Refinancing a Commercial Loan Before Lease Expiry

Commercial owners tend to diarise two dates: when the lease ends and when the loan ends. The risk lives in the space between them. A facility maturing shortly after a major lease expiry is assessed by the next lender against a vacant or uncertain income stream — and priced accordingly, if it is approved at all.

Map the two timelines

Write down loan expiry, lease expiry, option exercise dates and notice periods on one page. Then ask: at the moment I need to refinance, what will a valuer see? If the answer is "a tenancy in holdover" or "a vacancy", you have identified the problem while you can still solve it.

The ideal sequence is to resolve the lease first and refinance into a strengthened position. That means starting tenant conversations twelve months out, not three.

Strengthen the income before you apply

• Renew or extend early. A signed five-year renewal, even at a modest incentive, is worth more to a lender than a hopeful renewal probability.
• Fix the review mechanism. Clear, market-standard reviews read better than unusual or capped structures.
• Document outgoings recovery. Net income is what gets capitalised into value.
• Stagger expiries in multi-tenant assets so no single date dominates the income profile.

When the works have to come first

Sometimes the tenant will only renew if the building is upgraded, and the bank will only fund once the tenant has renewed. That is a genuine deadlock, and it is exactly where short-term private funding is useful: fund the capital works and the incentive, sign the lease, then refinance the improved, tenanted asset into a mainstream facility. The private facility is priced for months, not years, and its cost is measured against the value uplift of a secured long-term lease.

If the tenant is leaving

A departure is not automatically a problem, provided you plan for it. Estimate the realistic downtime, the incentive and fit-out cost required to attract a replacement, and the holding costs across that period. Then make sure your facility term extends beyond the expected re-lease, or arrange a facility that does. Refinancing into a vacancy with three months of runway is the scenario to avoid.

Two exits, always

Whatever bridge you use, keep two exits alive: refinance to a bank once the lease is signed, and sale of the asset if the leasing market turns. If a sale is a plausible fallback, keep the asset presentable and the documentation current so it could be brought to market without delay.

Preparation checklist

• Current lease schedule with tenants, rents, expiries, options and notice dates.
• Loan expiry date, current balance and any covenants.
• Recent valuation or a defensible view of current value.
• Scope and cost of any works required to secure a renewal.
• The exit, named and dated, with a fallback.

Owners who bring us a lease plan and a dated exit generally get a faster, better-priced answer than owners who bring a loan expiry alone. Send us the asset, the lease position and the timeline, and we will tell you what is available.