When a buyer receives a glossy Information Memorandum (IM) for a commercial property, it is easy to mistake it for a neutral fact sheet. It is not. An IM is a selling document, commissioned and written by the selling agent on behalf of the vendor. Every figure it contains is true in some technical sense, but the framing, the emphasis and the omissions are all engineered to present the asset in its most favourable light. The buyer's job is to read it the way an underwriter reads a loan application: looking for what is being highlighted, and asking what is being left out.
What you are actually acquiring when you buy a tenanted commercial property is an income stream attached to a building, sitting on a piece of land, governed by a set of lease contracts. The IM is the first window onto all three, but it is a curated one. Reading it well is the difference between paying for the income you think you are getting and paying for income that quietly erodes the day after settlement.
This guide walks through an IM the way a buyer's agent does: section by section, flag by flag, and verification by verification. The aim is not to make you cynical, but to make you literate, so that the document becomes a source of questions rather than a source of comfort.
An Information Memorandum is written to be believed, not to be tested. The buyer who treats the headline yield as a starting hypothesis, rather than a conclusion, is already ahead of most of the market.
What an IM is, and how to hold it
An IM (sometimes called an offering memorandum or sales information memorandum) is the marketing pack that accompanies a commercial property campaign. It typically runs from a tidy ten pages for a single-tenant retail box to a hundred-page bound document for a multi-tenant office or a small shopping centre. There is no legislated format. The agent decides what goes in, what order it appears in, and how it is described.
Crucially, the IM is not the contract, and nothing in it is warranted in the way contractual representations are. Most IMs carry a disclaimer stating that the information is provided without responsibility and that the buyer must satisfy itself by independent enquiry. That disclaimer is the most honest sentence in the document, and it tells you exactly how to treat everything else: as a lead to be verified, not a fact to be relied upon. The binding picture only emerges in the commercial contract of sale and the underlying leases, which is where your scrutiny ultimately has to land.
1 The executive summary: where the spin is densest
The first one or two pages compress the whole pitch: a headline price guide or yield, a one-line tenant description, the WALE, a "key investment highlights" bullet list, and a hero photograph. This is the most polished and the least reliable part of the document, because it is where the agent chooses the adjectives.
Watch the language. Phrases such as "blue-chip tenant", "set-and-forget", "rare opportunity", "future development upside" and "below replacement cost" are positioning, not analysis. A "blue-chip tenant" may turn out to be a franchisee operating under a national brand, with a covenant far weaker than the brand implies. "Development upside" usually means an unfunded, unapproved idea. Read the bullets, then mentally re-write each one as a question: Who exactly is the tenant entity? What approval actually exists? Priced against whose replacement cost?
Above all, find the yield and ask whether it is calculated on passing rent (what the tenant pays today) or on fully leased / market rent (what the agent assumes the property could earn). The two can differ materially, and an IM that quotes a "fully leased yield" on a partly vacant building is quoting income that does not yet exist.
2 The tenancy schedule and WALE: the engine room
The tenancy schedule is the single most important table in any IM, because it is where the income actually lives. For a multi-tenant asset it lists each tenancy, the area, the current rent, the review mechanism, the lease expiry and any options. Read it before you read anything else, and read it slowly.
Reading the WALE honestly
The Weighted Average Lease Expiry (WALE) is the headline durability metric, but it can be dressed up. A WALE can be weighted by income or by area, and the two give different answers; income-weighting flatters a property where the long leases happen to be the high-rent ones. A respectable-looking WALE can also conceal a cliff, where several tenancies expire in the same quarter a few years out. Ask for the WALE calculation method, and map the expiries on a timeline yourself rather than trusting the single number.
Options are not lease term
An IM will often quote a term as, say, "5 + 5 + 5 years". Only the first figure is committed; the options belong to the tenant, who will exercise them if the rent is below market and walk if it is above. Counting option periods as secured income is one of the most common ways a short, soft lease is made to look long and firm.
3 Passing rent versus market rent
This is the question that decides whether you are buying a bargain or a trap. Passing rent is what the tenant pays now. Market rent is what an arm's-length tenant would pay today for the same space. The relationship between the two drives almost everything about future risk.
- Over-rented (passing above market): the income looks attractive and the quoted yield looks strong, but at the next market review or lease expiry the rent is likely to fall, taking your income and your capital value with it. Over-renting is frequently hidden inside an otherwise tidy schedule.
- Under-rented (passing below market): genuine upside, because reversion lifts income over time, though only if the lease structure actually allows the rent to catch up.
The IM rarely states which situation applies; it simply quotes the passing figure and lets you assume it is market. Test it independently against recent leasing evidence for comparable space, and understand how the lease's rent review mechanism (fixed, CPI, or open-market) will move that rent across your hold period and feed into the yield you are buying.
4 Financials and outgoings: where net yield is made or lost
A commercial property's net income is what survives after outgoings, and the IM's treatment of outgoings is where optimism most often creeps in. The document may quote a gross rent, a "net" income that has not been fully tested, or an outgoings figure that is an estimate rather than an actual reconciliation.
