How lenders assess a unit trust buying commercial property: who signs, which unitholders guarantee, unit transfers, exits and landholder duty.
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Unit Trust · Commercial Property Loan · Unitholder Guarantees
A unit trust can buy your business premises, but the lender reads the deed, the unit register and every unitholder. Who signs, who guarantees, and what happens when units change hands.
Quick Answer
A unit trust can borrow to buy commercial property, with the trustee company as borrower and the unitholders usually giving personal guarantees, so a lender reads the trust deed, the unit register and every unitholder before it lends. The commercial property loan itself works the same way; what changes is who signs, who guarantees and what happens when units change hands. If the trustee is a company, see how lenders treat a corporate trustee.
Also called: property unit trust, fixed unit trust. A fixed unit trust is the version most lenders and revenue offices prefer because each unitholder's share is set; the plain "unit trust" label can hide discretionary features in the deed.
Why do business owners buy their premises in a unit trust?
Business owners buy their premises in a unit trust when two or more parties want set, separate shares of the same building, held apart from the business that trades out of it. A unit trust divides the property into units, and each unitholder owns a fixed slice of the income and the capital. That is the point: two business partners, or a founder's family trust and an investor's company, can each hold a share without arguing later about who owns what.
The fixed shares are also why lenders tend to be comfortable with the structure. A trust where the trustee decides each year who gets what is harder to underwrite, because the lender cannot see whose money stands behind the debt. A unit trust gives the lender fixed entitlements a lender can read: the deed says what each unit carries, and the register says who holds them. Where a single family owns the premises with no outside partner, a discretionary trust is often used instead, and our family trust loan guide covers how lenders read that.
Owners also like that the property sits outside the trading company. If the business has a bad year, the building is held in a separate entity that leases the premises back to it. This post is about the unit trust as owner and borrower. For the wider question of which entity to buy an investment property in, see our commercial property investment loans post and the guide to buying property in a company name.
How does a lender assess a unit trust that borrows to buy commercial property?
A lender assesses a unit trust by treating the trustee company as the borrower and then looking through it to the deed, the unitholders and the business that pays the rent. The rule of thumb is simple: the trustee company signs, the unitholders guarantee. The trust itself is not a legal person, so the loan and the mortgage are in the trustee's name, "as trustee for" the unit trust.
The deed is the first document a lender reads. It has to give the trustee power to borrow and to mortgage trust property, and it has to describe the units in a way that shows fixed entitlements. Next comes the unit register, which must match the deed and the people who will sign guarantees. The general rules on trust deeds and who signs for a trustee are covered in our guide to property held in a trust or company as security, so this post sticks to what is different for a unit trust borrower.
Whose income services a unit trust loan?
A unit trust loan is usually serviced from the rent the operating business pays the trust, backed by the income of the unitholders who guarantee it. When the tenant is your own business, the lender reads that business's financials as closely as it reads the lease, because the rent is only as strong as the business paying it. Our post on the lease doc commercial property loan explains how lenders read rent as income, and where a related lease fits.
Is a unit trust purchase owner occupied or an investment to a lender?
A unit trust purchase leased to the unitholders' own business is often treated as owner occupied, although some lenders treat any trust purchase as an investment (varies by lender). The label matters because it changes how the lender weighs the lease and the guarantors. Our guide to passive versus owner operated commercial property sets out the difference.
A unit trust file a lender can read
- Trustee company registered, directors named
- Deed gives power to borrow and mortgage
- Units fixed, register matches the deed
- Every guarantor identified before application
- Lease from the operating business in writing
A unit trust file that stalls
- Deed with discretionary powers over units
- Units not yet issued, or issued to the wrong entity
- A unitholder refusing to guarantee
- Contract signed in a personal name
- No lease, or a lease on a handshake
Which unitholders have to guarantee a unit trust commercial loan?
Most lenders ask the directors of the trustee company to guarantee a unit trust commercial loan, and many also ask every unitholder, or every unitholder above a set share, to guarantee it as well (varies by lender). The reason is that the trustee company usually holds nothing but the property, so the lender wants people with income and assets standing behind it. Our glossary entries on the director's guarantee and the guarantor explain what each signature commits you to.
The part that surprises small unitholders is the size of the promise. A guarantor who holds a small share of the units is usually still guaranteeing the whole debt, not their share of it. A guarantee limited to a unitholder's share is sometimes negotiable, but it is not standard, and it can narrow the lenders willing to look at the deal.
The fix is a conversation before the application, not after. If one unitholder will not guarantee, the others need to know early, because the lender may ask them to carry more, ask for more security, or decline. Sorting this out in the unitholders' agreement saves a stalled file later.
What happens when units are held by a family trust, a company or an SMSF?
When units are held by another entity, the lender usually asks that entity, and the people who control it, to stand behind the loan as well. A family trust unitholder means the lender reads a second trust deed; a company unitholder means a second company search and a second set of directors.
| Unitholder type | What the lender asks for | Guarantee usually sought | What to check |
|---|---|---|---|
| Individual | Identification, income evidence, and a statement of assets and liabilities | A personal guarantee, typically for the whole loan | That you understand the guarantee covers the debt, not only your units |
| Family trust | The family trust deed, trustee details and trust financials | The family trust's trustee, and usually its directors personally (varies by lender) | That the family trust deed allows the trustee to hold units and give guarantees |
| Company | A company search, company financials and director details | The company and, typically, its directors | What other debts and security the company has already given |
| SMSF | The fund deed, trustee details and fund statements | Usually none from the fund; lenders look to the other unitholders and directors | The in-house asset question, with your accountant, before units are issued |
The table is broker commentary, not lender policy; each lender sets its own guarantor rules.
