax consequences are a question for your accountant.
| Item | Which way it moves | Why it matters to your funding |
|---|---|---|
| Rent paid in advance | In your favour, the seller has been paid for days you will own | Lowers the cash you bring, and it is not final until the sheet is |
| Rent in arrears | Usually stays with the seller | You are not buying the arrears, so do not underwrite them as income |
| Outgoings already paid by the seller | In the seller's favour for the part of the period you will own | Raises the cash you bring on the day |
| Land tax | Depends on the contract and the state, your solicitor advises | Can move the cash figure late, so it is raised before the sheet is final |
| The tenant's cash security bond | In your favour if the contract passes it to you | If it does not arrive you hold a lease with no cash security behind it |
| The tenant's bank guarantee | Not usually a simple cash adjustment; it may need reissue, replacement or another agreed treatment | The tenant and its bank may need to act before settlement, so start early |
| Insurance | Not a settlement adjustment; it is commonly a lender-specific release condition | Check the approval and loan documents for the evidence and interested-party notation your lender requires |
| The going concern treatment | Can change the GST treatment if the statutory conditions are met | Can change settlement cash; duty remains a separate state question |
Scroll the table sideways to see every column.
Does any Australian body publish what a lender requires at settlement?
No, and that is worth saying precisely rather than as a complaint, because it explains why the answers you find online disagree. The material published for this guide was searched deliberately for a published Australian position on the lender's insurance requirement at settlement, and here is what that search covered and what it returned. The Insurance Council of Australia and the Australian Finance Industry Association returned nothing on the question. The Australian Banking Association publishes the Banking Code, which is not addressed to it. The prudential regulator publishes capital adequacy material, which governs how a lender treats an exposure rather than what it asks a borrower for. The corporate regulator publishes unfair contract term protections for small business and material on disputes about commercial loans, both of which are useful and neither of which answers it.
What does answer it splits in two, and the split is the point. The lease side, who must insure what under a commercial lease, is well served by Australian law firms. The lender side, the condition of release, appears only in settlement guidance published by brokers and finance companies, which is a commercial description rather than a published standard. So the honest position is that this requirement lives in individual facility documents, it is common enough to plan around, and the only place it is written down authoritatively is your own loan offer. Read that document, and ask your broker what your lender needs before the last week.
What should you do after settlement when you become the landlord?
After settlement, the first job is to make the income, authority and lease calendar point to you. Confirm the tenant has been told where to pay, confirm who is managing the property, secure the lease and security documents, calendar every review and option date, and make sure the insurance, outgoings and compliance records are now being maintained in the new owner's file. Those actions turn a completed purchase into an operating investment.
- Get confirmation that the tenant notice was served and keep proof of service
- Confirm the next rent date, payment instructions and who is authorised to collect it
- Receive or confirm the agreed treatment of the cash bond or bank guarantee
- Calendar rent reviews, option windows, expiry, make good and key compliance dates
- Set up the outgoings and property bookkeeping with your accountant or manager
- Store the lease, variations, ledger, insurance and building records in one refinance-ready file
The first thing to confirm is the one this whole guide turns on: that the tenant has been given notice of the sale and knows where to pay. Until that is done their rent can validly go to the seller. Ask your solicitor for confirmation that the notice was served and keep the proof, then check that the first payment actually lands in the account your repayments come out of rather than assuming it did. If a managing agent collects the rent, the same question applies to them, because an agent instructed by the seller does not automatically become your agent.
The second is the outgoings reconciliation. Outgoings are usually estimated and charged through the year and then reconciled against what was actually spent, and the reconciliation covering the period you bought into will land on you even though part of it belongs to the seller's ownership. The Victorian Small Business Commission publishes what can and cannot be charged as an outgoing under a lease, and where retail lease legislation applies there are restrictions on recovery and on the estimates and statements that have to be given to the tenant. Whether your lease is a retail lease is a question for your solicitor. Get the outgoings position straight in the first month rather than discovering it at the end of the year.
The third is whether you manage it yourself or appoint someone. A single tenant on a long lease paying by direct debit is a genuinely light job. A strip of shops with staggered expiries, recoverable outgoings and a rent review every year is a different proposition, and the cost of a managing agent is an outgoing that may or may not be recoverable under the leases you have inherited. There is no right answer, but decide it deliberately in month one rather than defaulting into it.
