What Is a Freehold Passive Investment? Motel, Pub or Park
Accommodation Finance Hub
Accommodation Finance · Commercial Property · Investors
Buying a motel, pub or caravan park with the operator's lease in place makes you the landlord, not the operator. Your income is the rent under that lease. This guide follows the buyer's whole path: what you own, whether the advertised yield is real, how lenders and valuers assess it, what to check before an offer, what happens through settlement, and the risks around tenant failure, lease expiry and exit.
Quick Answer
A freehold passive investment is buying the land and buildings of a motel, pub or park with the operator's lease staying in place, so you own the property as landlord and receive rent while a separate tenant runs the accommodation business. You are not buying the trading business. That distinction decides how the property is financed, valued and managed.
Also called: a leased freehold, a passive investment motel, a tenanted freehold, an investment freehold.
What is a freehold passive investment, and what are you actually buying?
A freehold passive investment means you buy the land and buildings while an operator keeps the accommodation business under a lease and pays you rent. You are buying a landlord position, not an operating job. The freehold is yours; the business, goodwill and room revenue are not.
- What you own: the land and buildings, and the landlord's side of the lease that sits over them.
- What you do not own: the accommodation business, its goodwill, its trading income or the plant the operator brought in.
- Where your income comes from: rent payable under the lease, not room nights, not takings, not occupancy.
- What you take on: the landlord's obligations under that lease, and the risk that the tenant stops paying it.
"Passive" describes the operating role, not the absence of landlord work. You are not staffing rooms or running bookings, but you still monitor the lease, insurance, rent reviews, structural capital items, tenant requests and any default or renewal. That distinction matters when you compare the asset with a residential investment or an operating motel.
That is why the deal is called passive. The trading risk sits with the tenant and the property risk sits with you, and the lease is the document that draws the line between them. The rest of this guide follows the lease through the valuation, the loan, the tax treatment and the failure case. If you are weighing the wider asset class, the accommodation finance hub is the wider entry point.
Freehold passive investment, freehold going concern or leasehold: which are you looking at?
Three listings can describe the same motel and be three completely different purchases. A freehold passive investment buys the property with a tenant attached, a freehold going concern buys the property and the business together, and a leasehold buys the business and the right to occupy someone else's building. They carry different income, different valuations and different security, which is why a figure quoted against one of them means nothing against another.
| Structure | What you own and who operates | Where your income comes from | How it is valued and financed |
|---|---|---|---|
| Freehold passive investment | You own the land and buildings; a separate tenant operates the accommodation business under a commercial lease. | Rent payable under the lease. | As a leased investment, with the passing rent, remaining term and tenant covenant central to valuation and credit. |
| Freehold going concern | You buy the land, buildings and operating business and normally run the motel yourself or through your own operator. | Trading profit of the accommodation business. | Property and business are assessed together as a going concern, with trading performance central to the valuation and loan. |
| Leasehold motel | You buy the business and the right to occupy under the lease; you do not own the land. | Trading profit after the rent and operating costs you pay. | As a business whose value and financeability depend heavily on maintainable earnings and the remaining lease term. |
If you are weighing the operator-side decision, whether to buy the business with the property or buy the business alone, that comparison is a separate one and it has its own guide. What matters here is the boundary: this page is the investor purchase, where you never take over the accommodation business. The terms are worth reading in the glossary, because the listings use them loosely: freehold going concern means the business is included, and it is not what you are buying on a passive investment.
The same three-way split applies whatever the asset is. A leased hotel or tavern sits under pub and hotel finance, and the structure of the deal does not change: the tenant trades, you hold the property, and the lease carries the income.
What does the lease actually set, and what stays with you as landlord?
The lease sets the income, the remaining term, rent reviews, outgoings, repair obligations, guarantees and the rules for changing the tenant. Those terms determine what you actually keep as landlord and how a lender and valuer read the property, which is why the executed lease matters more than the listing summary.
Outgoings is the term for the running costs attached to the property, rates, land tax where it applies, insurance, body corporate levies and building services. A lease that pushes them to the tenant and a lease that leaves them with the landlord produce very different net income from the same headline rent, which is exactly why the gross figure in a listing is not the figure the valuer uses.
| Lease term | What it typically covers | What to check | Why the lender cares |
|---|---|---|---|
| Term and options | The fixed period, plus any further periods the tenant may elect to take | How much fixed term is left, and whether any option has already been exercised | A lease shorter than the loan leaves years where the income is unproven |
| Rent reviews | Fixed increases, movements tied to the consumer price index, or a review to market | The mechanism, the review dates, and whether the rent can fall at a market review | It sets whether the income the loan is sized on holds, rises or resets down |
| Outgoings | Rates, land tax where applicable, insurance, levies and building services | Which side pays which item, and whether the split matches what you were told | Net income, not gross rent, is what services the loan |
| Repairs, maintenance and capital items | The split between tenant upkeep and landlord structural and capital work | Roof, structure, plant replacement and any works falling due soon | Landlord capital spend competes with loan repayments for the same cash |
| Guarantees and security | Personal or corporate guarantees, bank guarantees, bonds and security deposits | Who has signed, for how much, and whether the guarantee is enforceable | It decides what is actually behind the rent if the tenant entity fails |
| Assignment and consent | Whether the tenant can transfer the lease, and on what conditions | Whether landlord consent is required and what tests a new tenant must meet | It controls who can end up as the operator behind the income |
Two boundaries are worth drawing here so you do not read the wrong body of rules. First, going concern in this context is a tax term about how a sale is treated for GST, not the accounting sense of the phrase. Second, if the park you are looking at has permanent residents on site agreements, that is residential tenancy law governing residents rather than commercial lease law governing an operator, and it sits outside this guide entirely.
