Search "commercial property due diligence" and you mostly get residential checklists with a commercial label, or lawyer glossaries that start at title and building. Useful. Incomplete for buyers. Commercial value lives in the income document. The shed and the facade matter after the lease pack clears, not before.
This is the buyer-ordered pack I run on commercial. The residential companion, property due diligence checklist for investors, covers cash flow, contract, planning, building and pest, and strata. Here the order flips: lease, tenant, outgoings, and WALE first. Building second. That is how The Deal Grade™ works: income before facade.
If you are still choosing asset class, commercial vs residential property investment covers why the units of yield are not the same. What a commercial buyers agent does covers the job. This article is the diligence sequence itself.
1. Income first: the lease pack, covenant, WALE, reviews, make-good, options
I do not tour a commercial asset until I have enough of the income story to grade it. Ask for the full lease and any variations, not a summary email. Then read:
- Tenant and covenant. Who pays the rent, who guarantees it, and how concentrated is the income if the asset is multi-tenant.
- Firm term and options. Years left to firm expiry first. Options are tenant discretion unless exercised. Do not let marketing stretch "term" by counting unexercised options as certainty.
- WALE. Rebuild how to calculate WALE yourself on income weighting, then check the nearest expiry that moves a material share of rent. A clean average with a cliff next year is not clean.
- Rent reviews and escalations. Fixed, CPI-linked, market review, or a mix. Note when reviews hit and whether the lease allows ratchet or ratchet-free market reset.
- Make-good and use. What the tenant must reinstate, what use is permitted, and whether that use matches how the asset is actually occupied today.
- Incentives and side letters. Rent-free, fit-out contributions, and any documents that sit beside the lease. Passing rent on a flyer is not always cash rent in your hand.
On every commercial deal I run The Deal Grade™: a letter A to C on the building, a number 1 to 3 on the income. Covenant, lease length, WALE, escalations, and recovery sit inside the income grade. Formal legal review stays with your solicitor. My job is to ask the commercial questions before emotional capital is spent on the tour.
2. Net income rebuild: outgoings and gross vs net
Brochure yield is not cash. Rebuild annual income from the lease, then subtract the outgoings you will actually wear.
Gross lease vs net lease is the teaching piece on who pays what. A marketing "net" means nothing if the schedule still leaves you holding insurance, structural works, or a large unrecovered share. Demand the outgoings budget, recent actuals with reconciliation, and a plain map of recoverable versus landlord-retained costs. Retail rules in some states also limit recovery; your solicitor scopes that. If the selling agent cannot produce actuals, treat the yield claim as provisional. Price the risk or walk.
3. Title, zoning, use, and environmental where relevant
Once income clears a first pass, open the legal and planning layer.
- Title and interests. Ownership, mortgages, easements, covenants, and anything that limits use or access. Your conveyancer or solicitor runs the searches. You need the commercial read: does any interest break the tenant's use or your exit path.
- Zoning and permitted use. Does the current use sit cleanly inside zoning and any overlays, or are you buying a grey-zone occupation that only works until the next council letter.
- Contamination and environmental. Industrial, former industrial, fuel, chemical storage, and fill sites need an environmental conversation early. High-level only here: if history or use suggests risk, get the right consultant scoped before you are emotionally committed. Do not invent a "clean site" story from a sales brochure.
Trustees buying inside an SMSF add another gate before romance: business real property and fund readiness. Sequence that in business real property SMSF and the SMSF commercial property buyer path. Diligence on the shed does not fix a fund that is not ready.
4. Building, structure, access, clear height, parking (after income clears)
Only now do I spend real time on the physical asset. Residential puts building and pest near the centre of the clock. Commercial puts it after income because a perfect facade on a soft lease is still a soft deal.
Ask, in buyer language: structure, roof, slab, and water ingress; access for trucks and cars; clear height, loading, and hardstand for industrial; parking constraints; and services capacity against the tenant's actual use, not the brochure photo.
Building reports sit with qualified inspectors and engineers. I ask whether the building supports the income story you just graded, or forces capex the yield never priced.
I have bought and sold commercial as an own project (including Dry Creek on results: $3.85M to $4.75M, plans not bricks, with partners). The lesson that survives: grade the income document before you romance the building.
