In short
At settlement, you generally step into the existing landlord-tenant relationship. You receive the rent for the post-settlement period, but you also take the tenant’s continuing rights and the landlord obligations that run with the lease.
The investment is therefore the title plus the complete lease arrangement, not just the rent and term shown in the agent’s brochure. Before exchange, the documents need to establish the income you will actually receive, how long the tenant can remain, which costs or promised work fall to you and whether usable tenant security will pass at settlement.
What do you become responsible for at settlement?
You are not simply buying a building with rent attached. You are becoming the landlord under an existing arrangement.
That usually means receiving rent for the post-settlement period and performing the landlord’s continuing obligations. The lease may require repairs, payment of particular outgoings or completion of work previously promised by the seller. It may also control when rent can increase, how you may enter the premises and what steps are available if the tenant defaults.
The tenant may have an option to renew the lease. If that option has been validly exercised, you may have to honour the extended term even if the title has not yet been updated.
The main lease may not tell the whole story. Variations, incentive deeds, side letters, option notices and written promises can all alter the parties’ rights.
For example, the lease may state annual rent of $100,000 while a side letter gives the tenant six rent-free months extending beyond settlement. That side letter changes the return you will actually receive even though it did not appear in the sale brochure.
What rent and arrears will you actually receive?
The settlement statement usually apportions recurring rent and outgoings by date, subject to the sale contract. Under the usual adjustment, the seller receives the amount attributable to the presettlement period, and you receive the post-settlement amount.
That calculation does not necessarily decide who keeps old arrears, bears an earlier overcharge or funds a rent credit promised by the seller. Those amounts need to be allocated under the sale contract.
The lease, rent ledger and payment records should tell the same story. If the tenant has been paying less than the lease states, there may be a rent-free period, an undocumented concession, a dispute or a simple accounting error. Each possibility has a different effect on the income and risk you are acquiring.
Where a material statement about the lease proves wrong before settlement, the contract should provide an agreed response. Depending on the negotiation, that might be correction, an adjustment, delayed settlement or a right to terminate. Those remedies should not be assumed if the contract does not provide them.
Which lease rights and promises must you honour?
The brochure is a summary. The full lease package determines what the tenant can enforce.
A variation may change the rent or repair obligations. An incentive deed may continue a fit-out contribution or rent-free period. Correspondence may show that the seller agreed to repair the roof or postpone a rent review.
These matters can affect both the property’s yield and the date on which you can next occupy, redevelop or re-let it. The sale contract should therefore identify the lease documents on which you are entitled to rely and deal with any material discrepancy discovered before settlement.
Can an unregistered lease or exercised option still affect you?
The title search is important, but it is not the complete tenancy picture.
An unregistered lease can still bind a buyer in some circumstances. The outcome can depend on the original term and options, whether the tenant is in possession, what the buyer knew, what the contract disclosed and whether the buyer agreed to acquire the property subject to the tenancy.
NSW title law gives particular protection to some short leases, while contractual and equitable principles may also affect the result. Possession alone does not decide every case, but it is a clear reason to investigate who is occupying the property and under what document.
An exercised option creates a similar risk. The tenant may already have secured an extended term even though the extension has not been registered on title.
If you assume that an unregistered tenant can be removed immediately, you may settle and then discover that the tenant can lawfully remain. An inspection and the complete document history for every occupier are therefore part of understanding what you are buying.
Will the bond or bank guarantee work for you?
Tenant security is useful only if you can use it after becoming landlord.
For a cash bond, the records should establish the amount, where it is held and how the benefit will pass. Any retail-bond requirements also need to be followed where the retail leasing legislation applies.
A bank guarantee needs to be checked for its beneficiary, amount, expiry date, transfer conditions and original-document requirements. A guarantee naming only the seller may be unusable by the buyer unless the bank permits a transfer or issues a replacement.
If the security is expired, missing or incapable of transfer, you may have no effective security when the tenant later fails to pay. Delivery of usable security should therefore be a settlement requirement rather than a task left until after the seller has received the purchase price.
What happens to an existing default or dispute?
Buying the property changes the landlord. It does not wipe out the tenant’s existing complaint or default.
For example, the tenant may say that the seller overcharged outgoings or failed to repair the premises. The tenant’s rights can continue after settlement, leaving you to deal with the practical consequences as the new owner.
Your sale contract can allocate responsibility between you and the seller for a problem arising before settlement. It may deal with who controls the dispute, who pays the legal or repair costs and who receives any recovered amount. It cannot simply extinguish a right the tenant already has.
The relevant history may appear in arrears records, default notices, repair complaints, insurance claims, tribunal or court documents, correspondence about rent reductions and records of work promised to the tenant.
Does the NSW retail leasing law apply?
A property marketed as “commercial” may still contain a lease regulated by the Retail Leases Act 1994 . The marketing label does not decide the issue.
The tenant’s actual or proposed use, the leased area, its location and the statutory exclusions can all affect whether the Act applies. If it does, the legislation can regulate disclosure, rent reviews, recoverable outgoings, security bonds and some lease costs.
Earlier non-compliance by the seller may affect the rent or other money recoverable after settlement. That makes the tenant’s actual business and the earlier disclosure documents relevant to the buyer’s financial assessment, not merely to the seller’s past administration.
Our commercial and retail leasing service for landlords explains the ongoing landlord role.
Is the sale GST-free as a going concern?
A sitting tenant may support going-concern treatment, but it does not make the sale automatically GST-free.
The sale may qualify where it is made for consideration, the seller supplies all things necessary for the continued operation of the leasing enterprise and carries that enterprise on until
settlement. The buyer must be registered or required to be registered for GST, and the parties must agree in writing that the supply is of a going concern.
If those requirements are not met, GST may become payable. The sale contract then determines whether the seller can add GST to the agreed price or must pay it from that price.
The intended treatment, the buyer’s GST registration and the contractual allocation of the risk should be settled before exchange rather than when the final settlement figures are prepared.
Which documents and warning signs matter before exchange?
The document set should reconstruct the real landlord position: what the tenant may do, what it actually pays, what you must provide and what security or dispute will pass to you.
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the signed lease, variations, side letters and incentive deeds;
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option and renewal correspondence;
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the rent ledger, payment records and outgoing reconciliations;
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bond or bank-guarantee documents;
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retail-lease disclosure statements where relevant;
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default, dispute, repair and insurance correspondence; and
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details of any unfinished landlord work.
Missing lease documents, a rent ledger that does not match the stated terms, expired security or an unresolved option can materially alter the investment. Those issues need to be understood and reflected in the sale contract before exchange.
Our commercial and rural property service covers the sale contract and settlement. Our guide to buying a property in NSW explains the wider purchase process.
If you are considering a tenanted commercial property, contact Biz Lawyers & Advisory or call 1800 893 836 before exchange.
This article provides general information only. It is not legal, taxation, accounting, valuation or building advice, and the result depends on the title, lease, sale contract and facts at settlement.
Primary sources
Law and guidance checked 13 August 2026.