Where a lease is thin on landlord protections, the reason is usually that it was written to get a deal signed rather than to be financed. The same pattern shows up on the incentive side of leasing, which is covered in the landlord incentive gap.
Who pays what on a leased accommodation freehold, and is the advertised return net or gross?
On most leased accommodation freeholds the tenant carries the running costs and the landlord keeps the structure, which is why a return quoted in a listing is usually a net figure, but the split is set by the outgoings clause and not by the convention. Read that clause before you accept any yield in an advertisement, because two properties advertised at the same return can leave very different money in your hand.
Listings describe this in their own vocabulary. Lessee pays all outgoings means the tenant reimburses the running costs. Net return means the yield is quoted after those costs. Passing yield means it is calculated on the rent payable now, not on a market rent or a review that has not happened yet. Where a listing quotes a gross figure, or does not say which it is, treat the number as unconfirmed until the executed lease says so.
What is a good yield on a freehold passive motel?
There is no single "good" yield for a freehold passive motel. A higher yield can be compensation for a shorter fixed lease, a weaker tenant covenant, above-market rent, more landlord capital expenditure, a regional location with a thin resale market, or an asset that will be harder to re-let. Compare the passing rent after non-recoverable outgoings and expected landlord capital costs with the total acquisition cost, then ask what happens to that income if the tenant leaves.
Do not compare the same advertised yield on a passive motel with the same yield on industrial, office or retail property as though the risks are identical. A leased motel usually has one specialised tenant, a narrower replacement-operator market and a building whose value can change materially if the operating lease disappears. Compare the remaining fixed term, tenant strength, rent affordability, landlord capital expenditure, re-letting depth, location and lender appetite as well as the headline yield. A higher yield is often the market's price for one or more of those risks rather than free extra return.
| Cost item | Who usually carries it | What to confirm in the lease | Why it moves your number |
|---|---|---|---|
| Council rates and water charges | Usually the tenant, as a recoverable outgoing | That the clause names them, and how they are billed and recovered | A cost you cannot recover turns a net return into a gross one |
| Land tax | Varies by state and by the type of lease | Whether the lease permits recovery, and whether the state allows it for that lease type | It is one of the larger outgoings on a commercial property and a common gap between the advertised return and the real one |
| Building insurance | Usually the tenant reimburses the landlord's premium | Who holds the policy, who pays it, and who is noted on it | An unrecoverable premium is a permanent deduction from the rent you keep |
| Public liability and business insurance | Usually the tenant, for its own business | That the required cover is stated in the lease and evidenced each year | An uninsured tenant exposure becomes your problem when something goes wrong |
| Structural and capital repairs | Usually the landlord | Exactly which items are carved back to the landlord, and on what trigger | A roof or a re-clad is a capital call that no rent review pays for |
| Day to day repairs and maintenance | Usually the tenant | Where the lease draws the line between maintenance and capital works | That line decides who funds the work when something wears out |
| Plant and equipment replacement | Depends on who owns the plant | Whether each item is the landlord's fixture or the tenant's chattel | Plant you own is plant you replace, and ownership is rarely obvious at inspection |
| Body corporate or strata levies | Usually the tenant where the property is strata titled | Whether special levies are recoverable as well as ordinary levies | A special levy arrives without warning and behaves like a capital cost |
How to work out what you would actually clear
Work the number in this order, using the executed lease rather than the listing.
- Start with the passing rent, the rent payable under the lease right now, not a reviewed or market rent.
- Subtract every outgoing the lease does not let you recover from the tenant.
- Subtract an allowance for the structural and capital items the lease leaves with you, spread across the years you expect to hold it.
- Subtract the cost of holding the asset, including your loan repayments, if you want the cash position rather than the property return.
- Divide what is left by what the property actually costs you, purchase price plus duty, legal costs, the valuation and any lender fees, not by the asking price alone.
That last step is where most listing yields and real returns part company. A quoted return is almost always rent over price. Your return is money kept over money spent, and the acquisition costs sit in the second number and not the first. The capitalisation rate a valuer applies is a market rate for that income and that asset, so it answers a different question again, which is what the property is worth rather than what you take home.
The pattern above is the common one, not a rule, and every line of it can be varied by the lease you are actually buying. The practical test is simple: take the rent, subtract everything the lease does not let you recover, and compare that number with the return on the listing. How this differs from a residential investment is covered in commercial versus residential investment property.
How much will a lender advance on a leased accommodation freehold?
On a leased accommodation freehold the lender advances against the lease as much as against the land, so the size of the advance is set by the leased investment valuation and the passing rent rather than by a headline percentage. The advance is built from the leased investment valuation, the rent that valuation capitalises, the years of lease left against the loan term you want, and who stands behind the tenant. Any figure quoted without those four inputs is describing somebody else's transaction.
- What the lender is lending against: the property valued as a leased investment, with the passing rent as the income that repays the loan.
