Buying commercial property with business partners? How lenders assess co-owners, joint and several liability, which structure fits and how exits work.
Business Owners Hub
Commercial Property · Business Partners · Co-ownership
Three business owners are tired of paying rent and want to buy the building they share. The deposit is the easy part. How the lender sizes the loan, who ends up liable for it, and what happens when one of them wants out decide whether the deal holds together.
Quick Answer
Business partners can buy commercial property together on one loan, but three checks come first: how the lender will combine their incomes, the fact that each partner is liable for the whole debt, and how a co-owner gets out later. Settle the ownership structure and a written agreement before exchange, then see how commercial property loans are assessed for self-employed borrowers.
Also called: co-owning commercial property, buying commercial property with partners. They mean the same thing here, and "partners" means business partners, not spouses.
How do lenders assess two or more business owners on one commercial loan?
Lenders assess two or more business owners on one commercial loan as a single deal with several credit files: incomes and existing debts are added together to test serviceability, but each borrower's history, tax position and other loans are checked on their own. A strong partner can carry some of a weaker partner's numbers, but an unpaid tax debt or a poor credit file on one side can stall the whole application.
The first things a credit assessor pulls for each partner are:
- Each partner's business financials. For self-employed borrowers that is typically recent tax returns and financials for every business involved, or a low doc alternative where the lender offers one (varies by lender).
- Each partner's existing debts. Home loans, equipment finance and guarantees already given for other businesses all count against the combined position.
- Where each deposit comes from. Savings, equity in another property or money lent by the business are all read differently, and borrowed deposits are tested harder.
- Who will occupy the building. If one partner's business is the tenant, its rent may help service the loan, which is why the split between passive and owner-operated commercial property matters early.
The rest of the assessment follows the usual steps for any commercial property loan, set out in how commercial property loans work. If the partners are still deciding between owner-occupied premises and an investment building, the Business Owners Hub groups the options by situation.
Can each co-owner borrow only their share?
Each co-owner usually cannot borrow only their share against one co-owned title, because most lenders will not take a mortgage over part of a property. Where the title is shared, the lender typically wants a first mortgage over the whole building, signed by every registered owner, and every owner becomes a borrower or guarantor on the loan.
What partners can do separately is fund their own deposit. One partner might use savings, another might draw equity release from their home or another property, and the property loan itself stays joint. Share-only lending does exist in niche corners of the market, but it is uncommon for commercial property and usually priced higher (varies by lender).
In deals I've seen, the cleaner path is to accept a joint loan and manage the risk between the partners in writing, rather than search for a structure that pretends each partner owes only their slice. The sizing of the deposit itself is covered in how much deposit a commercial property loan needs.
What does joint and several liability mean if a partner stops paying?
Joint and several liability means the lender can recover the full debt from any one borrower or guarantor, or from all of them together, if a partner stops paying. If three partners each own a third and one stops contributing, the other two still owe every repayment, and the lender does not have to chase the partner who stopped first.
Guarantees widen the net. Where the building is bought through a company, the directors usually sign a directors' guarantee, and a lender may ask for guarantees from shareholders or a spouse who holds assets. Each guarantor carries the whole debt, not a proportion of it.
The partners cannot change how the lender holds them liable. What they can control is the agreement between them, which is the next two sections.
Should business partners buy as tenants in common, a company or a unit trust?
Business partners usually buy commercial property as tenants in common, through a company, or through a unit trust, and the right choice turns on tax, asset protection and how easily a partner can exit, which are questions for an accountant and a solicitor. For the loan, the structure decides who borrows, who guarantees and what a lender has to approve when ownership changes.
Tenants in common in unequal shares is the simplest way to record different contributions: each owner's share sits on the title and can pass under their will. Joint tenants hold the whole property together, and on a death the survivors take it. A company holds the title as one owner, covered in buying property in a company name. A unit trust is held by a trustee: the general rules for trust and company security are in property held in a trust or company as security, and the lender's full read of a unit trust borrower is in buying commercial property in a unit trust.
| Structure | Who borrows | Who guarantees | What happens when one owner leaves |
|---|---|---|---|
| Joint tenants | All owners together, as joint borrowers | Usually no separate guarantee; every owner is already a borrower | Survivors take the property on a death. A sale of one interest usually needs lender consent and a refinance. |
| Tenants in common | All owners as joint borrowers, whatever their shares | Usually no separate guarantee; liability is joint and several | A share can be sold or bought out, but the lender must consent and usually reassesses the owners who remain. |
| Company | The company | Directors, and often shareholders | Shares change hands. The lender usually reviews the incoming shareholder and replaces or releases guarantees. |
| Unit trust | The trustee, usually a company, for the trust | Directors of the trustee and usually the unitholders | Units transfer under the trust deed. The lender usually approves the incoming unitholder and may treat it as a new application (varies by lender). |
Whichever structure you choose, a transfer between co-owners can attract duty; ask your solicitor before any share changes hands. For the wider question of which entity suits an investment building rather than your own premises, see commercial property investment loans.
