What is a ratchet clause, and why does it matter on a tenanted warehouse?

You've found a warehouse with a tenant already in place. The numbers look tidy, the yield looks solid, and the agent keeps saying "passive income from day one." But the building isn't really what you're buying. The lease is. And most buyers skim it instead of reading it properly.

A tenanted industrial property is only as good as the paper that sits behind it. Two warehouses on the same street, same size, same tenant type, can produce completely different outcomes depending on what's written into the lease terms. That's the part buyers rush, and it's the part that bites later.

Why the lease matters more than the building

When you buy a tenanted warehouse you are effectively buying a stream of income and a set of obligations. The bricks and the land are the security. The lease is the deal. If you don't understand how rent moves, who pays for what, and what happens at the end of the term, you don't actually know what you're buying, no matter how new the roof is.

The building tells you what you own, the lease tells you what you'll actually get paid.

The clauses worth reading twice

Where buyers get caught out

What good due diligence actually looks like

Get the full lease document, not just the summary, and have a solicitor experienced in commercial and industrial leasing read it before you're unconditional. Ask for the rent history, not just the current figure, so you can see how reviews have actually played out. Request evidence of outgoings paid and confirm the current bank guarantee or bond is still valid and matches the lease terms.

The lease is the product. The warehouse is just the packaging.

It's also worth understanding where current market rents for comparable industrial space sit across the western corridor, so you can judge whether the passing rent has room to grow or is already stretched.

Before you sign anything

Vacancy conditions across Melbourne's industrial precincts move over time, and a lease that looks watertight today can look different if the tenant vacates in a softer leasing market. Understanding this context helps you judge how easily the space could be re-let if the current tenant ever left.

This is general property information only, not financial, tax or legal advice, and Fairmont Property Group is a property agency, not a licensed financial adviser. Any decision to purchase should involve your own solicitor, accountant or financial adviser reviewing the lease and the numbers in detail.