- What sets the ceiling: the valuation the lender instructs, not the contract price and not the asking price.
- What your contribution has to cover: the gap between price and the lender's valuation, plus duty, legal costs, the valuation itself and working capital at settlement.
- What moves the answer up or down: remaining lease term, the strength of the tenant covenant, the rent against market, the asset type and where it sits.
What a lender reads in the file
- The executed lease and every variation, side letter and exercised option attached to it
- A valuation on a leased investment basis, instructed by the lender rather than supplied by the seller
- The tenant's trading figures, to test whether the rent is genuinely affordable to the business paying it
- The rent ledger, to see whether the rent has actually been paid and when
- Your own position, financials and experience as a property investor
- The security documentation reaching over the lease, not only over the land
APRA's capital framework helps explain why a bank can treat cash-flow-dependent commercial property and business exposures differently, but the regulatory risk weights are not borrowing limits and do not set the LVR a lender will offer. Under APS 112, qualifying cash-flow-dependent commercial property exposures carry risk weights that rise through the prescribed LVR bands, while an unrated small or medium-sized corporate exposure is treated under a different framework. The important customer point is not the percentage itself: the freehold and the operating business can be different credit risks even when they sit on the same site.
Source: APRA, Prudential Standard APS 112, Attachment A Table 3 and Attachment B Table 12, via the authorised instrument at legislation.gov.au. Effective 1 July 2025, confirmed against the instrument on 24 August 2026. Qualifier: these are regulatory capital treatments for the lender, not borrowing limits for you. The percentages describe how much capital a bank holds against an exposure, and the LVR bands are capital thresholds, not an offer of gearing. They explain why property-secured lending is priced and geared differently from business lending; they do not tell you what you will be advanced.
The practical consequence is that the freehold side of an accommodation deal is a property file and the operator side is a business file, and they are underwritten by different teams against different tests. Generic motel finance mechanics, the operator side included, sit in the motel finance guide; what changes here is that the income under assessment is a lease, not a trading business. How the bricks themselves are read is covered in how lenders value the motel freehold, and the loan structure itself sits under commercial property loans. Where the contribution is the constraint rather than the servicing, a second mortgage against other property is sometimes how the gap gets covered in practice, though it changes the risk picture and needs to be structured deliberately.
From our broking, indicative and qualitative
From the underwriter's seat these files are read in a fairly consistent order, and knowing the order before you make an offer is worth more than any percentage. As at August 2026, across the leased accommodation freeholds we have placed, this is what gets tested first and what gets a deal declined.
What lenders test first, in order
- Whether the passing rent covers the proposed repayments with a buffer
- Whether the tenant's trading genuinely supports the rent being charged
- How many years of lease, with options, remain against the loan term
- Who stands behind the tenant covenant, and whether that is documented
What gets these deals declined, in order
- A remaining lease term too short for the loan term being asked for
- Passing rent above market that the valuer will not capitalise
- Operator arrears, or trading that does not support the rent
- No consent, right of entry or step-in documentation over the lease
- A single weak covenant with nothing standing behind it
Indicative and qualitative only, based on deals we have placed, as at August 2026. Not a quote and not an offer. No lending percentages are given here because they move by lender, by lease and by asset. Actual terms depend on lender policy and your circumstances at the time of application. General information only, not financial advice.
Can the rent service the loan?
Yes, the rent can be the primary servicing income on a lease-doc commercial property assessment where the lease is acceptable, the rent is evidenced and the remaining term supports the facility. The lender tests the passing rent against a buffered repayment and then checks whether the tenant's own trading can realistically support that rent.
Lease doc is the name for that assessment. It means the lender relies on the lease and the evidence the rent is being paid, rather than on tax returns and financial statements from you. It works when the lease is properly documented, the rent has a payment record behind it, and the remaining term covers the loan term. It stops working when the lease is short, the rent sits above market, or the ledger shows arrears, and the file then moves back to a full income assessment. The document set is set out in the lease doc commercial property loan guide.
From the underwriter's seat the second question is always about the tenant rather than the lease. A rent that looks affordable on paper and consumes most of what the business earns is a rent that will be renegotiated at the first difficult year, and lenders price that in. How the lease itself is read on a credit file is covered in how a lender reads the lease.
How is a leased accommodation freehold valued?
A leased accommodation freehold is valued as an investment, by taking the rent actually payable and capitalising it, which produces a different number from the same property sold with its business attached and a different number again from the same property sold empty. Buyers routinely compare a listing built on one basis with a lender's valuation built on another and conclude the valuer is wrong.
Passing rent is the rent actually payable under the lease right now, as distinct from the market rent the property might command if it were re-let today. The capitalisation rate, often shortened to cap rate, is the rate at which that income is converted into a capital value, and the yield is the same relationship read the other way, as income against price. Where the passing rent sits above market, the property is over-rented, and a valuer will not capitalise income the market would not pay again. That gap is one of the most common reasons a leased freehold values below its contract price.
| Value basis | What it measures | When it is used | Who relies on it |
|---|---|---|---|
| Leased investment value | The passing rent under the lease, capitalised at a rate the market supports | A tenanted property sold with the operator's lease staying in place | The investor buyer and the lender funding the purchase |
| Going concern value | The property and the operating business together as one trading entity | A property sold with the accommodation business attached | The owner operator buyer and the lender funding both halves |
| Vacant possession value | The property with no tenant and no business income attached to it | The downside case, and where a lease ends or is not replaced | The lender assessing what the security is worth if the income stops |
Lender valuations on these assets read conservatively for a reason that is written down. APRA's Prudential Standard APS 220 requires collateral to be valued at fair value taking into account prevailing market conditions such as the time taken for liquidation or realisation, and requires all valuations to be appraised independently of the lender's credit origination, assessment and approval process. For property, the standard requires the valuer to assume a marketing period of up to 12 months, with a longer period of up to a maximum of 24 months available for specialised or unusual properties where a professional valuer advises that is appropriate. Motels, pubs and parks are specialised properties.
