What “Going Concern” Means In Commercial Real Estate Transactions

If you’re buying or leasing commercial property in Australia, you may see the phrase “going concern” pop up in a contract of sale, a heads of agreement, or a discussion with the vendor’s accountant.

It can sound like jargon. But it’s actually a very practical concept that can impact:

• how GST is treated (which can be a major cash flow issue),
• what you’re really buying (just the property, or the business operating from it), and
• what needs to happen on settlement day so the deal doesn’t fall over.

This guide explains, in plain English, what going concern means in real estate, how it works in Australian commercial transactions, and what you should check before you sign.

What Does Going Concern Mean In Real Estate?

In a commercial real estate context, a going concern generally means you are acquiring (or taking over) something that is already operating, so it can continue operating without interruption after settlement.

That “something” might be:

• a property with an existing lease in place (e.g. a tenanted warehouse, office, or shop), or
• a business being sold together with the premises and/or the key assets required to keep trading (e.g. a café, childcare centre, gym, medical clinic).

In many deals, the term comes up because of GST. In Australia, a sale structured as a “supply of a going concern” may be GST-free, but only if specific legal requirements are satisfied. That’s why buyers and sellers care about whether a sale qualifies as a going concern.

Going Concern vs Vacant Possession: Why It Matters

A quick way to think about it is:

• Going concern: you’re buying a functioning “income-producing setup” (often a property + lease, or a property + business).
• Vacant possession: you’re buying the property empty, with no tenant and no ongoing operations.

If your goal is immediate rental income, a going concern structure can be attractive. If your goal is to move your own business into the premises, you may prefer vacant possession (or you may need a contract condition that deals with the lease ending).

When Is A Property Sale Treated As A “Going Concern” In Australia?

In practice, a real estate sale is often structured as a going concern when it’s a sale of commercial property that is leased and the lease will continue after settlement.

For example, you buy a retail shop with a tenant already operating under a lease. On settlement, the lease is assigned (or otherwise continues) and you, as the new owner, step into the landlord’s role and keep receiving rent.

That can be a “going concern” because the leasing activity (the enterprise of leasing the property) continues seamlessly from seller to buyer.

What About Buying A Business With Premises?

Sometimes “going concern” is used in the context of buying a business that operates from a premises. For example:

• a restaurant sale that includes the fitout, goodwill and lease assignment,
• a manufacturing business sale that includes equipment and a lease or freehold property, or
• a medical clinic sale that includes patient systems (where allowed), equipment, and a lease.

Here, the “going concern” concept is about the business continuing to trade after completion, not just the property being tenanted.

If you’re buying a business, it’s worth ensuring the transaction documents align (for example, the business sale agreement and lease assignment documents should not contradict each other). In many deals, you’ll see a package approach similar to an Business Sale Package, because there are multiple moving parts.

Why “Going Concern” Matters: GST And Cash Flow

For most small businesses, GST is the main reason the going concern label matters.

Broadly speaking, if a sale qualifies as a GST-free supply of a going concern under Australian GST rules, the seller does not charge GST on the purchase price.

That can be a big deal for your cash flow. If the sale is not GST-free, you might need to fund an additional 10% GST at settlement (even if you can later claim it back as an input tax credit, depending on your circumstances).

Common Example: Buying A Tenanted Commercial Property

Let’s imagine you’re buying an industrial unit for $1,100,000. If GST applies, you could be up for an extra $110,000 at settlement.

If the deal is properly structured and documented as a GST-free going concern (and the legal requirements are met), you may avoid that GST amount being payable on settlement.

Because the amounts are significant, it’s important not to treat “going concern” as a throwaway phrase. It needs to be drafted carefully, and the deal needs to be managed so the legal and practical requirements are actually met on completion.

GST Isn’t The Only Issue

Even where GST is the headline issue, the “going concern” approach often affects the commercial deal too, such as:

• what happens if the tenant leaves before settlement,
• what documents you need to collect (lease, disclosure statements, rent ledger),
• how adjustments work (rent, outgoings, bond), and
• what warranties the seller should give you about the lease and tenant.

What Needs To Be In Place For A “Going Concern” Deal (Practical Checklist)

Although the exact legal requirements depend on the transaction and your tax position, from a practical perspective, a going concern deal usually needs two things:

• There is an ongoing enterprise (e.g. leasing the property to a tenant, or operating a business), and
• That enterprise continues up to settlement, and you receive what you need to keep it running after settlement.

Here are the key items you should check before signing (and keep checking right through to settlement).

1) The Contract Clearly States The Sale Is A Going Concern

If the contract is vague, you can end up in a dispute about whether GST is payable and who bears the risk.

Going concern clauses should be consistent with other parts of the contract (including the price, GST provisions, conditions precedent, and settlement adjustments). In many cases, the parties will also need a written agreement that the supply is of a going concern (and other GST requirements may also need to be satisfied).

2) If It’s A Leased Property, The Lease Must Be Real And Continuing

In a property-going-concern scenario, the lease is usually the “engine” that makes the enterprise real.

You should review:

• the lease terms (rent, term, options, make good, outgoings),
• any variations or side letters,
• the rent ledger (are payments up to date?), and
• bond/security arrangements.

Also check whether any upcoming lease renewal dates could affect the value you think you’re buying.

If you’re not sure what’s market, what’s risky, or what’s missing, a Commercial Lease Review can help you understand your exposure before you commit.

3) If It’s A Business Sale, You Need The Assets That Actually Make It Operate

In a business-going-concern scenario, you’re usually relying on the business being able to keep trading immediately after completion.