The decisive distinction is between recoverable and non-recoverable outgoings. In a true net lease the tenant reimburses council and water rates, insurance, land tax (where permitted) and management; in a gross or semi-gross lease the landlord absorbs some or all of these. If the IM presents a net yield but the leases are actually gross or partly recoverable, your real return is lower than advertised.
| Line item | What the IM may show | What the buyer must verify |
|---|---|---|
| Passing rent | A single annual figure | Against each lease, including incentives and rent-free periods |
| Outgoings | An estimate or last year's figure | The most recent reconciliation and recovery position per lease |
| Land tax | Often understated or omitted | On a single-holding basis, and whether it is recoverable in that state |
| Capex / repairs | Frequently silent | Roof, services, structure, and any deferred maintenance |
| Net income | Headline "net" yield | Rebuilt from the leases and verified outgoings |
Pay particular attention to land tax, which is assessed on a single-holding basis for a standalone investment and can be a large, recurring cost; an IM that omits it, or assumes it is recovered when the lease or the relevant retail-leases legislation prohibits recovery, is overstating net income. The detail of who bears each cost depends on the structure, and a true triple net lease sits at one end of that spectrum; it deserves a line-by-line read.
The capex that is never in the IM
Selling documents are systematically quiet about capital expenditure. A building with a tired roof, ageing air-conditioning, or a make-good liability looming at lease end carries costs that never appear in the income table. None of this is a reason to walk away, but it is a reason to commission an independent building inspection rather than relying on the renders.
5 The comparable sales the agent chose
Most IMs include a page of "recent comparable sales" intended to anchor your sense of value. Remember that the agent selected these, and selection is persuasion. Comparables that sold on tighter yields, in stronger locations, or with longer leases will be included to justify the asking price; genuinely comparable sales that would suggest a lower value tend not to appear.
Read each comparable for what makes it different: a longer WALE, a stronger covenant, a superior location, a fixed-uplift review profile, or a sale that predates a shift in interest rates. A property that "sold at a 5.5% yield" two years ago is not evidence of value today if the cost of debt has moved since. Build your own comparable set from independent sources rather than accepting the curated one, and benchmark the asking yield against current published series rather than the agent's chosen vintage.
6 Tenant covenant: the brand is not the entity
An IM will lean heavily on a recognisable name. The substance is the covenant, the financial strength of the entity that has actually signed the lease and is legally obliged to pay the rent. A national brand operated by a single-site franchisee under a "pty ltd" with thin financials is a different risk from the same brand on a corporate guarantee. The IM will show you the logo; it will rarely show you the balance sheet.
Look for who the lessee is, whether there is a guarantee (corporate or personal), the size of any bank guarantee or security deposit, and the tenant's trading history at the site. This is the core of tenant due diligence, and it is almost always work the buyer must do independently, because the IM has no incentive to surface a weak covenant.
7 Red flags and the questions to send back
Certain patterns recur often enough to be worth a checklist. None is automatically fatal, but each should trigger a written question to the selling agent and a corresponding line of independent verification.
- A "fully leased" or "market" yield on a vacant or partly vacant asset — clarify the passing yield on today's actual income.
- A short WALE presented through option periods — ask for the committed term, excluding options.
- Net income with untested outgoings — request the latest outgoings reconciliation and the recovery position per lease.
- Related-party or sale-and-leaseback leases — a lease between the vendor and a related entity may carry an above-market rent set to inflate the sale price; test it hard against market.
- Silence on capex and make-good — ask directly about roof, services, structure and end-of-lease obligations.
- Incentives and rent-free periods omitted — a high face rent supported by large incentives is not a high effective rent.
Send these as a written list and keep the replies. The quality and candour of the agent's responses is itself information. Everything material then needs to be confirmed through a structured commercial property due diligence process, where the leases, the title, the contract and the building are examined in full rather than summarised. The IM is the map; due diligence is walking the ground.
From document to decision
A well-read IM does not tell you whether to buy. It tells you what to verify, where the risk is concentrated, and which assumptions the price depends on. The figures in it are not lies, but they are arranged by someone whose interest is opposed to yours, and they move with the property cycle, the cost of debt and the strength of the tenant. Treat the headline yield as a hypothesis, rebuild the net income from the leases, test the rent against the market, and pressure-test the comparables. Do that, and the selling document becomes a genuinely useful starting point rather than a polished trap.
Frequently Asked Questions
Is an Information Memorandum a legally binding document?
No. An IM is a marketing and selling document prepared by the agent for the vendor, and it almost always carries a disclaimer excluding responsibility for its contents. The binding terms are in the contract of sale and the underlying leases, so anything material in the IM must be independently verified before you rely on it.
What is the difference between passing rent and market rent in an IM?
Passing rent is what the tenant actually pays today, while market rent is what an arm's-length tenant would pay now for the same space. If the property is over-rented (passing above market), the quoted yield flatters income that is likely to fall at the next review or expiry, so the relationship between the two is one of the most important things to test.
Why does the yield quoted in an IM matter so much?
Because the same property can be advertised with very different yields depending on whether the figure uses passing rent or assumed fully leased rent, and whether it is gross or genuinely net of outgoings. A "fully leased yield" on a partly vacant building quotes income that does not yet exist, so always confirm what rent and what outgoings the yield is built on.
What should I verify independently after reading an IM?
At a minimum, verify each lease and its review mechanism, the tenant covenant and any guarantees, the most recent outgoings reconciliation, the land tax position, any capex or make-good liabilities, and your own set of comparable sales. These confirmations belong in a structured due diligence process supported by your solicitor, accountant and an independent building inspection.