You inherit the lease — the tenant, the rent and the terms

The single most important thing to understand about buying a tenanted property is that, in most cases, you do not get a clean slate. Where a valid lease is in place, it generally runs with the land: on settlement you become the landlord, and you are bound by the agreement the previous owner signed. You cannot simply raise the rent, change the terms, or ask the tenant to leave because the ownership changed hands.

That can be exactly what an investor wants — a reliable tenant, a known rent, and income from the first day. It can also be a trap if the lease is on below-market rent for another two years, if the tenant has a history of arrears, or if the agreement contains unusual concessions the seller never mentioned. The point is that you are buying the tenancy as much as the bricks, so the tenancy deserves the same scrutiny as the building.

What to review before you exchange

A tenanted purchase adds a layer of due diligence on top of the usual contract and title checks. Before you commit, you (or your lawyer) should see and understand the following:

• The lease or tenancy agreement itself. Get the signed document, not a summary. Check the rent, the term, the start and end dates, who the tenant is, and any special conditions — pets, parking, subletting, break clauses or rent reviews.
• Fixed-term vs periodic. A fixed-term lease locks you into the current rent and tenant until the end date. A periodic (month-to-month) tenancy is more flexible but gives you less certainty of income. Know which one you are buying.
• Bond lodgement. Confirm the bond was actually lodged with the relevant state authority, how much is held, and that it will be transferred to you at settlement. An unlodged or missing bond is a red flag.
• Rent history and arrears. Ask for a rent ledger. Is the tenant up to date, or chronically late? Are there arrears you would be inheriting? A tenant in place is only an asset if they pay.
• Any breaches or disputes. Check for outstanding breach notices, tribunal proceedings, or unresolved maintenance complaints. These do not disappear on settlement — they become yours.
• Rent paid in advance. If the tenant has paid rent beyond the settlement date, you should receive an adjustment for it, because you are the landlord for that period but the seller holds the money.
• The condition report and inventory. The entry condition report sets the baseline for what the tenant must return at the end of the lease. Without it, an end-of-tenancy bond claim becomes very hard to sustain.

Vacant possession vs subject to existing tenancy

This is the clause that catches buyers out. Every contract of sale states whether the property is sold with vacant possession or subject to an existing tenancy, and the difference decides what you actually receive on settlement day.

• Vacant possession means the seller must deliver the property empty — no tenant, no belongings. If you plan to move in, renovate, or re-let at market rent, this is what you need. It also puts the obligation on the seller to end the tenancy correctly before settlement.
• Subject to existing tenancy means you take the property with the tenant and lease in place. This suits investors who want the income, but it means you are bound by the current terms and cannot treat the property as empty.

Problems arise when the contract says one thing and the buyer assumes another — for example, expecting to move in, only to find the contract preserves a lease that runs for another eighteen months. If you want the tenant out, the contract needs to require vacant possession and make clear that ending the tenancy lawfully, within the notice periods that apply in that state, is the seller's problem to solve before settlement, not yours afterwards.

Adjustments of rent and bond at settlement

When you buy subject to a tenancy, the numbers are squared up at settlement through adjustments — the same mechanism used for council rates and water. In broad terms:

• Rent is apportioned to the day. The seller keeps the rent for their period of ownership; you receive an adjustment for any rent that covers the time after settlement.
• Bond held by the state authority is transferred into your name, so you hold the security for the rest of the tenancy. Your lawyer arranges the paperwork to change the landlord on the bond record.
• Rent in advance paid by the tenant beyond settlement is credited to you, because you carry the landlord's obligations for that period.

Getting these adjustments right matters. A rushed or careless settlement can leave you short of rent you are owed, or holding a tenancy where the bond was never properly transferred. This is ordinary conveyancing work, but it is precisely where attention to detail protects your return.

Residential tenancy rules differ by state

Australia does not have one set of tenancy laws. Each state and territory has its own residential tenancies legislation, its own bond authority, its own notice periods, and its own rules on when and how a landlord can end a tenancy or increase rent. What is true in New South Wales may not be true in Victoria, Queensland or Western Australia.

Because we act across NSW, VIC, QLD and WA, we apply the correct rules for the state your property sits in — which is especially useful if you are building an interstate portfolio and the tenancy laws are not the ones you are used to.

Commercial tenancies are a different animal

If you are buying a commercial property with a tenant in place — an office, warehouse, shop or industrial unit — the same principle applies but the stakes and the detail are greater. A commercial purchase almost always includes a close review of the existing lease, because the lease largely determines the value of what you are buying. Key things to examine:

• The lease term and options. How long does the current term run, and does the tenant hold options to renew? Options bind you as the incoming landlord and can tie up the property for years.
• Rent review mechanism. Fixed increases, CPI, or market reviews each produce very different income over the life of the lease.
• Outgoings. Which party pays rates, insurance, land tax, body corporate and maintenance? Recoverable outgoings materially change your net return.
• Incentives and make-good. Rent-free periods, fit-out contributions and end-of-lease make-good obligations all sit behind the headline rent.
• Security. Bank guarantees, personal guarantees or security deposits that protect you if the tenant defaults should transfer to you at settlement.

Commercial and retail leases are also governed by different legislation again — retail leases in particular carry statutory protections for tenants that affect what you can and cannot do as landlord. If the tenancy is central to your investment, our leasing team can review the lease as part of the purchase so you know exactly what income and obligations you are taking on.

How a lawyer protects the investor

A tenanted purchase is where the difference between a lawyer and a form-filling conveyancer shows up. At Corporate Legal, a qualified property lawyer runs every file, and on a tenanted purchase that means:

• Reading the lease and tenancy documents, not just the contract, and telling you in plain English what you are inheriting.
• Making sure the contract says what you actually want — vacant possession or subject to tenancy — and negotiating special conditions where it does not.
• Confirming the bond is lodged, the rent ledger is clean, and there are no undisclosed breaches or disputes coming with the property.
• Getting the rent, bond and advance-rent adjustments right at settlement, so you receive every dollar you are owed.
• Applying the correct state tenancy rules, and calling in our commercial litigation team if the tenancy or the deal turns into a dispute.

A contract review before you sign is the cheapest insurance you will buy on the whole transaction. The most valuable thing we do is read the contract and the lease before you commit, so risks can be negotiated out rather than lived with.

This article is general information only, current as at July 2026, and is not legal, financial, taxation or investment advice. Property law, tenancy rules and thresholds differ between states and change over time. You should obtain advice specific to your circumstances before acting. Corporate Legal provides legal and conveyancing services only.