Commercial Lease Assignment When a Property Sells

When a tenanted commercial property is sold, the existing lease does not simply disappear or transfer itself. It has to be formally assigned from the outgoing owner to the incoming one, and this process runs in parallel with the ordinary conveyancing steps rather than replacing them. Getting the assignment right matters for the buyer, who is relying on the rental income the lease produces, and for the tenant, who needs certainty about who their landlord now is and whether their existing lease terms still apply.

What Lease Assignment Means in a Sale Context

Assignment is the legal mechanism that transfers the landlord's rights and obligations under an existing lease to the new owner at settlement. Rather than the tenant signing a brand new lease, the same lease continues, but the party on the other side of it changes. This is standard practice whenever an investment property with a sitting tenant changes hands, whether it is a single retail shop or a larger commercial holding bought as part of a commercial purchase.

Landlord Consent and Notifying the Tenant

Most commercial leases include a clause dealing with what happens if the landlord sells, and many require the tenant to be given notice, though tenant consent is not usually needed for the landlord's own sale, only for a transfer of the tenant's interest. The seller's conveyancer typically prepares a formal deed of assignment or a notice of change of landlord, which is provided to the tenant around settlement so rent payments are redirected to the new owner without a gap or confusion about where payments should go. If the lease is governed by retail leasing legislation, there may be additional disclosure obligations that apply specifically because the premises is a retail shop, distinct from a standard commercial arrangement.

GST and the Going Concern Question

A tenanted commercial property is often sold as a GST-free supply of a going concern, provided the lease continues uninterrupted through settlement and both parties agree in writing that the sale is being treated this way. This is one reason the assignment needs to be handled carefully and on time, since a lapse in the tenancy or a poorly documented handover can put the going concern treatment at risk and change the GST outcome for the transaction. According to the Australian Taxation Office, a sale can only be treated as a GST-free going concern where the premises is supplied with a continuing lease in place and the buyer is registered, or required to be registered, for GST, as set out in the ATO's guidance on selling a going concern. This is general guidance rather than tax advice, and the specific position should be confirmed with an accountant before contracts are finalised.

Bonds, Bank Guarantees and Security Deposits

Most commercial leases are backed by a bond, a bank guarantee or both, and these need to be dealt with at settlement just like any other adjustment. A cash bond is usually transferred to the new owner or accounted for in the settlement figures, while a bank guarantee generally needs to be reissued in the new owner's name, which can take time with the tenant's bank and should be started well before settlement rather than left until the final week. Overlooking this detail is a common cause of last-minute delay in tenanted property settlements.

Reviewing the Lease as Part of Due Diligence

Before exchanging on a tenanted commercial property, a buyer should review the full lease, not just a summary of the rent and term, since it dictates the income the property will actually produce and any obligations the buyer is taking on as the new landlord. This includes checking rent review mechanisms, outgoings recovery, permitted use, make-good obligations at the end of the term and any options to renew. This kind of review sits alongside the wider steps in a proper due diligence checklist for a commercial property purchase, and is one area where relying only on the agent's summary of the lease is a mistake.

Outgoings and Adjustments at Settlement

Because the tenant is usually paying outgoings such as council rates, water and building insurance contributions, these need to be adjusted between buyer and seller at settlement in the same way rates and other charges are adjusted on any property transfer. Getting the adjustment period right, and confirming whether outgoings have been paid in advance or are owing, avoids disputes with the tenant after settlement about what they have already covered.

Keeping the Tenant Informed

A tenant who receives clear, timely notice of the change in ownership and where to direct future rent payments is far less likely to cause friction after settlement. Conveyancers acting for both sides typically coordinate on the timing of this notice so it goes out promptly once settlement is confirmed, rather than leaving the tenant to find out informally. A well-managed assignment protects the ongoing landlord-tenant relationship and reduces the risk of payment disputes in the weeks immediately following the sale.

Assignment Timing and What Buyers Should Ask First

The deed of assignment, the updated bank guarantee and any tenant notices all need to be ready to hand over on settlement day, which means the paperwork side of the assignment has to run on the same timeline as the rest of the conveyancing file rather than being treated as an afterthought. A gap between settlement and the assignment documents being finalised can leave a tenant unsure who to pay, or a new owner unable to confirm they are legally entitled to receive rent. Building the assignment steps into the settlement checklist from the start, rather than adding them once the contract has already been reviewed, is one of the simplest ways to avoid this kind of delay. Before committing to a tenanted commercial purchase, a buyer should also ask for a copy of the current lease, confirmation of the bond or guarantee amount held, a rent ledger showing whether payments are up to date, and details of any outstanding disputes or requests for repairs raised by the tenant, so problems are identified before exchange rather than after they have already become the new landlord's responsibility.