Source: APRA, Prudential Standard APS 220, paragraphs 48 and 49 and Attachment A paragraph 15, via the authorised instrument at legislation.gov.au. Effective 1 January 2023, confirmed against the instrument on 24 August 2026. Qualifier: this is a prudential requirement on lenders. It explains why a lender's number can sit below a listing's number on a specialised asset; it is not a prediction of what any property will sell for.
The valuation profession's own guidance points the same way. Under the Australia and New Zealand Valuation Guidance Paper 112, instructions for mortgage and loan security valuations are ideally received from the lender, with the terms of engagement between the party relying on the valuation and the valuer, which is why the report you paid for is not necessarily the report your lender will use. The same guidance requires the member to report the GST status of the valuation and says an estimated marketing period should be provided.
Source: Australian Property Institute and Property Institute of New Zealand, Australia and New Zealand Valuation Guidance Paper 112, Valuations for Mortgage and Loan Security Purposes, paragraphs 4.1 and 5.3, effective 1 January 2025, read 24 August 2026. Qualifier: a professional standards position; individual instructions vary.
The number that decides your loan is the one the valuer adopts on your property, on the leased investment basis, with your lease in front of them. A market average is not that number. How valuation feeds the loan structure generally is covered in how commercial property loans work, and the same mechanics at larger scale sit in what lenders advance on a big park. The wider set of property lending questions sits in the property lending hub.
What due diligence should you run on the lease and the tenant?
Before buying a leased accommodation freehold, verify the executed lease and variations, remaining term and options, rent ledger, tenant financial capacity, guarantees, outgoings, rent reviews, landlord capital obligations, title and permits, and the replacement-operator market. Read the tenant as hard as you read the title: the title tells you what you own, the lease tells you what it earns, and the tenant tells you whether that income is likely to continue.
- Read the executed lease end to end, including every variation, side letter and exercised option
- Confirm how much fixed term remains, and whether any option has already been taken up
- Check the rent review mechanism, the next review date, and whether a market review can move the rent down
- Confirm who pays which outgoings, and whether the split matches what the agent told you
- Get the rent ledger and read the payment record, not just the current balance
- Get the tenant's trading figures and read the rent as a share of what the business actually earns
- Identify who stands behind the tenant covenant, and confirm the guarantee or bond is enforceable
- Check the repairs and capital items schedule for anything landing on the landlord in the next few years
- Confirm the assignment and consent clauses, so you know who can end up as your tenant
- Check title, planning and permits against the use actually being carried on at the property
- Settle the GST position in the contract before the contract is signed, not after
- Ask what the replacement operator market looks like in that location if the tenant leaves
The document pack a lender will want overlaps heavily with the pack your own solicitor needs, so it is worth collecting once. The list is set out in the accommodation acquisition lender document pack. If you are the sitting tenant weighing a purchase rather than an outside investor, buying as the investor rather than the occupier sets out how the two positions differ.
Can an SMSF buy a freehold passive motel, pub or caravan park?
Yes, an SMSF can still use a new limited recourse borrowing arrangement to buy a qualifying freehold passive motel, pub or caravan park after 10 August 2026, but the real property must satisfy the business real property test. The 2026 amendment did not abolish SMSF property borrowing; it narrowed new LRBAs for real property so the asset must be business real property.
For a passive investment, the SMSF does not have to run the motel, pub or park itself. The relevant question is how the land is actually used. ATO ruling SMSFR 2009/1 says business real property can exist even where the property owner is not the entity carrying on the business, and its motel example says an on-site manager's residence can be incidental and relevant to the motel business rather than automatically turning the property into residential property.
Why a passive freehold may qualify
- The land and buildings are used in the operator's motel, pub or park business
- The SMSF can be the landlord while a separate tenant carries on the operating business
- An on-site manager's residence can be incidental and relevant to the motel business on the facts
- A related business can potentially lease qualifying business real property from the SMSF where the super rules are satisfied
What needs specialist review before contract
- Any genuine private or residential use that is more than incidental to the business
- Mixed-use land, permanent-resident arrangements or separate dwellings whose use is not clearly part of the business
- A purchase from, or lease to, a related party where market-value and related-party rules need to be satisfied
- The purchaser, holding trustee, bare trust and LRBA structure before the contract is signed
Do not sign a commercial contract in an individual's name and assume it can simply be moved into an SMSF or holding trust later. The purchaser and holding structure should be settled with the SMSF accountant and solicitor before signing because changing the buyer later can create superannuation, duty, finance and documentation problems. On the finance side, the lender will still test the leased investment valuation, rent, remaining lease term, tenant covenant, fund contributions and liquidity, and the LRBA documentation.