Can an SMSF be one of the unitholders?
An SMSF can hold units, but if the unit trust is related to the fund, the units can count as an in-house asset, and some of the exemptions only hold while the trust does not borrow or charge its assets. A unit trust that takes a mortgage and has an SMSF unitholder is therefore a question for your accountant before anything is signed. If the fund is buying property in its own right, our post on SMSF commercial property loans covers that route instead.
What happens to the loan when a unitholder sells, exits or dies?
When a unitholder sells, exits or dies, the loan usually stays in place, but the lender has to approve the change, because the people standing behind the debt have changed. Most commercial loan agreements to a trustee carry a unit transfer consent clause, or a change of control clause, that makes moving units without the lender's consent a default. Selling your units to your partner over a handshake can put the whole loan in breach.
A departing unitholder will usually want to be released from their guarantee, and the incoming unitholder has to be assessed as a new guarantor. In practice a unitholder exit is usually a refinance event, not a paperwork change (varies by lender). Some lenders will vary the facility and swap guarantors; others will want a fresh application, and the remaining unitholders may find it easier to refinance the commercial property loan at that point.
What happens if a unitholder dies?
If a unitholder dies, their units usually pass through their estate, and the lender will want to know who now holds them and who stands behind their guarantee. A unitholders' agreement that sets out who can buy the units, at what valuation method and how the purchase is funded, often with insurance behind it, keeps the loan from becoming the surviving owners' first problem. Those terms are for your solicitor and accountant to draft; the lender only needs to see the outcome.
Which duties and taxes apply when a unit trust buys commercial property?
A unit trust usually pays transfer duty when it buys the property, and later transfers of units can attract landholder duty, depending on the state and the share changing hands. That second duty is the one owners miss. Selling units is not a land transfer on paper, but most states treat acquiring a large enough interest in a trust that holds land as if it were one, so expect landholder duty on a unit transfer, depending on the state and the share changing hands.
In Victoria, the State Revenue Office sets out when an acquisition in a private unit trust is dutiable, and has a tool for checking it: see the SRO page on landholder duty on an acquisition in a private unit trust. Other states have their own versions and thresholds, and they change, so get duty advice before units move.
Land tax can also be assessed differently when a trust owns the property, and some states apply trust rates unless the trust meets set conditions. GST may apply to the purchase price, unless the sale qualifies as a going concern. For the lender, all of this matters because duty and costs come out of your contribution, so they shape the commercial property loan deposit you need to bring.
What should be in place before the unit trust signs the contract?
Before the unit trust signs, the trustee company, the deed, the units and the unitholders' agreement should all exist and match, and the contract should name the trustee as buyer. The trust files that run smoothly are the ones where the structure was built before the property was found, not around it.
- Register the trustee company. Directors named, and the company ready to sign as trustee.
- Have the deed reviewed. Power to borrow and mortgage, and units with fixed entitlements.
- Issue the units. The register should match who is paying the deposit and who will guarantee.
- Sign a unitholders' agreement. Exits, death, deadlock and how guarantees are shared.
- Buy in the right name. The contract names the trustee company "as trustee for" the unit trust. Buying in a personal name and moving the property later can mean paying duty twice.
- Get duty and land tax advice. Before signing, not after settlement.
- Draft the lease. The operating business leases the premises from the trust on commercial terms.
- Line up the lender early. A trust file takes longer to assess, so allow for it in the finance clause. Our post on how to get approved for a commercial property loan covers the rest of the file.
If you are weighing a unit trust against holding each property in its own trust, our guide on a separate trust per property looks at the borrowing side. For the lending options across commercial, private and bridging, start at the Property Lending Hub, or see how a commercial property loan works end to end.
A unit trust is a clean way for business partners, or a mix of family entities, to own their premises in fixed shares. Lenders are comfortable with it when the deed is fixed, the register matches, and the trustee company signs while the unitholders guarantee. The pressure points are the guarantees, which usually cover the whole debt, and any later change in who holds the units, which can trigger lender consent, a refinance and landholder duty.
Key takeaway: settle the deed, the units, the guarantees and the exit rules before you sign the contract, and speak to a broker before the trust is set up, not after.Frequently Asked Questions
A unit trust can get a commercial property loan, with the trustee company signing as borrower and the directors and unitholders usually guaranteeing it. Lenders read the trust deed and the unit register first, then the rent and income that service the debt. The loan itself is a standard commercial property loan; the structure changes who signs and who guarantees.
Whether all unitholders have to guarantee a unit trust loan depends on the lender, but many ask for guarantees from every unitholder, or every unitholder above a set share, as well as the trustee's directors. A guarantee usually covers the whole debt, not just your share of the units. Read what a guarantor commits to before you sign.
An SMSF can hold units in a unit trust that owns commercial property, but where the trust is related to the fund the units can count as an in-house asset, and some exemptions only hold while the trust does not borrow. That makes a geared unit trust with an SMSF unitholder a question for your accountant before units are issued. Lending to the fund directly is covered in our post on SMSF commercial property loans.
Transferring units in a unit trust that holds land can trigger landholder duty, depending on the state, the type of trust and the share changing hands. In Victoria, the State Revenue Office explains when an acquisition in a private unit trust is dutiable. Get duty advice before any units move.
A unit trust can refinance when a unitholder leaves, and often has to, because the lender needs to approve the new unitholding and release the departing guarantor. Some lenders will vary the existing loan instead, depending on policy. See how refinancing works before the exit is agreed.
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