How to Audit Leases and Current Income Before Buying a Rented Building

A seller's rent roll is a starting point, not proof of income. Match every unit to an authenticated lease, actual collection, occupancy and deposit, then deduct recurring costs and transferred liabilities.

Build a unit schedule

Record unit number, type, area, tenant, lease dates, rent, cheque schedule, collected amount, arrears, deposit and occupancy. Reconcile the total to the authorised and physically existing units.

Match three forms of evidence

1. Lease: a clear, appropriately authenticated copy.
2. Collection: bank statement, receipts and cheque status.
3. Occupancy: inspection, meters, keys or manager confirmation.

Keep four numbers separate

Contracted rent, rent due to date, cash collected and expected renewal rent are different. “Rents can be increased” is a possibility subject to contracts, procedure and market conditions, not current income.

Reconcile at transfer

State who receives post-transfer instalments, how cheques and deposits are handed over, and how prepaid rent and service liabilities are apportioned. Sign a completion statement.

Audit expenses and concentration

Review common utilities, maintenance, security, cleaning, lifts, fire systems, management, insurance and deferred capital works. Assess dependence on a major commercial tenant and the cost and frequency of residential turnover.

Protect the purchase contract

Require a seller representation that the rent roll is complete, a documented handover of leases and deposits, a prepaid-rent adjustment and a right to recheck occupancy before completion.