Sources: Federal Register of Legislation, Treasury Laws Amendment (Tax Reform No. 1) Act 2026, Schedule 5, which commenced 10 August 2026 and requires real property acquired under a new LRBA to be business real property, subject to the transitional rules; Australian Taxation Office, SMSFR 2009/1, including the business-use test and Example 16, Motel with manager's residence. General information only. SMSF eligibility turns on the actual use, ownership and transaction structure, so obtain SMSF, legal and tax advice before signing.
What happens from making an offer to settlement on a leased motel freehold?
A typical purchase runs best when ownership structure and lender appetite are tested before you sign, then legal due diligence, lender valuation and lease-security documents run in parallel under the contract deadlines. The contract controls your obligations, so have your solicitor or conveyancer draft and explain any finance and due-diligence conditions before you commit.
Before you make the offer
- Decide who is buying. Confirm the ownership vehicle with your accountant and advisers before the contract is signed. If an SMSF or borrowing structure is being considered, the structure needs specialist advice before the purchaser name and finance documents are locked in. The wider lender view is covered in how to hold a freehold venue.
- Test lender appetite against the actual asset. Give the broker the price, address, lease term, passing rent, tenant details and the structure of the purchase so the likely valuation basis, contribution and obvious policy issues can be checked before the finance clock starts.
- Ask for the core lease pack. The executed lease, variations, rent ledger, outgoings schedule, tenant financials, guarantees, insurance, planned capital works and any licences or asset-specific rights should be available early enough to influence the offer, not discovered after it.
- Have the contract conditions reviewed. A commercial purchase is not automatically protected if finance or due diligence fails. Your solicitor should settle the wording, dates and notice requirements that apply to your contract and state.
After the contract is signed
- The lender completes credit assessment and instructs its own valuation on the correct leased-investment basis.
- Your legal and property due diligence runs against the same lease, title, permits, tenant and capital-work information.
- The lender's conditions are cleared, including any tenant acknowledgement, deed of consent, assignment of rent, insurance or other lease-security documents it requires.
- Your accountant and solicitor confirm the GST treatment, duty position and settlement adjustments rather than relying on the agent's description.
- Loan documents and settlement figures are completed before the contractual settlement date.
What if the lender's valuation is below the purchase price?
A lower lender valuation usually creates a contribution gap because the lender sizes the facility against the value it is prepared to accept, not simply the price you agreed to pay. The practical choices are to contribute more equity, renegotiate the price, correct a valuation instruction or factual error where one exists, test another lender whose policy genuinely differs, or use any contractual rights your solicitor confirms are still available. Moving the same facts to another lender does not automatically remove a short lease, weak tenant covenant or over-rented valuation problem.
What if finance is not ready by settlement?
If finance is not ready by the contractual settlement date, the lender's unfinished application does not automatically extend the contract. What happens next depends on the contract and the law that applies to it. The buyer may need to use a finance or due-diligence right before it expires, negotiate an extension with the seller, contribute more equity, move to genuinely available alternative finance or proceed with another lawful solution confirmed by the solicitor. If the buyer is already unconditionally required to settle, default interest, formal default notices, termination, deposit consequences or claims for loss can arise depending on the contract and state law.
- Get the legal position first: ask the solicitor what the contract requires today, what notices or extensions remain available and the exact deadline for using them.
- Find the finance bottleneck: separate a credit decline from a valuation shortfall, missing tenant deed, incomplete documents, lender legal work or outgoing-bank delay because each has a different fix.
- Price the fallback rather than assuming it: another commercial lender, a non-bank lender or additional equity can sometimes keep a viable purchase alive, but a short-term or second-ranking structure can materially change cost and risk.
- Do not let a finance condition expire by accident: a broker still saying the application is progressing is not the same thing as an approved and documented facility ready to settle.
If a mainstream lender declines late, the fastest useful question is not simply who will say yes. It is whether the problem is lender policy or a problem built into the transaction. A specialised asset that one bank excludes may fit another lender; an over-rented valuation, very short lease or weak tenant covenant usually needs the deal itself to change. Where the issue is an equity gap rather than the underlying lease, funding against other property can sometimes be considered, including a second mortgage, but that changes the security position and should be assessed against a clear exit.
The acquisition documents overlap heavily with the lender pack, so collect them once and early. The accommodation acquisition lender document pack sets out what to have ready, while checking lender fit before an offer is the faster way to find out whether the lease is likely to be the constraint.
What security does the lender take over the lease?
A lender typically takes a registered mortgage over the land and supporting rights over the lease income, which can include an assignment of rent, tenant acknowledgement or deed of consent, insurance requirements and step-in rights. The exact package varies by lender and lease, but the point is the same: the security has to reach the income contract as well as the title.
What lenders want in place
- A properly executed lease the lender can read end to end
- A deed of consent from the tenant acknowledging the lender
- An assignment of rent, so rent can be directed if the loan defaults
- A right of entry and step-in if the landlord cannot act
- Guarantees behind the tenant, documented and enforceable
- Insurance over the buildings noting the lender's interest
What makes them walk
- An unsigned or undocumented lease, or one nobody can produce
- A tenant who will not sign a consent or acknowledge the lender
- Rent paid without a traceable record behind it
- No guarantee behind a thinly capitalised tenant entity
- A lease letting the tenant assign without landlord consent
- Security that stops at the land and never reaches the lease
The documents take time to obtain, because two of them need the tenant's signature and the tenant has no particular reason to hurry. Start them the day the contract is signed rather than the week of settlement. Where a deal carries both a property and a business component funded together, the security package gets more layered again, which is set out in the freehold and business split in one deal.
