When selling a commercial property in Western Australia, most owners focus on location, building condition and rental income.
However one of the biggest factors that can quietly reduce your sale price is the lease itself.
In particular, what we refer to as a detrimental lease.
A detrimental lease is not necessarily about having a bad tenant – it is about lease terms that make the property less attractive to buyers, banks and valuers.
Across the Perth commercial property market we regularly see lease structures reduce value more than owners expect.
Below is a breakdown of what detrimental leases are, how they affect commercial property sale value, and what can be done to manage the risk.
What is a detrimental lease?
A detrimental lease is one that negatively affects:
- cash flow certainty
- future rental growth
- flexibility for a new owner
- bank lending appetite
Common examples we see in Western Australia include:
- rents well above market (creating risk at renewal)
- rents well below market (reducing yield)
- very short remaining lease terms
- long leases with no meaningful rent reviews
- leases with excessive landlord obligations
- poorly drafted or informal agreements
- multiple short-term tenancies instead of one strong lease
- tenants with weak financial strength
Individually some of these may not seem serious.
Combined, they can significantly reduce buyer demand and commercial property sale price.
How detrimental leases impact commercial property value
Commercial property in Perth and throughout WA is generally valued on income and risk.
Buyers assess:
- current net income
- lease term remaining (WALE)
- tenant strength
- rent review structure
- re-leasing risk
If a lease increases risk, the yield demanded by buyers increases.
Higher yield requirement = lower capital value.
Common impacts include:
- Reduced valuation due to rental risk
If rent is above market and likely to fall at renewal, buyers will discount the property.
Example:
A property earning $120,000 per year where market rent is closer to $95,000 may look attractive today.
However, buyers will assess the sustainable income and adjust their offer accordingly.
- Limited commercial lending
Banks funding commercial property purchases in WA assess:
- remaining lease term
- tenant covenant strength
- lease structure
Short leases or financially weak tenants often result in:
- lower loan-to-value ratios
- tighter credit conditions
- higher equity requirements
This reduces the number of qualified buyers in the market.
- Vacancy and incentive risk
If the lease is close to expiry without renewal options, buyers will factor in:
- potential vacancy periods
- leasing commissions
- fit-out contributions
- rental incentives
Even if the tenant appears stable, the risk is priced into the sale.
- Poor rent review mechanisms
Issues commonly seen include:
- fixed annual increases that are below inflation
- no market reviews
- long periods between adjustments
Over time this suppresses rental growth and reduces long-term capital appreciation.
When a short lease may actually assist a sale
It is important to recognise that not every short lease is detrimental.
In the current Perth and WA commercial property market, the owner-occupier sector — particularly in industrial property — remains strong.
A short remaining lease term can:
- attract owner-occupiers wanting vacant possession
- allow flexibility for a buyer’s own business use
- create redevelopment or repositioning opportunity
In some cases, a long secure lease can narrow the buyer pool to investors only.
The strategy should align with your likely buyer profile — investor or owner-occupier — before deciding whether a short or long lease structure is beneficial.
Common detrimental lease clauses in WA commercial property
Some lease provisions that commonly impact value include:
- landlord paying all outgoings (non-net lease)
- landlord responsible for major structural repairs that should sit with the tenant
- no demolition or redevelopment clause
- no director’s guarantees for private companies
- informal or poorly documented lease agreements
Each of these increases perceived risk and can reduce commercial property sale value.
These matters should be considered before entering into a lease
Many owners only discover lease issues when they decide to sell.
In reality, lease structuring should be approached with future sale value in mind.
Before entering into a commercial lease in Western Australia, consider:
- How will this lease be viewed by a buyer in 3–5 years?
- Will it assist or restrict commercial finance approval?
- Does the rent structure support capital growth?
- Is risk appropriately allocated?
A lease is not simply an income document.
It is a core value driver of your commercial asset.
Can a detrimental lease be improved before sale?
Often, yes.
Possible strategies include:
- negotiating lease extensions
- adjusting rent to market
- strengthening rent review provisions
- formalising informal tenancy arrangements
- reallocating outgoings correctly
- securing director guarantees
Even relatively small adjustments can materially improve sale value.
Key takeaway
In commercial property, particularly in the WA market, the lease often has more impact on value than the building itself.
A well-structured lease can protect and enhance capital value.
A poorly structured lease can reduce buyer demand and sale price.
Understanding how investors, owner-occupiers and banks will assess your lease is critical before selling — and ideally before signing a lease in the first place.
If you own commercial property in Perth or regional Western Australia and are considering:
- entering into a new lease
- renegotiating existing lease terms
- selling in the next 1–3 years
it may be worthwhile reviewing your lease from a buyer and valuation perspective.
At Atomic Agents Business & Property, we regularly assess how lease structure impacts commercial property sale value across WA.
If you would like a confidential discussion about your property and how it may be viewed in today’s market, feel free to get in touch.
A short conversation now can help protect your long-term capital position.
Author: Trevor Longwood (March 2026)
