Where commercial property purchases go wrong

A commercial property can look compelling in a listing: an attractive yield, a familiar tenant, a well-presented building. The harder questions sit behind that first impression.

For Melbourne investors and business owners, a sound buying decision starts with a clear purpose and evidence that supports it. These six areas deserve attention before you commit.

1. The advertised yield is only the starting point

A percentage does not explain how dependable the income is. Look at the rent actually being received, any incentives or rent-free periods, the costs that remain with the owner and when the next review falls due.

Compare the lease with current market evidence. Rent above the market may not be sustainable when a lease ends or is renegotiated. Test a second scenario with a vacancy period and realistic costs, rather than relying on a single headline return.

Ask: What income remains after the owner’s expenses, and what happens if the tenant leaves?

2. A “net lease” still needs to be read

The description in a brochure is not a substitute for the signed lease, variations and supporting documents. Establish which outgoings the tenant pays, which costs the owner retains, and who is responsible for maintenance and capital works.

Recoverability depends on the lease and applicable law. Victorian retail leases have specific rules, so have your solicitor confirm whether that regime applies. The Victorian Small Business Commission’s guidance on outgoings explains why the documentation matters.

Ask: Which expenses could still fall to me, even with a tenant in place?

3. A tenant’s name does not tell the whole story

A recognisable business or a long lease can be reassuring, but neither removes tenant risk. Review the legal entity named in the lease, the term remaining, options, security arrangements and available payment records.

Request evidence through the selling agent and your advisers, including information about arrears or disputes where available. Identify missing information explicitly. A gap in the records is a question to resolve, rather than a reason to assume everything is satisfactory.

Ask: What evidence supports the tenant’s ability and obligation to keep paying?

4. Finance needs room for uncertainty

The price you agree and the value a lender accepts may differ. Lending terms also depend on the property, tenancy, borrower and lender’s requirements.

Discuss the proposed purchase with your lender or broker early. Understand the funding assumptions, costs and any gap you may need to cover. Your solicitor should help align the contract conditions and deadlines with the work required to secure finance.

Ask: What needs to happen for this purchase to be funded, and by when?

5. The building must suit its intended use

A property’s current operation does not settle every question about its lawful use or future suitability. Check planning controls, relevant permits and building approvals, and investigate any alterations.

For an owner-occupier, translate your business requirements into practical checks: access, loading, power, parking, floor area and room for growth. Arrange appropriate building and technical inspections. Business Victoria’s premises-buying guide highlights permits, zoning and property checks as part of the buying process.

Ask: Can this building support my intended use, and what changes or approvals might be needed?

6. Rushing leaves important questions unanswered

Document requests, inspections, finance and negotiations can become difficult to coordinate alongside a busy business. Before making an offer, set out the checks, the people responsible and the dates that matter.

Keep a written list of unresolved issues. Some may be manageable through advice, further investigation or negotiated conditions; others may change whether the property fits your brief. A clear process helps you make that distinction.

Ask: What is still unverified, and could it change my decision?

Start with the purpose. Test the evidence.

The right commercial property is one that supports your goals with risks and obligations you understand. Stone & Co Buyers helps Melbourne investors and business owners define the brief, assess opportunities and coordinate the purchase with their advisers.

Book a discovery call to discuss your next purchase, or send an enquiry.

This article provides general information, not legal, tax or financial advice. Obtain advice specific to the property and your circumstances.