Is the sale GST-free as a going concern, and what duty applies?
A leased motel, pub or caravan park can be sold GST-free as a going concern if the statutory conditions are met; transfer duty is separate and depends on the state and the transaction. The ATO's guidance gives a fully tenanted building sold with its leases as an example of a possible going-concern supply, and the GST position should be settled in the contract rather than assumed from the listing.
Source: Australian Taxation Office, Selling a going concern, read live 24 August 2026. Qualifier: the legislation and the contract carry more detail than the guidance summary, and whether a particular sale qualifies depends on the contract and the facts. This is not tax advice; get advice from your accountant or solicitor before relying on it.
Duty is separate from GST, it is set by the state rather than by the contract, and it can attach to the lease as well as to the land. In Victoria the State Revenue Office says duty applies when a lease is granted, transferred or assigned and consideration other than rent is paid for the lease, or for other rights or options in relation to the land such as rights or options to purchase or obtain a transfer of the land, and that consideration does not include rent reserved. It says duty can apply to leases for sites in caravan parks, alpine resorts, golf resorts and lifestyle villages, and that duty generally does not apply to the transfer or assignment of a standard commercial lease as part of the sale of the business on the leased premises if only nominal consideration is provided for the lease for enforceability purposes. Where it does apply, it must be paid within 30 days of the grant, transfer, assignment or surrender.
Source: State Revenue Office Victoria, Duty on the grant, transfer or surrender of a lease, read live 24 August 2026, page last updated 26 March 2026. Qualifier: this is the Victorian treatment of the lease transaction and it sits alongside the land transfer duty payable on the property purchase itself. Duty outcomes differ by state and by transaction. Check your own state revenue office, and take advice on your contract. Not advice.
Two adjacent transactions are often confused with this one at the contract stage. Buying the premises you already occupy is a different buyer with a different tax and finance profile, covered in buying your premises from your landlord. And the transaction that creates a leased freehold in the first place, an owner selling the property and taking a lease back, is covered in sale and leaseback. The GST entry in the glossary sets out the basics.
Motel, pub or caravan park: which leased freehold leaves the landlord most exposed?
The landlord risk differs by asset because a motel, pub and caravan park can each have important income-producing rights or occupancy arrangements that do not sit neatly with the freehold title. A motel is usually most dependent on the replacement-operator market; a pub adds state-based liquor and gaming rights; a park can add cabins, relocatable homes and long-term occupancy arrangements.
| Asset | What supports the rent | What can sit outside your title | Main landlord and lender risk if the operator leaves |
|---|---|---|---|
| Leased motel freehold | The operator's room revenue and trading capacity in that location. | Tenant-owned plant, fit-out and business goodwill. | A specialised building can lose its income immediately, so the depth of the replacement-operator market and the remaining lease term matter heavily. |
| Leased pub freehold | Bar, food, accommodation and, where applicable, gaming income under the operator's licences. | Liquor and gaming rights can be state-specific and may sit with the operator or licence holder rather than simply follow the land. | The property can lose both rent and operating rights needed by a replacement tenant, so licence and entitlement ownership must be confirmed before contract. |
| Leased caravan or holiday park freehold | Tourist sites, cabins and, in some parks, longer-term or permanent occupancy. | Cabins, relocatable homes and resident or site agreements may belong to or bind parties other than the freehold owner. | You may inherit continuing occupancy obligations rather than a clean vacant site, so the site mix and legal arrangements need to be mapped before purchase. |
The pub position is the one buyers most often assume. Whether the liquor licence and any gaming machine entitlements pass with the property or stay with the operator is set by the lease and by the gaming and liquor law of the state, it has been argued in court in Australia, and it is not something to take from the listing or from the agent. Ask for it in writing and have your solicitor confirm where each licence and entitlement actually sits before the contract goes unconditional. The park position is the mirror image: long term and permanent occupancy is regulated separately from a commercial lease in most states, so confirm what would land on you as the owner if the operator left. Funding for each sits with motel finance, pub and hotel finance and caravan park finance respectively.
What happens if the operator fails or stops paying rent?
If the operator stops paying rent, the landlord moves from collecting income to enforcing the lease, calling on available security and deciding whether to re-let, renegotiate or take possession while a replacement operator is found. For a specialised accommodation property, the difficult period is the gap between the old rent stopping and a bankable replacement lease starting.
The sequence is set by the lease. A breach notice comes first, then any guarantee, bond or bank guarantee standing behind the tenant is called on, and then you choose between re-letting to a replacement operator and taking possession while a new tenant is found. Each path has a different cost and a different length, and the difference between them is usually the strength of the covenant you inherited at settlement.
A change of tenant changes the asset in the lender's eyes, because the income it is lending against is now a different contract with a different party. That is why a refinance after a lease change is a fresh assessment rather than a formality, which is covered in refinancing the freehold later. Where an owner needs cash during a re-letting period without selling, releasing equity without selling covers what is possible and what it costs.
Short leases, expiry and rent reviews: when does the deal still work?