Then there are the dates, and this is where new landlords lose money quietly. A commercial lease runs on a calendar of its own and the machinery only works if somebody actions it. Rent reviews and options can carry notice windows and consequences that depend on the lease and legislation, so treat every date as a deadline to check rather than assuming it can be fixed later. An option to renew has its own exercise window, and the Victorian Small Business Commission sets out how options and renewals work where the retail legislation applies, including notice a landlord may be required to give. The tenant exercising or not exercising that option is the single biggest thing that will happen to your income before you refinance. And the make good obligation matures at the end of the term, which is a negotiation you will be better at if you read the clause four years early rather than four weeks late. Put all of it in a calendar on the day you settle.
One jurisdictional note worth having on your radar rather than acting on from a web page. Queensland's small business commissioner has published on what its new Property Law Act means for commercial tenants, landlords and agents. If you have bought in Queensland, that is a conversation to have with your solicitor early rather than at your first lease event.
Finally, keep the file. The lease, the variations, the ledger you now maintain, the outgoings reconciliations, the insurance certificate, the compliance and occupancy documents and the notice of attornment are the same documents your lender will ask for at your next refinance or when you buy the next one. Keeping them as you go can remove a major source of delay at the next refinance or purchase. Reconstructing the file later means asking the managing agent, tenant, insurer and advisers to reproduce evidence under a new finance timetable.
| What | When it arrives | What it costs you if you miss it |
|---|---|---|
| Notice to the tenant and the first rent | Settlement week | The first month's rent can validly be paid to the seller instead of you |
| Insurance with your lender's interest noted | Before the lender releases | The lender may not fund, and settlement moves |
| Confirming who collects the rent | First month | Rent sitting in an agent's trust account that was instructed by the seller |
| The outgoings reconciliation | Usually annually, and it straddles your purchase | An unrecovered shortfall you did not budget for, or a dispute with the tenant |
| Land tax in your own name | The first assessment after you own it | A cash surprise in year one, and it depends on your other holdings |
| Safety and compliance maintenance | Ongoing from settlement | A recurring cost you did not price, and a problem at the next valuation |
| The rent review | On the lease's own review date | A review not noticed in its window is often a review lost for that period |
| The option to renew | In the exercise window written in the lease | Your income and your next refinance both turn on it, so track the date |
| The make good obligation | At the end of the term | A negotiation you will lose if you read the clause for the first time at the end |
Scroll the table sideways to see every column.
What happens if the tenant stops paying, vacates or fails before settlement?
Between exchange and settlement a tenancy can move in four ways that matter: the tenant vacates, the tenant falls into arrears, the tenant is placed into voluntary administration, or the lease is ended outright. None of those is automatically fatal to the purchase, and none of them is a problem you want to meet for the first time in the week of settlement. The question this section answers is the contract one, because you do not own the building yet.
Vacating and arrears are usually the least disruptive, because the lease survives both. A tenant who walks out of the premises has not ended the lease by walking out; the obligations continue until the lease is properly brought to an end. Arrears after exchange are a contract question rather than a property one, and whether you can adjust the price, delay, or walk away depends entirely on the special conditions and on what the seller warranted about the state of the tenancy. Contracts commonly contain a promise of that kind, describing the lease as being in the terms disclosed and not in default at the date of the contract, but the reach of that promise is set by the words used in your contract and nothing here is a substitute for reading them.
If an administrator is appointed, the rent does not stop being owed by the company, but who is personally liable for it changes. Under the corporations legislation the administrator becomes personally liable for rent attributable to a period beginning more than five business days after the administration began, while the company continues to occupy, and within those first five business days the administrator can give a notice that the company does not propose to exercise rights in the property, which switches that personal liability off without affecting what the company itself owes. The corporate regulator publishes a guide for creditors on voluntary administration setting out the process in plain language.
Ending the lease outright is the case that actually breaks the deal. Under section 568 of the Corporations Act 2001, headed "Disclaimer by liquidator; application to Court by party to contract", a liquidator may disclaim onerous property, and a lease of land is in the category that can be disclaimed without the leave of the Court. Subsection (8) gives an interested person a way to force the decision rather than wait on it, because a liquidator who declines or neglects to disclaim for twenty eight days after a written application loses the power to do so. If the lease goes, the income the loan was assessed on goes with it, and your lender is assessing a different property from the one it approved.
