## What makes commercial different
Residential investors often begin with rent and mortgage stress. Commercial investors must begin with the lease. The lease controls rent review, break clauses, repair obligations, insurance, service charge, assignment, and who pays for what. A full repairing and insuring lease can shift costs to the tenant, but only if the tenant can pay and the lease is enforceable.
For business rates context, use the official [business rates guide](https://www.gov.uk/introduction-to-business-rates). The Valuation Office Agency's [public guidance](https://www.gov.uk/government/organisations/valuation-office-agency) is also useful when rateable value affects occupier demand.
## The underwriting stack
Check:
- Tenant covenant and payment history.
- Lease length, break dates, rent review, and repairing obligations.
- Passing rent versus estimated rental value.
- Voids, incentives, letting fees, and reletting time.
- Building condition, capex, insurance, and compliance.
- Finance terms, valuation yield, and exit buyer demand.
Use official sale-price and market context where possible, but remember that commercial values depend heavily on income and lease quality.
## Worked example
A shop produces 30,000 annual rent. If the market yield is 7.5 percent, the income-implied value is 30,000 / 0.075 = 400,000 before costs and risk adjustments. If the tenant has a break in 18 months, a buyer may price a void risk and use a higher yield. At 8.5 percent, the same rent implies about 352,941.
That difference is not academic. It changes refinance, exit value, and how much equity is at risk.
## FRI does not mean no risk
Full repairing and insuring terms can help, but the investor still needs to know the condition of the building and the tenant's ability to meet obligations. If the tenant fails, repair and holding costs can come back to the owner while the unit is empty.
## Better buying discipline
Ask for the lease, rent schedule, arrears position, service charge information, insurance details, rates context, and building survey. Then model base, downside, and exit yield cases. Commercial property can be attractive, but the lease is the asset. Underwrite it before you underwrite the headline yield.
## What to save in the model
For this commercial property underwriting checks check, save the source links, date checked, calculator inputs, base case, downside case, professional question, and final pass or proceed decision in the deal notes. Also save who verified each assumption: broker, solicitor, council, insurer, accountant, or your own viewing notes. The article should not be the evidence itself. It is the checklist that tells you which evidence to collect, where to link it, and which calculator result changed the decision. For live deals, rerun the model whenever one assumption changes. If the answer changes, update the offer price before sharing the pack. Keep rejected assumptions visible too.