5. Survey, measurements, and site constraints
Commercial pricing often lives per square metre of lettable area. Wrong measurements rewrite the yield.
Confirm how area is measured (NLA, GLA, or the convention for that asset), whether mezzanines and canopies are in or out, and whether survey or lease plans match what you are paying for. Check setbacks, easements, flood or overland flow, and access rights that block expansion or alternate use. A cheap square metre that is not usable is not cheap.
6. Insurance, outgoing reconciliations, and arrears
Cash quality is not only lease length. It is whether the tenant is paying, whether outgoings reconciliations are clean, and whether insurance is current for the use.
Ask for arrears history, recent reconciliations, and certificates of currency. Disputes over estimates, unpaid outgoings, or under-insured use are income problems dressed as admin. They belong in the pack before you treat "net yield" as settled.
7. Finance and settlement cash (high-level)
Commercial deposits and lending posture differ from residential. Existing site language on the commercial buyers-agent path already frames commercial as typically needing more equity up front: often in the order of 25 to 35% down, versus higher LVRs common on residential. Exact LVR and deposit for your deal sit with your broker and lender.
Model settlement cash with buffer: deposit, stamp duty and costs as your advisers scope them, any immediate works, and a vacancy or incentive buffer if WALE is short. Conditional windows vary by state and deal. Your solicitor drafts the protection. I make sure the diligence list fits the clock you have.
8. Exit and reletting risk
Before you buy, ask who leases this next and who buys it from you later.
Reletting risk includes downtime, incentives, and whether the building still attracts the same tenant profile when the lease ends. Exit risk includes buyer depth and whether the income grade survives a vacancy year. A long WALE on a soft covenant is not the same exit as a shorter WALE on a tenant the market will fight to replace.
9. Stop/go: when I walk away
I walk when the income story cannot be verified, when outgoings actuals are missing and the yield only works on brochure maths, when title or use risk needs advice the vendor will not allow time for, when environmental history is unresolved on a site that needs it, or when finance and settlement cash do not clear with a buffer. A pretty facade does not override those gates.
Spend speed on the checks that change price or kill the deal, and stop early when the Deal Grade income number fails.
How this sits in a commercial brief
If you are graduating from residential, start with capital, income need, and risk posture on the Commercial Ready Check. Then run this lease-first pack on every candidate before you argue about kerb appeal.
Process and fees sit on the commercial page and in the commercial buyers-agent insight linked above. Site CTA is Book a strategy call. Bring the lease pack if you have one. If you do not, that is the first diligence gap we close.
Frequently asked questions
How is commercial property due diligence different from residential?
Residential diligence centres on cash flow, contract, planning, building and pest, and strata. Commercial centres on the lease pack, covenant, outgoings, WALE, then building and site. Same discipline, different order. Use the residential due diligence checklist for houses and units; use this pack for commercial.
What should be in a commercial due diligence pack before I tour?
Full lease and variations, rent roll if multi-tenant, outgoings budget and recent actuals, arrears, title and planning summaries, and any environmental material the use suggests. Building reports come after income clears a first pass, unless the asset type forces early structural risk.
Does a long WALE remove the need for building diligence?
No. WALE measures remaining term weighted by income or area. It does not grade structure, services, contamination, or outgoings recovery. Grade WALE inside the income score, then still inspect the asset that has to deliver that income.
Can I do commercial due diligence after exchanging contracts?
Only to the extent your contract conditions and state rules allow. Many commercial deals use a due diligence window before unconditional exchange. Unconditional paths demand the pack upfront. Your solicitor scopes the clause. Do not assume residential cooling-off habits apply.
What if I am buying commercial inside an SMSF?
Fund readiness and the business real property test come before lease romance. Run the SMSF path first, then apply this checklist to the asset. Start with business real property SMSF and the SMSF commercial property buyer path.
*Shayne Mele · General information only. Not financial advice. Lease terms, recovery rules, planning, environmental scope, stamp duty, and lending criteria vary by state, asset, and lender. Property outcomes depend on your brief, capital, timing, and the asset. Get advice specific to your situation before acting. Individual results vary.*
