The contract lands on a Thursday. The agent mentions two other interested parties. You have a fortnight to work out whether a seven-figure purchase is what the information memorandum says it is. Most commercial property losses are locked in right here — before signing, not after settlement.
The IM is a marketing document, and each figure in it is somebody's best case. What follows is the checking work professional buyers run on each deal. Six areas, the papers to demand in each, and the traps that hide in them. It applies anywhere in Australia. We have written it from Victoria, and named the NSW and Queensland equivalents where the registries differ.
1. Is the "net" rent net?
Start with the most expensive trap in the market: gross rent dressed as net. An IM quotes "$85,000 net", and the number quietly assumes the tenant pays back each outgoing — the assumption that costs buyers most.
Check who pays each line — land tax, council rates, building cover, management fees, owners corporation levies. In Victoria, land tax cannot be passed to a tenant under a retail lease at all. That is the Retail Leases Act 2003. So a "net" figure that assumes otherwise overstates your income from the first day you own the asset.
The numbers are not small. On a $1.4 million purchase, a $9,000 land tax bill you thought the tenant paid moves your real yield from 6.1 to 5.4 per cent.
The fix is on paper, not conversational. Ask for the last full financial year's outgoings sheet. Trace each line to whoever paid it. Then check the answer against the signed lease and the rent list. No statement available? Assume the leakage is real. Price it in.
2. The lease: read the document, not the summary
Tenancy schedules summarise, and only the signed lease binds you. Get the full lease with each annexure. Read the review mechanism first: fixed percentage, CPI, market, or a mix. If market, check whether the rent can review downward or is protected from falling.
This is where above-market rent hides. A property returning $100,000 against a market rent of $80,000 looks like yield, but it is not, because at rollover the rent resets to what the market will pay. If you priced the full $100,000 at purchase, you paid a lump sum for income that was never going to survive.
Compare the passing rent with recent signed leasing deals for similar space. Signed deals only — asking rents on the listing portals are a hope, and they check nothing.
Then map the end-date dates. WALE — weighted average lease end-date — is the headline number, but the calendar behind it matters a great deal more. One tenant paying most of the rent and leaving in eighteen months is a very different asset from three tenants staggered across six years, whatever the average says.
Check each option to renew. An option belongs to the tenant, not to you, so it extends their certainty without extending yours.
Finally, hunt for demolition and relocation clauses. A "ten-year lease" either side can end early is not a ten-year income stream. The next buyer will price it that way.
3. The tenant behind the lease
A lease is a promise to pay, and the tenant — the company actually making that promise — decides what the promise is worth.
Run an ASIC search on the exact tenant named in the lease. Franchises are the classic miss. The signage says a national brand, while the lease says a single-site company with $2 of paid-up capital and no parent guarantee. A credit report from CreditorWatch or Equifax costs under $100 and shows defaults, court actions and how they pay.
Then check the security held. "Bank guarantee — three months" on a list means nothing on its own. Sight the instrument, and confirm it carries over to you when you settle. Sight it.
4. Title and planning: what the property is allowed to be
Order your own title search rather than trusting the contract copy — LANDATA in Victoria, NSW Land Registry Services or Titles Queensland elsewhere.
You are looking for anything on title that limits use or value. An easement running under the loading bay. A restrictive tenant from a 1960s subdivision. A section 173 agreement — a deal with council, on the title. It binds each future owner, and often caps building or use. Or a registered lease nobody mentioned.
Then planning, which is free and takes an evening. Use VicPlan, the NSW Planning Portal, or council systems such as Brisbane's Development.i. Confirm the zone and each overlay with its schedule.
Then ask the load-bearing question underneath all of it: is the current use lawful? Some uses run as-of-right in the zone. Others need a permit. If a permit is needed, does one exist on the council list? And do its signed-off plans match what is trading on site?
Older properties sometimes rely on old use rights instead — lawful because the use predates the current controls. Those rights need to be evidenced, not assumed, because they can lapse if the use stopped for long enough. A medical suite running in an industrial zone without a permit is income you cannot rely on in law, whatever the lease says.
Before you go unconditional, hold four papers:
- a full title search and plan (LANDATA, NSW LRS or Titles Queensland);
- the planning property report from VicPlan or its elsewhere equivalent — zone plus each overlay;
- the planning permit for the current use, with signed-off plans, from the council list;
- the EPA priority sites (contaminated land) register entry, if the site has an industrial past.
5. The building and the carry
Order a building condition report covering the roof, air-con plant, lifts, façade and any flammable cladding, because repair orders travel with the building. They travel with the building, not the vendor.
Read the make-good clause against reality: who restores what at lease end, and what would stripping the fit-out cost? An unclear make-good position on a 400-square-metre office is routinely a six-figure surprise.
Then build the holding-cost list you will carry as owner. Land tax at investor rates (the State Revenue Office calculator in Victoria; Revenue NSW or the QRO elsewhere). Insurance at current rebuild cost. Council rates. Plus each outgoing you cannot claim back from section one. Income minus that stack — after stamp duty has already left your account — is what you earn.
6. Price: signed proof, not asking prices
Each yield claim rests on sales proof, and that proof varies wildly in quality. Settled sales are proof, while asking prices on realcommercial.com.au or commercialrealestate.com.au are what vendors hope for, and prove nothing.
What that proof is ultimately for is the yield you price the income at. How that step works, and how far the answer moves when the yield shifts a quarter of a point, is set out in our guide to valuing a commercial property on rental income.
Correct the rents for incentives before you trust any of it. Leasing deals are struck with rent-free periods and fit-out contributions that never show in the face rent. At $500 per square metre carrying a 25 per cent incentive, the effective rent is $375.
If the building was recently re-let, ask what incentives were paid. A rent roll refreshed with propped-up deals shows income the open market would not repeat at rollover.
Apply the same discipline to sales proof. A sale that traded on above-market rent is not proof of value. It is proof of someone else's mistake, and the market corrects those at your expense if you inherit them.
Before you sign
Everything above is knowable before you sign a contract. Most of it comes from papers the vendor already holds, and searches that cost less than a tank of fuel. A deal that cannot survive these six checks was never a deal.
Want a second set of eyes? Our Quick Scan applies this same discipline to any Australian commercial property. It is a desk read of the income, lease, title and price proof, from A$49.95 via our order page. Not sure what kind of deal you are looking at? The free archetype finder will tell you in about two minutes.
Verification tells you what the papers say. Deciding whether to act on them is a separate question. Our guide to how to test a commercial property deal sets out the staged order that spends the least to reach a verdict.