Lease doc lending: how commercial lenders look at tenant income
In a lease-doc loan, the lender makes a deliberately narrow bet: that the rent from the property will service the debt, full stop. No business financials, no tax returns, no unpacking of your trusts and companies — the lease is the serviceability evidence. It is one of the most useful structures in commercial investment lending for the right borrower, and one of the most scrutinised documents in the deal becomes the lease itself. If you are new to commercial lending generally, start with [our commercial property loan guide](/articles/commercial-finance/commercial-property-loans) for the full landscape; this article goes deep on how lenders actually read tenant income. It is general information, not advice on your situation.
What lease-doc actually is
A lease-doc facility is a commercial investment loan assessed primarily — sometimes solely — on the rental income of the property being financed. Instead of proving your personal and business income, you prove the lease: who pays the rent, how much, for how long, and on what terms. Broadly, if the rent covers the proposed interest by an acceptable margin, the loan can stand on the property's own feet.
That narrow evidence base is the whole point and the whole risk. The lender is not diversifying across your income sources; it is concentrating on one income stream from one tenant (or a handful of tenants) in one building. Everything lenders scrutinise flows from that concentration.
Lease term vs loan term: the first question
The first thing a credit team checks is how long the income is contractually locked in. A lease with seven years to run supports a loan very differently from one expiring in eighteen months — after expiry, the income the whole loan rests on is a hope, not a contract. In practice:
- Many lenders want meaningful lease term remaining, and some set the loan's terms — or its review points — with the lease expiry in mind
- Options to renew help, but they are the tenant's option, not yours, so lenders give them less weight than fixed term
- For multi-tenant properties, lenders look at the WALE — weighted average lease expiry — which measures, in years, how long the property's income is secured across all tenancies, weighted by the rent each pays. A healthy WALE with staggered expiries reads far better than several leases all expiring in the same year
Tenant quality: who is actually paying?
The covenant — the tenant's ability and obligation to keep paying — matters as much as the rent figure. A national retailer, a government agency or an ASX-listed company on a long lease is a fundamentally stronger covenant than a two-year-old private company, and lenders price and gear accordingly. Things that strengthen the tenancy story:
- An established tenant with a track record of paying on time, evidenced by the rental history
- Bank guarantees or security deposits held under the lease
- Personal or parent-company guarantees behind a corporate tenant
- A tenant whose fit-out investment makes them unlikely to walk at expiry
Arm's-length matters. Lenders look hard at leases between related parties — your own trading company renting from your investment trust, for example. Related-party leases are not automatically fatal, but the rent must be demonstrably at market, the lease professionally documented, and some lenders simply will not do lease-doc on them, since a lease you effectively pay yourself proves less. If you are buying premises for your own business to occupy, that is a different assessment path — see our guide to [buying a premises for your business](/articles/commercial-finance/buying-business-premises-commercial-loan).
A 15-minute chat is usually enough to map your options — free, no obligation.
Net or gross: what the rent really is
A headline rent means little until you know who pays the outgoings — rates, insurance, land tax where recoverable, repairs and management. Under a net lease the tenant pays rent plus some or all outgoings; under a gross lease the rent is all-inclusive and the outgoings come out of your side. Lenders assess the income the owner actually keeps, so they will work from the net position — and a gross rent that looks generous can shrink considerably once outgoings are deducted. Have the lease's outgoings clauses clear and documented; vague recovery provisions invite conservative treatment from both the valuer and the credit team.
Interest cover: the ratio doing the work
Because there are no financials to assess, the serviceability test compresses into one idea: the rent must comfortably exceed the interest. Lenders commonly express this as an interest cover ratio (ICR) — net rent divided by the interest bill — and want a margin of comfort rather than a bare pass, often tested at a rate above the actual rate to allow for movements. The exact thresholds vary by lender, property type and tenant strength, so treat any specific figure you read online with suspicion; what is consistent is the principle that rent covering interest with room to spare is the entire engine of a lease-doc approval. Stronger cover buys better pricing and more gearing; thin cover buys declines.
The LVR trade-off and when lease-doc suits
Less evidence means less gearing: lease-doc maximum LVRs are typically lower than full-doc on the same property, and pricing is generally somewhat higher. In exchange, the borrower gets speed and privacy. Lease-doc tends to suit:
- Investors with strong tenants on long leases, where the property visibly pays for itself
- Borrowers with complex personal or business financials that would take weeks to present full-doc — multiple entities, mid-year accounts, lumpy income
- Purchasers who need certainty inside a tight finance clause
If your financials are strong and available, full-doc usually earns better terms — lease-doc is a tool, not an upgrade. Between the two sit alt-doc options, covered in our guide to [low-doc business loans](/articles/business-loans/low-doc-business-loans).
The risks: vacancy and the expiry cliff
The structure's elegance is also its exposure. If the tenant leaves or fails, there is no assessed personal income behind the loan — the repayments continue while the rent does not, and re-letting commercial space can take months, sometimes longer, often with incentives that cut the effective rent. The sharpest version is the lease expiry cliff: a loan set up comfortably on a five-year lease looks very different in year four, when refinancing or review arrives just as the lease term runs down. Sensible defences: hold a genuine cash buffer, start renewal conversations with the tenant early, and think about expiry timing before you buy, not after. Lenders model these scenarios; owners should too.
Talk it through with a broker
Lease-doc appetite varies more between lenders than almost any other setting in commercial finance — the tenant, lease term and property type that one credit team declines, another prices happily. You can see the broader range on our [commercial loans page](/loans/commercial-loans), or [get in touch](/contact) and we can assess whether your lease can carry the loan before you commit to anything.
Frequently asked questions
What is a lease-doc commercial loan?
It is a commercial investment loan assessed primarily on the property's rental income rather than your personal or business financials. Broadly, if the net rent covers the proposed interest by an acceptable margin — the interest cover ratio — the loan can be approved without full financial statements. Expect lower maximum LVRs and somewhat higher pricing than full-doc.
How much lease term do lenders want remaining?
There is no universal rule, but lenders want the contractual income to run well into the loan, and many set loan terms or review points around the lease expiry. Longer remaining term is stronger; options to renew help but carry less weight because exercising them is the tenant's choice. For multi-tenant properties, lenders assess the WALE — weighted average lease expiry.
What is an interest cover ratio?
It is the net rental income divided by the loan's interest cost — the core serviceability test in lease-doc lending. Lenders commonly want rent to exceed interest with a comfortable margin, often tested at a rate above the actual rate to allow for movements. Exact thresholds vary by lender, property type and tenant strength.
Can I use a lease-doc loan if my own business is the tenant?
It is harder. Related-party leases attract close scrutiny because the rent is effectively paid to yourself — lenders want evidence the rent is at market and the lease is professionally documented, and some will not offer lease-doc on related-party tenancies at all. Owner-occupied premises are usually assessed on the business's capacity to pay instead.
What is the difference between a net lease and a gross lease?
Under a net lease the tenant pays rent plus some or all outgoings such as rates, insurance and maintenance; under a gross lease the rent is all-inclusive and outgoings come from the owner's side. Lenders and valuers work from the income the owner actually keeps, so a gross rent can support less borrowing than the same headline figure on a net lease.
What happens if my tenant leaves during the loan?
The repayments continue while the rent does not — that concentration is the core risk of lease-doc lending. Re-letting commercial property can take months and often involves incentives that reduce effective rent. Holding a cash buffer, starting renewal discussions early and planning around lease expiry dates are the practical defences.