So the order of the decisions is what saves the deal, and it is not the order most people take. Establish what the administrator or liquidator has actually done. Read your contract with your solicitor, because whether you can adjust, delay or terminate is written there and nowhere else. Then tell your broker and your lender before the file goes to settlement rather than after, alongside what happens when a bank says no. What happens to a facility when a tenant fails after you already own the building is a different question and is answered in what your tenant does to your loan to valuation ratio. Where the seller is itself in the hands of an insolvency practitioner the contract looks different again, which is covered in buying from a receiver or liquidator.
The deal usually survives
- The tenant falls behind but keeps trading and the lease stays on foot
- The tenant vacates, and the lease continues to bind them until it is properly ended
- An administrator is appointed and the company keeps occupying while the business is assessed
- The contract already deals with the change, and price or timing adjusts under it
- The security is intact and the replacement is on track for settlement
The deal needs a decision
- The lease is ended or disclaimed before settlement and the income is gone
- It was the only tenancy, so the building is empty on your settlement date
- A promise the seller made about the lease turns out not to hold
- Your lender re-assesses a property with no lease behind it
- The security cannot be replaced because the party who has to act is insolvent
How does an existing tenant affect a commercial property loan?
An existing tenant can help a commercial property loan because the lease gives the lender an income stream to assess, but only if the documents prove the income and the tenancy is acceptable under that lender's policy. The credit question is not simply "is there a tenant?" It is who the legal tenant is, whether the lease is arm's length, how much term is left, what rent is actually being paid, which outgoings sit with the owner, what happens if part is vacant, what security supports the tenant, and whether the property is lawful and saleable for its current use.
For a purchase, prepare the lender pack at the same time as the legal due-diligence pack:
- executed lease, annexures and every variation or renewal
- tenancy schedule where the property has multiple occupants
- rent ledger and evidence of the recent payment pattern
- outgoings schedule and the latest reconciliation
- incentive deeds, side letters and any rent-free period still running
- remaining term, options and the next rent-review mechanism
- tenant security and the proposed treatment of any bank guarantee or cash bond
- details of vacancy, arrears, disputes or notices
- contract of sale and settlement timetable
- building or occupancy evidence requested by the valuer or credit team
Current Australian lease-doc products publicly show the same direction of travel: the lease can be the core servicing evidence, while arm's-length tenancy, the remaining term, tenancy schedules and sale documents can become explicit eligibility or document requirements. The exact list and acceptable thresholds vary by lender, which is why this guide does not print a universal LVR, coverage ratio or minimum lease term.
How much a given tenancy moves the number is a separate question with a guide of its own, and it is the right place to go next: what your tenant does to your loan to valuation ratio covers the assessment side in detail, including why no Australian regulator, standards body or valuation institute publishes any relationship between an existing tenancy and a maximum advance, and why the figures circulating online therefore disagree with each other. This page stays on the transaction. If you want the shape of the facility itself, start with a commercial property loan on a tenanted security, and where the lease is the main evidence being relied on, a lease doc facility is the structure to ask about.
The practical question is not whether a particular WALE is universally good or bad. There is no single Australian lender rule that turns one WALE number into one LVR or loan term. The useful test is whether the remaining committed income comfortably covers the period in which you need the property to support the loan, and whether you still have a credible refinance or sale story if the next lease event goes against you.
| Situation | Why it matters | What the buyer should test |
|---|---|---|
| Long remaining lease with clean payment history | Provides a longer period of evidenced contracted rent, subject to lender policy and tenant quality | Confirm the legal tenant, rent ledger, review mechanism, incentives and security rather than relying on the term alone |
| Short remaining lease with no exercised renewal | Creates an earlier income and refinance decision point | Model the property with the tenant staying and with the tenant leaving, including vacancy, incentives and re-leasing costs |
| Tenant has an option to renew | An option can extend the tenancy but is not the same as a committed renewal until it is validly exercised | Check who holds the option, the exercise window, conditions, market review mechanics and whether any notice has already been given |
| Passing rent is above market | The current yield can look stronger than the sustainable income after expiry or review | Compare the passing rent with current market evidence and ask what rent the valuation assumes at the next lease event |
| Part of the property is vacant | Reduces the amount of contracted income supporting the asset and introduces re-leasing risk | Separate occupied and vacant income, then test likely downtime, incentives, fitout and the lender's treatment of unlet space |
| Multi-tenanted property with acceptable WALE | The average can conceal one large or strategically important expiry | Read the tenancy schedule tenant by tenant and identify the expiries that would materially change income or value |
Scroll the table sideways to see every column.