A short remaining lease can still work, but valuation, borrowing capacity and resale generally weaken as the fixed term runs down unless the lease is renewed or extended on terms the market accepts. A high advertised yield does not compensate automatically for a near-term expiry because the income supporting the valuation has an end date.
Do not assume every option period will be treated like fixed lease term. The tenant controls whether an option is exercised, and lenders differ on how much weight they give an unexercised option; many underwrite most heavily to the fixed term or require evidence that the extension is genuinely bankable. Rent reviews cut both ways too: a market review can lift the rent, but on an over-rented property it can also reset income downwards and pull the valuation with it.
Who does this suit? Buyers who want property exposure and contracted income without taking on an operating business, and who can carry a period without rent if the tenant fails. If you would rather run the business than collect the rent, that is the other purchase entirely, covered in buying a motel to operate instead and, for parks, in buying a park to operate, with the funding side under caravan park finance. If this is your first move from operating a business into holding property, the path into commercial property is the place to start, and how the asset class compares to housing after the last Budget is set out in commercial versus residential after Budget 2026.
As the lease runs down, can you still refinance or sell the freehold?
Refinancing and resale generally become harder as the fixed lease term runs down because lenders and buyers are valuing the remaining contracted rental income. A property with a long bankable lease trades as an investment; the same building with a short tail is increasingly judged against its value and use without that tenant.
- Refinancing: the lender re-runs the same test it ran at purchase, against the term left at that point rather than the term you bought with, so the position is worth checking a year or two before you need it rather than at expiry.
- Reselling: your buyer pool narrows as the term shortens, because investors buying contracted income drop away and owner operators, who are buying a business rather than a lease, come forward instead.
- If the tenant does not renew: you hold a specialised building with no income, and the decision is between re-letting to a replacement operator, selling with vacant possession, or taking the business back and running or selling it as a going concern.
- Converting to a going concern: selling the property with the business attached puts you in a different market with a different valuation basis and a different buyer, and it usually means taking on the operating risk first, which is the opposite of why most people buy a passive investment.
The practical move is to treat the lease as a rolling asset rather than a fixed one. Renewals negotiated early, options converted into fixed term, and a tenant covenant kept documented all lift the number a lender and a buyer will put on the same building. What changes on the finance side is set out in refinancing the freehold later.
What happens when a bank says no to a leased accommodation freehold?
A bank decline on a leased motel, pub or park is often driven by asset policy, residual lease term, tenant concentration, valuation or resale depth rather than by the buyer alone. The first step is to identify the actual reason for the decline before moving the same file unchanged to another lender.
- Specialised security policy: some lenders apply tighter gearing, term or location rules to motels, pubs and caravan parks before borrower strength can compensate.
- Residual lease shorter than the loan: where the fixed term left runs out before the loan does, the income behind the last years of the facility is unproven.
- Single tenant concentration: one tenant and one income means the tenant covenant carries the whole file.
- Location and resale depth: a thin buyer market in that postcode narrows the lender's exit if the loan ever has to be recovered.
- The wrong valuation basis: a valuation instructed on a going concern basis against a passive investment purchase answers a different question, and can read as a shortfall that was never there.
- Presentation: a lease submitted without its variations, its rent ledger and the detail of the guarantee reads as a weaker deal than it is.
What changes with a specialist or non-bank lender is the order of the assessment. These lenders read the lease and the rent first and price the risk they can see, which is how a lease doc assessment works, and they can consider shorter residual terms and structures a mainstream credit policy rules out early. The trade-off is usually cost and loan term rather than a softer assessment, so it is worth pricing rather than assuming.
Timing matters more here than on a residential purchase. The finance clause in a commercial contract is often the shortest deadline in the transaction, so the lease is worth testing against lender appetite before that clause starts running rather than in its final week. If a decline has already landed, the three things to check before the file goes anywhere else are the residual lease term, the rent ledger and the basis the valuation was instructed on. You can check eligibility against the lease you are actually buying, or read how commercial property loans work before you go back out.
A freehold passive investment buys the land and buildings with the operator's lease attached, so the lease and tenant covenant drive the income, valuation and finance. Before offering, test the real net yield, the remaining fixed term, the tenant's capacity to pay the rent, lender appetite, ownership structure and likely valuation basis. If an SMSF is borrowing, confirm the business real property and LRBA structure before the contract is signed. From contract to settlement, finance, due diligence, tenant consent and tax treatment need to be coordinated against the contract dates because an unfinished loan does not stop the settlement clock. After settlement, the same lease drives rent reviews, default risk, refinancing and eventual resale.
Key takeaway: read the lease, tenant and exit before you read the advertised yield.Frequently Asked Questions
A freehold passive investment is the purchase of the land and buildings of an accommodation property with an operator's lease staying in place, so you become the landlord and collect rent while a separate tenant runs the business. You do not acquire the accommodation business, its goodwill or its trading income. See the accommodation finance hub for the wider asset class.
Finance still being assessed does not automatically extend a commercial property contract. If the loan is not ready by settlement, the buyer should immediately have the solicitor check any finance or due-diligence rights, extension options and default consequences while the broker identifies whether the delay is credit, valuation, documentation, tenant consent or lender legal work. Depending on the contract and circumstances, the practical options can include negotiating more time, contributing more equity, changing lender or using another appropriate funding structure. Do not assume an application that is "progressing" protects the settlement date.
