Loan against tenanted commercial property: when the lease helps, and when it gets in the way

A loan against tenanted commercial property is easy to arrange when the lease is long, independent and paid on time. Most owners assume a tenant always makes a building easier to borrow against. Often it does. But plenty of owners are surprised to find the lease is the very thing standing between them and a loan: a lease with months to run, a tenant that turns out to be their own company, a tenant who has fallen behind, or a building that’s only half let.

This guide covers how banks and private lenders each treat a tenanted building, which lease problems cause trouble, and what you can do before you apply.

Does a tenant help or hurt a loan against commercial property?

Both, depending on who’s lending and how good the lease is.

A bank prices and sizes a commercial loan largely on the income the building produces. A long lease to an independent, reliable tenant at market rent is gold to a bank. A lease that’s short, related, in arrears or below market weakens the whole application, sometimes enough to sink it.

A private secured lender starts somewhere else: what the building is worth today, how readily it would sell and how you plan to repay. The lease still matters, because it affects how saleable the property is and whether a bank will refinance it later. But it’s one input, not the whole test. We lend up to 70% of value on commercial security, from $20k to $5m, with no formal valuation required.

What does a bank lease doc loan actually require?

“Lease doc” loans let a commercial investor borrow on the strength of the rent rather than full business financials. The criteria give away what banks care about. CommBank’s Lease Doc loan page, for example, asks for an “active, arms-length lease agreement (between independent parties)” and caps the loan term at five years or lease expiry, whichever is shorter. It also asks for a tenancy schedule and ATO income tax and GST account statements.

Read those rules backwards and you have a list of what knocks a building out:

Lease situation	How a lease doc bank tends to see it	How a private secured lender tends to see it
Lease expires within a year or two	Term is limited to the expiry, so little or nothing to lend on	Asks what the building is worth with and without the tenant, and plans the exit around it
Tenant is your own company or a family entity	Not arm’s length, so it falls outside lease doc criteria	Looks at the building and documented rent; the related lease isn’t a barrier on its own
Tenant in rent arrears	Questions whether the income is real	Wants the arrears history and whether the exit relies on that rent
Part of the building is vacant	Only counts the income that exists	Weighs location, re-letting prospects and value as it stands
ATO lodgements or GST account behind	Statements are part of the application	Considered case by case; ATO debt can even be paid at settlement
Long lease to an unrelated tenant at market rent	Strong case for a lease doc loan	Also strong, and often a sign the exit is a bank refinance

If the last row describes your building and you have time, a bank is probably the right first call. The rest of this guide is for every other row.

What if the lease is about to expire?

Lease expiry is the most common reason a tenanted building loses a bank’s interest. Even a long-standing tenant on month-to-month terms looks, on paper, like a vacancy waiting to happen. If the bank facility is also up for review, the owner can be squeezed from both sides.

There are three ways through:

1. Get the renewal signed first. If the tenant is staying, a signed renewal or exercised option may be all the bank needs. Ask the tenant early; many will sign sooner in exchange for a small concession.
2. Bridge the gap. A private first mortgage can refinance the bank now and give you time to re-sign the tenant or find a new one. With interest capitalised for the first six months, the loan doesn’t add repayments while the rent is uncertain. Our page on private first mortgages over commercial property covers the refinance itself.
3. Plan a sale. If neither renewal nor re-letting looks likely, the honest exit may be selling. Knowing that from day one is far better than discovering it in month eleven.

If the tenant leaves, the position becomes the one covered in our guide to loans on vacant commercial property.

Can you borrow if your own business is the tenant?

This is the situation bank criteria handle worst, and it’s extremely common. A family trust or holding company owns the premises, and the operating company leases them. The lease is genuine, the rent is paid, but it isn’t between independent parties, so it doesn’t count as an arm’s-length lease for a lease doc product.

A bank will usually fall back to assessing the whole group: the operating company’s profits, the trust’s position, your personal finances. If any part of that is untidy, such as an overdue tax return or a tough trading year, the loan stalls even though the building itself is sound.

A private lender can take the building on its merits. What helps:

• A written lease with rent, term and outgoings set out, rather than an informal arrangement.
• Rent at or near market. A below-market related lease can reduce what a buyer would pay, which matters for the exit.
• Clear ownership documents for the trust or company that holds the title. Our page on company or trust-owned property explains what the lender will ask for.