For a multi-tenanted property, WALE means weighted average lease expiry. It is useful because it summarises how long the current rent roll is contracted for, weighted by rent or another stated measure, but the average can hide concentration risk. A four-year WALE does not tell you whether the largest tenant expires in nine months, so read the individual expiries as well as the average.
A lease supports contracted income only for the term that is actually committed. An unexercised option is not the same as a renewed lease, because the tenant normally controls whether it exercises that option. As expiry gets closer, the buyer, valuer and lender have to look harder at market rent, re-leasing demand, incentives, vacancy downtime and the cost of carrying the property if the tenant leaves.
What if the lease expires before your loan does?
It is one of the most common reasons a tenanted purchase is cut back rather than declined. A lender assessing an income stream wants to see that the income outlasts the assessment period it is lending against, so a lease with two years left behind a loan asked for over a much longer term leaves the lender carrying the gap. That does not stop the deal. It usually changes the shape of it, through a shorter term, a lower advance, a condition about reletting, or a review point.
Where a property has several tenancies, the same question is asked across all of them at once, and the shorthand for it is the weighted average lease expiry, which is the average remaining term weighted by the income each tenancy produces. A strip where the largest tenancy expires first reads very differently from one where it expires last, even where the simple average is identical. Options complicate it in the buyer's favour only partly, because an option is the tenant's to exercise and not yours, so a lender will generally assess the firm term and treat the option as upside rather than as income.
What you can do about it is mostly done before you offer. Know the firm term, the option windows and which tenancy carries the most income, and raise a short remaining term with your broker at the start rather than letting it surface in credit. Where the lease is the main evidence being relied on, a lease doc facility is the structure to ask about, and the assessment side in full is set out in what your tenant does to your loan to valuation ratio.
From our broking, indicative
What stops a tenanted purchase is rarely the tenant. It is the file. These are the patterns we see most often when one of these deals slows down or falls over, described as patterns rather than as numbers, because the numbers move by lender and by deal and printing one would be misleading.
- The lease cannot be produced in full, so the term and the obligations cannot be confirmed from the document
- The rent ledger shows a payment pattern the vendor's summary does not
- The security cannot be replaced in time, because the party who has to act is not a party to the contract
- The remaining term is shorter than the loan the buyer has asked for
- The tenant turns out to be related to the seller, and nobody disclosed it until the file was already in assessment
- A fitout or alteration turns up in the valuation that has no approval behind it
- The documents were requested after the contract was signed, so the finance clause was already running while an agent looked for a ledger
Indicative only, based on deals we have placed and current as at September 2026. Not a quote, not an offer, and not an indication that any particular application will be approved. Actual terms and outcomes depend on lender policy and your circumstances at the time of application. Not financial advice.
Buying a commercial property with a tenant already in it is a contract, property and funding purchase at the same time. The lease continues, the landlord obligations travel with it, and the buyer has to prove that the advertised income is the income the documents actually support. The best time to find a weak ledger, expiring lease, unreplaced guarantee, unapproved fitout, vacancy or GST mismatch is before the finance and settlement timetable has compressed around it. After settlement, the job changes from due diligence to operating the lease: redirect the rent, control the file, reconcile outgoings and calendar the dates that drive the next valuation and refinance. If you are working through one now, a commercial property loan on a tenanted security is where the funding conversation starts.
Key takeaway: the lease binds you from settlement whether or not anything is signed, but until the tenant is given notice of the sale their rent can still be validly paid to the seller.Frequently Asked Questions
An existing tenant is a business already occupying the premises under a commercial lease when the property is sold. If the sale is subject to that binding lease, the buyer generally becomes the landlord at settlement and the lease keeps running on its existing terms. In listings you may also see tenanted investment, leased investment or property sold subject to existing tenancies. "Sitting tenant" is sometimes used loosely in Australia, but it also has a different British residential meaning.
The lease generally continues and the buyer steps into the landlord position. In New South Wales, section 118 of the Conveyancing Act 1919 provides for lessor covenants relating to the lease to go with the reversionary estate, so the buyer can inherit landlord obligations as well as the right to future rent. The exact effect of the lease, registration and contract should be checked by a commercial property solicitor.
A notice of attornment is the notice telling the tenant that ownership has changed and where future rent is payable. It is not what makes the sale valid. Its practical importance is that, in jurisdictions with the statutory rule discussed in this guide, rent paid to the former owner before the tenant receives notice can still be a valid payment. Have your solicitor prepare and serve the notice and keep proof of service.
