By Liad Hadar – Director
This article first appeared in Asset Magazine’s October 2026 edition

Why Property Due Diligence Should Go Beyond the Purchase Price

Imagine purchasing a commercial property for R100 million.

The numbers make sense, the location is excellent. The building is substantially tenanted, the rental income is attractive and the projected yield ticks all the right boxes.

Transfer takes place, the champagne is opened and everyone congratulates themselves on a successful acquisition.

Then the problems start.

A tenant claims to have a renewal option that nobody mentioned. Another disputes its rental escalation. A third has been withholding rental because of a longstanding maintenance issue. The anchor tenant? It turns out that its lease agreement contains an exclusivity clause that restricts who else you can lease space to and, even worse, a one-sided exit clause.

Suddenly, that attractive investment looks a little less attractive.

Welcome to the difference between buying a building and buying the legal relationships that come with it.

You’re Not Just Buying Bricks and Mortar

One of the most important principles in South African property law is huur gaat voor koop, a Roman-Dutch law principle which, loosely translated, means that a lease agreement takes precedence over a sale.

In simple terms, when a property is sold, the purchaser generally “steps into the shoes” of the seller as landlord in respect of existing lease agreements.

The tenant doesn’t necessarily have to sign a new lease agreement and the purchaser cannot simply disregard existing contractual arrangements because ownership has changed.

This is particularly important in commercial property transactions, where lease agreements can run for many years and contain rights and obligations that materially affect the property’s value.

That five-year lease agreement with a favourable rental escalation? You inherit it.

That tenant’s option to renew for another five years? Subject to its enforceability, you inherit that too.

That poorly drafted lease agreement which has already caused years of disagreement? Unfortunately that may also become your problem.

The Devil Is in the Lease

In our practice, we regularly see how seemingly insignificant lease agreement provisions become major commercial issues.

Take renewal clauses, for example.

A purchaser may assume that a tenant’s lease agreement expires in twelve months, presenting an opportunity to renegotiate rental or introduce a new tenant. But buried in the agreement is a tenant-centric option to renew, potentially extending the tenancy for several more years.

Or consider a shopping centre acquisition where an existing tenant enjoys exclusivity in a particular trading category (lawfulness of these clauses to be debated at another time!).

A single clause could prevent the new owner from introducing another desirable tenant, directly affecting a centre’s tenant mix and future rental income.

There are also issues of maintenance obligations, tenant installation allowances, rights of first refusal and agreed rental concessions.

Individually, these provisions may seem manageable. Collectively, they can materially change the economics of an acquisition.

The lesson? A property’s value is not determined only by what the lease agreements generate today, but also by what those lease agreements allow or prevent you from doing tomorrow.

What About the Previous Landlord’s Problems?

This is where things become particularly interesting.

While huur gaat voor koop generally results in the purchaser assuming the landlord’s position under existing lease agreements, it does not necessarily mean that every historical liability automatically transfers to the new owner.

For example, rental arrears that accrued before transfer do not automatically become recoverable by the purchaser simply because ownership has changed. The sale agreement may need to provide expressly for the transfer of those claims.

Similarly, disputes involving historical breaches, deposits, maintenance obligations or claims against the previous landlord require careful consideration and are, generally speaking, the previous owner’s responsibility.

The distinction between ongoing contractual obligations and accrued rights or liabilities is critical.

Purchasers should therefore ensure that their sale agreements properly regulate the treatment of rental arrears, deposits, pending disputes and any outstanding landlord obligations.

Otherwise, they may discover that they have inherited the responsibility for resolving a problem without necessarily acquiring the corresponding right to recover the money.

Not an ideal position for any investor.

Due Diligence Is More Than a Spreadsheet

Property acquisitions are understandably driven by numbers.

Net operating income, vacancies, capitalisation rates, operating expenses and projected returns all receive considerable attention and rightly so.

Legal due diligence deserves an equally prominent seat at the table.

Before acquiring an income-producing property, purchasers should interrogate the actual signed lease agreements and amendments, not merely rely on a tenancy schedule or rent roll.

For example: are there renewal rights? Have all rental escalations been implemented correctly? Are there outstanding disputes or concessions? Do tenants have termination rights? Are there any pending proceedings or threatened claims?

Importantly, do the lease agreements accurately reflect what is happening on the ground?

A tenancy schedule might tell you what the tenant should be paying. The underlying correspondence might tell you why they aren’t. That difference matters.

Buying With Your Eyes Open

None of this suggests that purchasing a tenanted property is inherently risky. Quite the opposite.

Income producing properties can be excellent investments, particularly where the tenant mix is strong and the contractual arrangements are properly understood.

The objective of legal due diligence is not to find reasons to walk away from a transaction. It is to identify risks early enough to manage them.

Sometimes that means negotiating a price adjustment. Sometimes it means requiring the seller to resolve a dispute before transfer. Sometimes it means obtaining appropriate warranties, indemnities or contractual protections.

And sometimes it simply means knowing exactly what you’re buying on a very deep level.

At Hadar Incorporated, we have always believed that good legal advice should do more than identify problems. It should help clients make better commercial decisions.

Ultimately, the most expensive legal problem is often the one nobody thought to ask about.

So before you celebrate your next property acquisition, ask yourself one final question:

You’ve done your homework on the building but have you done your homework on the lease agreements?