Buying a Commercial Property with Existing Tenants
Purchasing a commercial property with existing tenants can be a strategic move for investors seeking immediate income, reduced vacancy risk, and long-term growth potential. These types of transactions are often structured as the sale of a going concern, which comes with specific tax and operational considerations.
This article provides general information only. It is not intended as financial or legal advice. You should always consult your accountant, solicitor or financial advisor before making any investment decisions.
What Is a Going Concern?
A going concern refers to a business or asset that is actively operating and generating income at the time of sale. In commercial real estate, this commonly refers to tenanted properties where rental income is being received.
When a property is sold as a going concern, the buyer acquires a functioning income-producing asset. This typically includes existing lease agreements, tenant relationships, and any necessary operational elements that allow the asset to continue generating income post-sale.
Why Buy a Commercial Property with Existing Tenants?
If you’re looking at commercial real estate for sale with established tenants, there are several advantages:
Immediate Income: Rental payments are already in place, meaning cash flow begins from settlement.
Reduced Risk: You’re purchasing a known quantity, with tenancy schedules and income history available during due diligence.
Finance-Friendly: Properties with secure leases may be viewed more favourably by lenders.
Potential GST Benefits: If the transaction qualifies as a sale of going concern, it may be GST-free, depending on the structure and eligibility.
Understanding the Sale of Going Concern
In Australia, a sale of a going concern may be GST-exempt if certain conditions are met:
Both buyer and seller are registered for GST.
The business (or leased property) is operational at the time of sale.
The sale includes everything necessary for the operation to continue.
There is agreement in writing that the sale is a going concern
If structured correctly, this can result in significant tax savings. However, these transactions must meet the ATO’s criteria, and professional advice should always be obtained.
Important Considerations
Before purchasing a tenanted commercial property, consider the following:
Review the terms and conditions of existing leases, including expiry dates, rent reviews and outgoings.
Assess the financial health and history of each tenant.
Confirm whether the deal will be structured as a sale of going concern, and whether you meet the necessary requirements.
Engage with your accountant or legal advisor to fully understand the implications of the purchase.
Looking for well-leased commercial real estate for sale? Contact CPN Commercial Group to view opportunities sold as going concerns and find the right investment for your portfolio.