So you should confirm what is included in the sale, such as:

• plant and equipment,
• stock (if any),
• intellectual property (branding, domain names, systems),
• supplier contracts (are they transferable?), and
• key licences/permits (can they be transferred or re-issued quickly?).

A well-drafted Business Sale Agreement is important here, because what you think you’re buying and what the documents say you’re buying can be two different things.

4) Settlement Must Happen With The Enterprise Still “Alive”

One of the most common practical risks in a going concern transaction is that something changes before settlement.

For example:

• the tenant stops paying rent,
• the tenant terminates or abandons the lease,
• the seller gives the tenant concessions that reduce the income, or
• the seller stops operating the business before handover.

To manage this, contracts often include obligations on the seller to keep operating “in the ordinary course” and restrictions on making changes without your consent.

Buying Or Leasing: How “Going Concern” Affects Small Business Decisions

Many Sprintlaw clients aren’t buying commercial property as an investment. They’re buying or leasing premises because they need a base for their business (or they’re buying an existing business with premises).

Here’s how the concept can show up depending on what you’re doing.

If You’re Buying A Tenanted Property (As A Landlord)

Ask yourself: are you comfortable stepping into a landlord role from day one?

You will inherit ongoing responsibilities, which usually include:

• maintaining the premises (depending on the lease),
• managing outgoings recovery,
• responding to tenant requests and disputes, and
• ensuring you comply with any relevant retail leasing rules (if it’s a retail lease).

Even though you’re “just buying property”, a tenanted commercial property can be more like buying a small operating system with legal obligations attached.

If You’re Buying A Business That Comes With A Lease

Often, you’re negotiating two deals at once:

• the business purchase, and
• the lease transfer or a new lease.

From a risk perspective, a common pitfall is focusing heavily on business financials and forgetting that the lease terms can make or break the business.

If you need certainty around how long you can trade from the premises, rent increases, fitout obligations, and assignment conditions, you’ll want the leasing side documented clearly (sometimes via a Deed of Assignment of Lease).

If You’re Leasing A Premises (Not Buying), Does “Going Concern” Still Matter?

Generally, “going concern” is most commonly a sale concept. But you may still see it indirectly when you:

• take over an existing lease as part of buying a business,
• take an assignment of lease from an outgoing tenant, or
• negotiate a lease where the landlord is selling the property during your term.

In these scenarios, it’s worth checking the lease clauses on assignment, change of landlord, and what happens if the building is sold.

Common Traps And How To Protect Your Business

Going concern transactions are very workable, but they’re also technical. Most problems come from assumptions, missing documents, or misaligned expectations between buyer and seller.

Trap 1: Assuming “Going Concern” Automatically Means GST-Free

“Going concern” is often used as shorthand for “GST-free”, but GST-free treatment isn’t automatic just because the contract says so. Whether GST-free treatment applies depends on meeting the GST law requirements (which commonly include things like a written agreement and both parties being GST-registered, as well as the seller providing all things necessary for the enterprise to continue and carrying it on until settlement).

From a business perspective, the key takeaway is: don’t rely on a label. Make sure the deal structure and the on-the-ground reality line up with what’s written.

Trap 2: The Tenant Leaves Or The Lease Is Terminated Before Settlement

This is one of the biggest commercial risks in buying a leased property as a going concern.

To reduce your risk, consider whether the contract should include:

• a condition that the lease remains on foot at settlement,
• termination rights if the tenant defaults or vacates, and/or
• clear warranties about the lease status and rent arrears.

Trap 3: Missing Documents Or Side Agreements

In leasing arrangements, it’s common to find documents “off to the side”, such as incentive deeds, variations, rent abatements, or informal email agreements.

If you don’t get them, you may not understand the true income and obligations you’re inheriting.

Trap 4: Buying A Business Without Proper Handover Protections

If you’re buying a business as a going concern, you’ll usually want protections around:

• training and handover,
• transfer of phone numbers, websites, and IP,
• transitioning supplier relationships, and
• employee arrangements (where relevant).

Even if the vendor is cooperative, you should still document the key points. Verbal promises can be hard to enforce if something goes wrong later.

Trap 5: Not Thinking About Your Own Structure And Liability

Commercial property and business acquisitions can carry meaningful risk. Before you sign, it’s worth considering whether you’re buying or leasing in your personal name, as a company, or another structure.

If you’re buying through a company, it’s also worth confirming who has authority to sign and bind the company under your internal rules and the Corporations Act. Getting this wrong can delay settlement or create disputes later.

Key Takeaways

• What does going concern mean in real estate? It usually means you’re buying a property or business in a way that allows its operations (often leasing income) to continue without interruption after settlement.
• In Australian commercial deals, “going concern” often matters most because a sale that meets the GST law requirements may be GST-free, which can significantly affect your cash flow on settlement.
• A common going concern example is buying a tenanted commercial property where the lease continues and you step into the landlord role.
• Going concern transactions can be high-risk if the lease changes, the tenant vacates, or the business stops operating before settlement, so your contract should manage these scenarios.
• Whether you’re buying a business or property, strong documentation (sale agreement, lease review, assignment documents) helps ensure you get what you paid for and can keep operating from day one.
• If you’re unsure whether your deal truly qualifies as a going concern (or what happens if it doesn’t), getting legal help early can prevent expensive surprises later.

Note: This article is general information only and isn’t legal or tax advice. GST outcomes depend on the specific transaction and your circumstances, so you should get advice from your accountant or tax adviser (and a lawyer for the contract documents) before you sign.

If you’d like a consultation on buying or leasing commercial property (including going concern clauses and GST risk), you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.