What should a co-ownership agreement for commercial property cover?
A co-ownership agreement for commercial property should cover what each partner contributes, who pays what each month, what happens when someone stops paying, and how a partner leaves. It is the co-ownership agreement the lender never reads but you will: the loan contract treats the partners as one borrower, so every rule about fairness between them has to live in a document of their own.
Settled in the agreement
- Each partner's share and deposit contribution
- Monthly contributions to repayments, rates and insurance
- What happens after a missed contribution
- Who decides on leasing, repairs and refinancing
- How a buyout price is set, and by which valuer
- What happens on a death or a partner's business closing
Left to a handshake
- Unequal contributions recorded nowhere
- No rule for a partner who stops paying
- Rent from a partner's own business set informally
- No method for valuing a departing share
- A refinance that needs every signature, and one partner refuses
- A court or tribunal application as the only way out
Have the agreement drafted before exchange, while everyone still agrees. The clause most often missing is the refinance clause: if the agreement does not say how decisions about the loan are made, any one partner can block a refinance that the others need. Writing the exit down at the start is the same discipline as setting an exit strategy for the loan itself.
What happens when one co-owner wants out of the property?
When one co-owner wants out, the property is usually sold, or refinanced so the remaining partners buy that share, or, if nobody can agree, made the subject of an application for an order for sale or division. The order for sale is the last resort, not the plan. This section covers the property only; the business side is in buying out a business partner.
Can the remaining partners buy out the departing share?
The remaining partners can buy out a departing co-owner's share, but a release of one borrower usually means a new loan (varies by lender). The lender has to be satisfied that the partners who stay can service the whole debt without the income of the one who leaves, and it reassesses them much as it would a new application. The steps are set out in how to refinance a commercial property loan.
When is selling the whole property the cleaner exit?
Selling the whole property is the cleaner exit when the remaining partners cannot service the loan on their own or cannot agree a buyout price. The sale pays out the mortgage first, and the balance is split according to the shares on title and any adjustments in the agreement.
What can co-owners do if they cannot agree?
Co-owners who cannot agree can apply to the state court or tribunal for an order that the property be sold or divided. In Victoria these disputes go to VCAT, following the Victorian Law Reform Commission report on disputes between co-owners. The lender's mortgage still has to be paid out from any sale, and how an application runs in your state is a question for your solicitor.
Buying commercial property with business partners works when the loan and the partnership are planned separately. The lender combines the partners' incomes, checks each credit file on its own and holds every borrower and guarantor liable for the whole debt. The structure, whether tenants in common, a company or a unit trust, decides who signs and what the lender must approve later. Everything else, from missed contributions to a partner leaving, has to be settled in a written co-ownership agreement before exchange.
Key takeaway: agree the exit and the default rules in writing before you sign the loan, because the lender will treat all of you as one borrower.Frequently Asked Questions
If one co-owner defaults on a commercial property loan, the lender can usually pursue the other borrowers and guarantors for the whole debt, because most co-owned commercial loans are joint and several. The remaining partners typically cover the repayments to protect their credit files. Whether they can recover that money from the partner who defaulted depends on their co-ownership agreement, and every guarantor on the loan is exposed in the same way.
Co-owners can hold unequal shares in a commercial property, usually as tenants in common, with each share recorded on the title. The loan normally stays joint, so the lender still treats each borrower as liable for the full amount whatever their share. The shares matter for sale proceeds and buyouts rather than for the commercial property loan itself.
Co-owners on a commercial property loan usually each need their own credit check, along with their own financials and a list of existing debts. The lender combines incomes to test serviceability but reads every credit file separately, so one poor file can hold up the whole deal. The wider approval steps are in how to get approved for a commercial property loan.
A co-owner can generally apply to the state court or tribunal to force the sale or division of a commercial property when the owners cannot agree, and in Victoria that application goes to VCAT. It is slow and costly, and the mortgage is paid out first from any sale. A written buyout clause and a clear exit strategy usually avoid it, and a solicitor can explain how the process runs in your state.
A co-owner can rent a jointly owned commercial property to their own business, provided all owners agree in writing and the lease is on commercial terms. Lenders read a related-party lease more cautiously than an outside tenant, and some will count only part of the rent toward servicing (varies by lender). How lenders treat lease income is covered in lease doc commercial property loans.
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