If you’re in this position and the bank has gone quiet, check where you stand in about a minute. It won’t touch your credit file.

Does the lease need registering, and does the lender have to consent?

The rules differ by state, and they’re worth knowing before you either borrow or sign a new tenant.

In NSW, the NSW Small Business Commissioner explains that retail leases longer than three years, including any option period, must be registered. The landlord has three months from when the tenant returns the signed lease, and that window can be extended if there’s a delay getting consent from a mortgagee. Where the title is mortgaged, the mortgagee’s consent is part of that registration process, and since the 2017 changes to the NSW Retail Leases Act a landlord can’t recover the cost of getting that consent from the tenant.

Two practical consequences for borrowers:

• A new lease mid-loan usually needs your lender’s say-so. Most mortgages, private ones included, require consent before you grant, renew or vary a lease. Ask early so you don’t hold up a tenant who’s ready to sign. Our guide to first mortgagee consent explains how lender consent processes work, and the timing logic is similar.
• An unregistered long lease is a loose end. It can complicate a refinance or a sale, because a buyer or incoming lender will want to know whether the lease binds them. Have your solicitor check the title and the lease together before you apply.

Other states run their own retail leases legislation and registration rules, so confirm the position for your property’s state with your solicitor.

Does the tenant affect your exit?

Very much, and this is where a tenanted building can be an asset for a short-term loan.

Refinance exit. A signed, arm’s-length lease at market rent is exactly what a bank lease doc lender wants to see. Many owners use a private loan to get there: re-sign the tenant, tidy the documents, then refinance.

Sale exit. A leased building can often be sold as an investment, and the GST treatment matters. The ATO explains that a sale of commercial premises can be GST-free as a going concern only when all its conditions are met, including that the buyer is registered for GST and both parties agree in writing that the sale is of a going concern. The ATO’s guidance on selling commercial premises ties that treatment to the property being leased at settlement. If the tenant leaves before settlement, or the conditions slip, GST may come out of your sale proceeds. Talk to your accountant before you build a sale into your exit.

Our guide to building an exit strategy for a short-term mortgage walks through how to test each path.

Illustrative example: related tenant, short lease

Illustrative only. The business, property and figures are invented.

A family trust owns a light industrial unit in Penrith. The owners’ engineering company has leased it for nine years, and the current lease has eight months left. The trust’s bank loan of $310k is due for review, and the owners need $180k to buy a CNC machine for a new contract.

The bank won’t treat the lease as arm’s length, and the company’s last tax return is late, so the review stalls. A private lender assesses the unit at around $900k. At the 70% commercial ceiling, total lending could reach $630k. A $520k private first mortgage pays out the bank, funds the machine and covers costs, with interest capitalised for the first six months.

The exit plan: lodge the overdue return, sign a fresh five-year lease at a market rent confirmed by a local agent, then refinance to a bank once both are done. If the contract stalls, the fallback is selling the unit with the company staying on as tenant. That’s a plan they discussed with their accountant, including the GST position, before they signed.

What should you have ready before you apply?

• Each current lease, plus any variations and option notices.
• A simple rent roll: tenant, rent, lease end date, any arrears.
• The latest statement and review letters for your existing loan.
• Council rates and a recent outgoings summary.
• Trust deed or company details if an entity owns the title.
• One paragraph on the exit, and what happens if the tenant leaves.

For how commercial security compares with a house or unit, see residential vs commercial security. For the broader options on commercial buildings, see our page on a secured loan against commercial property.

Your building, your tenant, your plan: let’s see what it supports

A tenanted building often holds more borrowing power than a bank’s lease checklist suggests. If your lease is short, your tenant is related or the rent has been patchy, the property itself may still carry the loan, provided the exit makes sense.

The enquiry takes about 60 seconds, and there’s no credit check for asking, so your credit file stays exactly as it is. Your details go to one direct lender, not to a pile of lenders who all pick up the phone at once. A real secured-lending specialist reads your scenario, including the lease position, and calls you to talk it through. Please give us accurate figures for the rent, the lease end date and what’s owing, so the first conversation is a useful one.

Find out what your tenanted property can unlock →