There is no single good yield. A higher advertised yield can be compensation for a shorter lease, weaker tenant, above-market rent, more landlord capital expenditure or a thinner resale market. Compare the passing rent after non-recoverable outgoings and expected capital costs with the total acquisition cost, then test what happens to that income if the tenant leaves.
The lease decides who pays each outgoing. Council rates, water, insurance premiums and some levies are commonly recoverable from the tenant, while structural and capital costs often remain with the landlord; land-tax recovery depends on the state and lease. Read the executed outgoings clause before treating an advertised return as net. The table above shows the common landlord-versus-tenant split.
There is no reliable headline percentage for every leased freehold motel. The amount available is constrained by the lender's leased-investment valuation, the passing rent and serviceability buffer, the remaining lease term, the tenant covenant, the asset type, location and the lender's specialised-property policy. The lender's valuation can therefore create a larger equity requirement than the contract price suggests. See what sets the advance.
There is no universal minimum lease term because lenders differ, but the fixed term needs to make sense against the loan term being requested. An option belongs to the tenant until it is exercised, so do not assume every lender will count an unexercised option like fixed term. A short fixed tail usually means a shorter facility, more equity, a lease extension or a smaller lender pool.
A lower lender valuation usually creates an equity shortfall because the facility is sized against the value the lender is prepared to accept. The buyer may need to contribute more, renegotiate the price, correct a valuation instruction or factual error, test a genuinely different lender policy, or use any contract rights their solicitor confirms are still available. The acquisition sequence is set out in offer to settlement.
It can be GST-free as a going concern where the statutory conditions are met. ATO guidance includes a fully tenanted building sold with its leases as an example of a possible going-concern supply. The sale must meet the legal conditions, including the required GST registration position and written agreement, so the contract and facts need tax and legal advice before settlement. See the ATO going-concern guidance.
Yes, an SMSF can still use a new LRBA to buy a qualifying freehold passive motel after 10 August 2026 if the property is business real property and the other SMSF borrowing rules are met. A passive structure can qualify even though the SMSF is landlord and a separate tenant runs the motel. The ATO's business-real-property ruling includes a motel example where an on-site manager's residence is incidental to the business. Mixed use, private residential use, related-party dealings and the purchaser or holding-trust structure need specialist review before the contract is signed. See the SMSF section above.
The landlord moves from collecting rent to enforcing the lease. The sequence depends on the lease and can include breach notices, calling on guarantees or other security, negotiating with the tenant, re-letting to a replacement operator or taking possession while a new tenant is found. The lender will focus on how long the property can carry the debt without rent and how realistic a replacement operator is. See what happens when the operator fails.
At expiry the landlord needs either a renewal, a replacement operator or another use or sale strategy. If no new lease is in place, the property can become a specialised building with no contracted income, which usually weakens valuation, refinancing and the investor buyer pool. The practical time to deal with expiry is well before the fixed term runs out. See refinance and resale as the lease runs down.
Common reasons include specialised-property policy, a fixed lease term that is too short for the requested loan, single-tenant concentration, a weak or unsupported tenant covenant, thin resale depth, arrears, above-market rent or a valuation instructed on the wrong basis. The useful next step is to identify the exact decline reason before changing lenders. See what to check after a bank says no.
Buying a motel with a lease in place can mean either side of the same deal, which is why the phrase causes so much confusion. As a landlord it means buying the freehold, the land and buildings, with the operator's lease staying on foot, so you collect rent while the operator keeps running the business. As an operator it means buying the leasehold, the business and the right to occupy under that lease, and paying rent to somebody else. This guide covers the landlord side.
Freehold motel means the land and buildings are held on freehold title, which is ownership of the property itself rather than a right to occupy it. It does not tell you whether the business is included. A freehold motel can be sold with the business attached as a going concern, or sold with an operator's lease in place as a passive investment, and those are different purchases with different finance behind them.
A motel bought as a freehold passive investment stands or falls on its lease, not on its trading. You are buying a leased property, so the outcome is driven by the remaining lease term, the rent payable, the strength of the tenant covenant and what a valuer will capitalise, rather than by how well the motel trades on a good weekend. A single return figure quoted for the asset class describes a market, not your property.
A return quoted on a leased motel is usually a net figure, calculated after the outgoings the tenant reimburses, but a listing that does not say which it is has not told you. A net return is the rent left after those recoverable costs, and a gross return is the rent before them. Where outgoings are not fully recoverable under the lease, the number you actually receive sits below the advertised one, which is why the outgoings clause is read before the yield.
Ownership of gaming machine entitlements at a leased pub is set by the lease and by the gaming law of the state, and it is not safe to assume they come with the land. They can sit with the operator as the licence holder rather than with the landlord, which means income you thought was attached to the property can leave when the tenant does. Confirm in writing where the liquor licence and each entitlement sits before the contract goes unconditional.
Refinancing a motel freehold with a short remaining lease is possible but the loan is sized against the term left at that point, not the term you originally bought with, so the amount available usually falls as the tail shortens. A refinancing lender re-runs the same test it ran at purchase: the fixed term remaining against the loan term, the rent actually payable, and who stands behind the tenant. Sorting the lease position before the refinance is generally easier than arguing the valuation after it.
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