Commercial finance explained

Lease covenants and WALE: why the tenant decides the deal

On an investment deal the lender is not really lending against a building. It is lending against a stream of payments from somebody else's business, and the lease is the document that describes it.

Last updated: 25 August 2026

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The short version

Two things about the income decide most commercial credit outcomes: who is contracted to pay it, and for how long. The first is the covenant. The second, across a multi-tenanted asset, is the weighted average lease expiry.

Brokers who read the lease before they package the deal avoid the most expensive kind of surprise — the one where a valuation and an approval both arrive, and then a clause nobody had read changes the number.

What lenders look for in the lease

Who the tenant actually is

The legal entity on the lease, not the trading name on the sign. A national brand operated by a small private franchisee is a small private covenant, and lenders assess it that way.

Term remaining, not term granted

A five-year lease with eight months left is an eight-month income stream. This is the number that matters and the one most often quoted wrongly.

Options, and who holds them

An option is the tenant's right, not the landlord's. It supports value only to the extent it is likely to be exercised, and lenders discount it accordingly.

The rent review mechanism

Fixed increases, CPI, or market review. A market review in a soft market is a downside risk, not just an upside one.

Who pays outgoings

Gross or net lease changes the income available to service debt materially, and it is a common source of overstated yields.

Make-good and incentives

Incentives amortised over the term inflate the face rent above the effective rent. Lenders assess the effective figure.

WALE, and how to read it honestly

Weighted average lease expiry is the average time left across the tenancies, weighted by income. It is a useful number and an easy one to hide behind.

A long WALE carried by one tenant is concentration, not security. If seventy per cent of the income sits with one lessee, the asset's income profile is that lessee's credit, whatever the average says.
WALE shorter than the loan term is a re-letting event inside the facility. Lenders respond by reducing gearing, shortening the term, or requiring a shortfall to be covered.
Clustered expiries are worse than a short average. Three tenancies all expiring in the same quarter is a cliff, and the average will not show it.
Options included in WALE overstate it. Ask whether the figure is to expiry or to option, because the two can differ by years.
A vacant tenancy has no WALE and real outgoings. Vacancy costs money before it costs income.
Related-party tenancies are discounted. The borrower controls both sides, so lenders normalise the rent to market and may disregard the term.

Each of these feeds directly into the coverage calculation set out in how commercial loans are assessed.

Where it changes the deal

The most common version is a good building with a short lease. The borrower sees a strong asset in a strong location; the lender sees income that stops before the debt does. The answers are lower gearing, a shorter term, an interest reserve, or a lease being renegotiated before settlement — and knowing which one a particular lender will reach for is most of the placement skill.

The second is a strong covenant on a specialised asset. A single high-quality tenant in a purpose-built facility looks safe until you ask who else could occupy it. Lenders think about the second tenant, not the first.

The third is an expiry that lands near the facility's own review date. Two decisions arriving together is worse than either alone, and it is the situation behind many of the enquiries on facilities approaching maturity.

Where La Vitesse fits

Lease detail is not something an enquiry form can capture credibly, and we do not attempt it. What arrives is property type, approximate value and LVR range with the amount, purpose, timeframe and the borrower's own notes.

The lease conversation is your first call. Commercial finance leads are sold once, to one broker, never resold, delivered in real time. Pay per lead, no lock-in contracts, no setup fees, and the lead is an introduction, not a recommendation.

Common questions

What counts as a strong covenant?

Broadly, a tenant whose ability to keep paying is easy to verify and hard to doubt — listed companies, government, large private operators with published accounts. The further down that scale a tenant sits, the more the lender relies on the building and the borrower instead.

Should options be counted in the lease term?

Lenders generally assess to expiry rather than to option, because the option belongs to the tenant. A WALE quoted to option is a different and more flattering number, so it is worth asking which basis a figure is on.

Does a vacant tenancy kill a deal?

Not on its own, but it changes the assessment from income-based toward asset-based, and it introduces holding costs. Where a large part of an asset is vacant, the deal starts to resemble a repositioning play, which is a different lender and a different structure.

What is the difference between face rent and effective rent?

Face rent is the number in the lease. Effective rent nets off incentives — rent-free periods, fit-out contributions — amortised over the term. Lenders and valuers work on effective rent, which is why a headline yield can look better than the deal is.

Do your commercial enquiries mention tenants?

Sometimes, in the borrower's own notes. The structured fields capture property type, value and LVR range rather than lease detail, so tenant quality is established on your call.