Buying a commercial property that already has a tenant is quite different from buying an empty property. It might seem confusing at first, but understanding what it means can help you make a better decision. Let’s explore what happens when you buy a property with an existing tenant.
What Does It Mean to Buy a Property With a Tenant?
When you buy a commercial property that has a tenant, you’re not just buying the building. You’re also taking on the responsibility of being a landlord. The tenant doesn’t leave when you buy the property. Instead, they stay, and you become their new landlord. The lease agreement between the previous owner and the tenant continues. You must honour all the terms that were already agreed upon.
The Lease Continues
One of the most important things to understand is that the lease doesn’t end or reset when you buy the property. The tenant’s rights are protected by law. This means if the tenancy is subject to the Retail and Commercial Lease Act 1995, the tenant is entitled to a minimum of a 5 year term whether comprising a full 5 years or rights to renew to make up the five year term.
What You Must Honour
As the new landlord, you must honour everything in the existing lease. This includes the current rent amount, the lease term, and all the rights and obligations already agreed upon. You can’t suddenly increase the rent because you bought the property.
Rent and Money
After settlement occurs, the rent will be paid to you instead of the previous owner. You become entitled to the rent money. You also become entitled to any bond or security deposits the tenant has paid. The tenant will be notified that you are the new landlord.
Review the Lease Documents Carefully
Before you buy the property, it’s very important that you review the lease documents carefully. Read the lease agreement and understand all the terms. Check if there are any renewal options. Understanding these details helps you know what you’re getting into.
Ask for Important Documents
When buying a property with a tenant, ask the current owner for a rent ledger. This shows you the rent payment history and whether the tenant pays on time. Ask for a copy of any disclosure statements as well. These documents give you important information about the property and the tenant relationship.
Pros of Buying With a Tenant
There are some good things about buying a property with a tenant. You get immediate rental income from day one. You don’t have to wait to find a tenant or deal with empty periods. Properties with tenants are often seen as lower risk by banks and lenders. This means getting finance for the purchase is often easier.
Cons of Buying With a Tenant
There are also some downsides to consider. You can’t occupy the property yourself. You’re buying an investment property, not a place to work or do business. You’re also bound by the existing lease terms, even if they’re not ideal for you. If the rent is lower than market rates, you’re stuck with that price until the lease ends. You may also inherit any tenant issues. If the tenant doesn’t pay rent on time or causes problems, you have to deal with it. It’s important to ask about the tenant’s payment history and behaviour.
Why Review Everything Carefully
It’s crucial to review everything before you buy. You want to make sure the lease terms work for you. You want to know if the tenant pays rent on time. You want to understand any issues with the property or the tenant relationship. Taking time to review all documents before settlement protects you from future problems.
How a Conveyancer Helps
A conveyancer plays an important role when you’re buying a property with a tenant. They help ensure that all the lease documents are correct and complete. They review the lease terms carefully and explain them to you simply. They make sure you understand what you’re agreeing to as the new landlord.
Your conveyancer also checks that all the paperwork is in order. They verify that the tenant will be notified of the change in ownership. They make sure the bond and security deposits are properly accounted for. They ensure that all legal requirements are met during the purchase process.
A conveyancer also helps coordinate between you, the current owner, and the tenant. They make sure everyone has the correct information and that settlement happens smoothly. They can answer your questions about the lease and your responsibilities as the new landlord.
Making Your Decision
Before you decide to buy a property with a tenant, think carefully about the pros and cons. Consider whether you’re comfortable being a landlord with existing terms you can’t change. Think about whether the rental income works for your investment goals. Review all the documents thoroughly. Ask questions if anything is unclear.
Conclusion
Buying a commercial property with a tenant means you’re taking on the role of landlord with an existing lease. The tenant stays, the lease continues, and you must honour all existing terms. You’ll receive the rent payments and any bonds, but you can’t change the lease or ask the tenant to leave just because you’ve bought the property.
The key to a successful purchase is reviewing everything carefully before you buy. Understand the lease terms, check the tenant’s payment history, and ask for all relevant documents. Think about whether this arrangement works for your investment goals.
At Adcocks, we’re here to help you navigate the complexities of buying a property with a tenant. Our conveyancers review all lease documents carefully, explain the terms to you clearly, and ensure all legal requirements are met. We work to protect your interests and make sure you understand exactly what you’re agreeing to. Contact us today to discuss your commercial property purchase and how we can help make the process smooth and straightforward.