You are entitled to the post-settlement rent under the lease and contract adjustments, but the payment only reaches the right place if the tenant or managing agent has been told who now collects it and where to pay. Confirm the next rent date, payment instructions and service of the ownership notice before settlement, then check the first payment actually arrives rather than assuming the old direct-debit or agent instruction changed automatically.
Ask for the executed lease and annexures, every variation or renewal, rent ledger, outgoings schedule and reconciliation, incentive deeds or side letters, tenant security, current notices or disputes, tenancy schedule for multi-let property, and the building or occupancy records relevant to the current use. Request them early because the solicitor, valuer and lender often need overlapping parts of the same pack.
The lease decides the split. Commercial leases often allocate different categories of repairs, maintenance, plant, structure, fitout and make good between landlord and tenant, but there is no Australia-wide rule that replaces the actual lease wording. Read the annexures and special conditions as well as the front page, and have your solicitor check any retail-leasing legislation that applies in the state.
Not necessarily. The listing may use gross rent, while your real cash return depends on recoverable outgoings, incentives, arrears, rent-free periods, management costs and whether the rent is genuinely at market. Read the lease and ledger, then rebuild the income from the documents before you use the advertised yield to set your offer or finance assumptions.
Potentially the new owner can inherit an owner-side compliance problem, but the exact legal responsibility depends on the jurisdiction, approval history and facts. Separately, the lease or works deed may give the landlord rights against the tenant for cost or make good. Treat those as two questions: what can the authority require of the owner, and what can the owner recover from the tenant? Have both checked before exchange.
Treat it as a due-diligence question rather than assuming every existing building should have a periodically current certificate. Victoria uses an occupancy permit where one is required for building work; New South Wales uses an occupation certificate for a new building or change of use. Ask your solicitor and building consultant what approvals should exist for that building, later alterations and the tenant's current use. Missing evidence can become a valuation or lender condition.
Often yes, but the lender will distinguish income that exists from income the empty space might produce later. The leases actually in place, the vacancy, property type, borrower strength and lender policy all matter. Present the occupied and vacant areas clearly, include the current leases and rent evidence, and do not let the valuer discover the vacancy after the application has been assessed on a fully-let marketing figure.
Do not assume it does. If the guarantee names the seller as beneficiary, the instrument may need to be reissued, replaced or otherwise dealt with so the buyer is the protected party after settlement. The process depends on the guarantee wording, contract and issuing bank. Raise it early because the tenant and its bank may need to act and neither is controlled by your lender or solicitor.
Not simply because you bought it. If the property is sold subject to a binding lease, the tenant can usually continue occupying under that lease after settlement. If your own business needs the space, have your solicitor check the remaining term, options, any break or termination rights and whether the contract actually promises vacant possession before you make the offer.
Not automatically. Section 38-325 of the GST Act requires more than the existence of a tenant: the parties must satisfy the consideration, GST-registration and written-agreement conditions, all things necessary for the continued operation of the enterprise must be supplied, and the supplier must carry on the enterprise until the day of supply. A continuing commercial lease can be central to that analysis. Have the contract treatment checked by your solicitor and registered tax agent or accountant before signing.
A short remaining term creates an earlier income, valuation and refinance decision point. Do not treat an unexercised option as guaranteed future rent. Check the actual expiry date, who holds the option, the exercise window, the next market or fixed review, passing rent versus market rent, likely vacancy downtime, re-leasing incentives and fitout costs. On a multi-tenanted property, also read the individual expiry schedule rather than relying on WALE alone, because an acceptable average can hide a major tenant expiring much sooner.
The strongest red flags are usually documentary or structural to the income: a lease that cannot be produced in full, a rent ledger that contradicts the seller summary, undisclosed incentives or side letters, the legal tenant being weaker than the brand presented in the marketing, a related-party tenant presented as market evidence, security that cannot be reissued or replaced, a short lease or unexercised option, passing rent materially above market, vacancy hidden inside a blended figure, unresolved breaches, or tenant alterations with no clear approval trail.
Administration does not automatically end the lease. Under section 443B of the Corporations Act 2001, the administrator can become personally liable for rent attributable to a period beginning more than five business days after administration starts while the company continues to use or occupy the property, subject to the statutory notice mechanism. For the buyer, establish what the administrator has actually done, read the sale contract with your solicitor, and tell your broker or lender before settlement because the income assumption may have changed.
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