Selling a business that owns its commercial property means you have two valuable assets on the table, not one. In Australia, the property question — what you do with the freehold when you exit the business — can materially change the structure of the deal, the tax outcome, and the total amount you walk away with. The options are to sell both together, sell the business and keep the property as a leased asset, or transfer the property to a self-managed super fund. Each has different implications for CGT, stamp duty, and what buyers will actually pay.
This isn’t a niche situation. A large proportion of Australian SME owners — particularly in trades, manufacturing, and professional services — have built or bought the premises they operate from. If that’s you, here’s what you need to think through before going to market.
The First Question: What Does the Buyer Actually Want?
Most trade buyers don’t want to buy the property. That’s worth saying plainly, because most sellers assume the opposite.
Buyers who are running a business acquisition — competitors, industry consolidators, management teams buying themselves into ownership — want to put their capital to work in the operating business. Buying bricks ties up capital they’d rather spend on staff, equipment, or growing the customer base. Given a choice, they’ll almost always prefer a commercial lease with fair rent and a reasonable tenure over purchasing the freehold.
I was working with a manufacturing business owner in Perth a few years ago — solid business, owned the workshop outright, maybe $3.5 million in property value sitting there. He walked into the process assuming the property would make the deal easier to sell. Every serious buyer we ran through the process wanted a lease, not ownership. One was explicit: “We’re buying the business. We’re not buying industrial property.” The property sold separately, 18 months later, to a commercial property investor at a yield that reflected the new tenancy. He was better off for it.
Private equity and property-backed acquirers are the exception — they often want freehold because it provides asset backing for their finance. But in the Australian SME market below $20 million enterprise value, assume your buyer wants a lease until the conversation proves otherwise.
Three Options for Structuring the Sale
Option 1: Sell the business, keep the property and lease it to the buyer.
This is the most common outcome and often the best. You negotiate a market-rate commercial lease with the incoming business owner — typically three to five years with renewal options — and the property stays in your name or your family trust. You become the landlord.
The advantages are real: your buyer pool for the business is wider (buyers who can’t fund a property purchase aren’t excluded); the property can be valued on its own merits and sold separately to a commercial investor at a price based on yield; and the timing of the property sale can be managed for optimal tax outcomes independently of the business transaction.
The catch is that you’re now a landlord with a single tenant. The lease you negotiate matters. A lease with uncertain terms, rent set above market, or poor make-good provisions will spook buyers and complicate the business sale. Get proper legal input before that lease is finalised.
Option 2: Sell the business and the property together.
Sometimes this makes sense — particularly where the property is genuinely inseparable from the business (a service station on a specific site, a pub with significant gaming entitlements tied to the location). The buyer gets both in a single transaction.
When you bundle them, the total price needs to be carved into two distinct components: the enterprise value of the business (usually an EBITDA multiple) and the market value of the property (usually a yield-based commercial valuation). These are separate numbers that add together. If you blend them into one figure, buyers who understand how to value each component will negotiate you down. Run both valuations independently.
The structure of the sale also matters here. In an asset sale, the buyer pays stamp duty on the property component. In a share sale, they don’t — the shares carry the property through. On a $2 million property, that stamp duty difference can be $80,000–$100,000 in Western Australia. Model both structures before you go to market.
Option 3: Transfer the property to your SMSF.
This is the option most advisers don’t mention until it’s too late to use it properly (which is a shame, because the timing matters).
Commercial property used in your business — the ATO calls it “business real property” — is one of the few asset classes you can sell to your own self-managed super fund at market value. Once the property is inside the SMSF and your fund moves into pension phase, the rental income it generates is tax-free. When the property is eventually sold from within the fund in pension phase, the capital gain is also tax-free.
The fund pays market rent, determined independently, which means you’re effectively paying rent to yourself. The SMSF needs the cash or borrowing capacity to fund the purchase at market value — this can be done via a limited recourse borrowing arrangement in some circumstances, but the rules are strict and advice-intensive. This strategy works best when you have 5-10 years to retirement, meaningful super balances, and a property already generating reliable income.
If this appeals, it needs to be structured well before the business sale process starts — not bolted on at the end.
CGT: The Property Adds a Layer of Complexity
When you sell commercial property in Australia, Capital Gains Tax applies to the gain above your cost base. There’s no exemption simply because the property was used in your business — but there are potentially significant concessions available.
The general 50% CGT discount applies if you’ve held the property for more than 12 months and you’re an individual or trust (not a company). That immediately halves the effective CGT rate on the gain.
If the property also qualifies as an “active asset” — broadly, it must have been used in carrying on a business for at least half the period you’ve owned it — you may be eligible for the small business CGT concessions. The 50% active asset reduction, the retirement exemption (up to $500,000 lifetime), and the 15-year exemption can each apply depending on your circumstances.
The interaction between these concessions and commercial property is genuinely complex — more so than for standard business assets. Whether the land and building both qualify as active assets; whether they’ve been used for business or had personal use; whether the sale triggers the lookback period — these are not questions to answer with a best guess. Get an accountant with specific business sale and property transaction experience before you sign anything. One good tax conversation before the deal beats six months of arguments with the ATO after it.
How the Property Shapes Business Value
The property doesn’t directly add to business goodwill, but it influences the business sale price in ways that are easy to miss.
If you’ve been charging your business below-market rent (very common in owner-operated setups, often for decades), a buyer will gross up their cost structure to reflect what market rent would actually be. That reduces the normalised EBITDA they’ll pay a multiple on. On a 4x deal, $50,000 of rent adjustment reduces the sale price by $200,000.
Conversely, a well-structured lease — long term, fair rent, proper renewal options, clear make-good terms — makes the business easier to finance. Banks lending to the buyer need confidence in the tenancy. A professionally documented commercial lease with a reasonable term removes a genuine risk factor from the buyer’s due diligence.
The lease security also affects what kind of buyer you can attract. Buyers financing with bank debt will typically need a lease of at least five years. If you won’t commit to that tenure, some buyers simply can’t complete the acquisition — their finance won’t stack up.
What to Do Before You Go to Market
A few things worth doing before you engage any adviser or broker:
Get an independent property valuation. You need a market value figure separate from the business. This is your reference point for any negotiation and your cost base anchor for CGT modelling.
Decide early what you want to do with the property. The three options — sell with the business, keep and lease, or transfer to SMSF — have different timelines and require different preparation. The SMSF option in particular needs 12-18 months of runway to be structured properly.
Speak to a tax adviser with specific business sale and commercial property experience. The sequencing of a business sale alongside a property transaction can be structured to significantly improve your after-tax outcome — but only if it’s planned ahead of time.
Get the lease documented properly before buyers arrive. An informal or undocumented arrangement will create uncertainty in due diligence and give buyers reason to discount.
If you’re ready to understand what your business is worth as a starting point, use our valuation calculator. For the full picture — business plus property, structured properly for your situation — get in touch with us.