Mr Day says no rent was ever paid to the company that owned the building housing his Adelaide senate office.
The Senate is expected to ask the High Court next week to consider whether Mr Day - who resigned from the upper house yesterday - was validly elected at the July 2 federal poll and if he breached the constitution.
The government has been investigating the complex lease in a building owned by a company linked to his former business partner.
Breaking his silence on the issue on Wednesday, the former Family First senator said he was aware the government had legal opinion about the lease.
That opinion, he said, suggested he became ineligible to be a senator on December 1, 2015, when the Department of Finance signed a lease with Fullarton Investments - a company in which he was neither a director nor shareholder.
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However, he said the lease specified no rent was to be paid until after July 1, 2016 and no rent was ever paid to Fullarton Investments.
"I originally owned the building but sold it to Fullarton Investments Pty Ltd after the 2013 election to avoid any conflict of interest," he said in a statement.
"But because Fullarton Investments owes me money, the department's legal opinion says I have an 'indirect' interest in the lease."
Mr Day called on all politicians to disclose whether they have any financial interest in any property or company which has a contract, lease, or agreement of any kind, with the Commonwealth.
This includes defence service housing and loans to or from companies which do business with the Commonwealth.
Special Minister of State Scott Ryan said he was not aware of anyone else with pecuniary interest problems.
Mr Day said his legal advice, based on a High Court decision in the case of former senator James Webster, was he did not have a pecuniary interest.
"I had no contract or agreement with the Commonwealth. I had an agreement with someone else who had an agreement with the Commonwealth."
Government 'approved' lease arrangements
But Family First's South Australian chairman Dennis Hood says Mr Day showed him documents in which the government approved the arrangements.
"The government was fully aware of these arrangements back in, I think it was 2013 or 14, and not only were they aware of the arrangements they approved them in writing," Mr Hood told ABC radio on Wednesday.
"So it's quite astounding to me that, you know, some three years later ... it is raised as an issue of concern by them."
The Commonwealth has not paid any rent for the property since the lease was signed in December and Special Minister of State Scott Ryan says Mr Day raised the matter with him on August 4.
He sought legal advice and it became clear there could be a breach of section 44 of the constitution, which bans the election of anyone with an indirect pecuniary interest from the Commonwealth.
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Senator Ryan terminated the office lease on October 7 and also sought further legal advice from constitutional law expert David Jackson.
That was finalised last Thursday and given to the Senate president on Friday.
At the same time, Mr Day was courting an investor for his collapsing building companies and issued a statement saying he hoped to stay in the Senate for its remaining three sitting weeks this year.
He formally resigned on Tuesday after that deal fell through.
Now he's calling on all federal politicians to disclose financial interests in properties or companies with any kind of agreement with the commonwealth.
"This includes Defence Service Housing, loans to or from companies that do business with the Commonwealth," Mr Day told the ABC.
Senator Ryan said he was not aware of any other possible similar constitutional breaches.
The opposition will support taking the matter to the High Court, but is concerned about what the government knew and when, especially given Mr Day's strong record of supporting Coalition legislation.
"I think Australians wouldn't look too kindly on a government that sat on information or didn't deal with concerns because they wanted someone's vote," Labor's senate leader Penny Wong told ABC radio.
Both major parties would need to have a conversation about how controversial pieces of legislation are dealt with over the coming parliamentary weeks," she said.
Senator Ryan said the senate would continue to meet normally as it did whenever there was a vacancy.
"We deal with the Senate as it was elected; we now deal with the senate as it was elected minus Senator Day, following his resignation," he said.
If the High Court accepts the case and decides Mr Day was not duly elected, it will likely force a recount of the South Australian senate vote.
Crossbench senator Nick Xenophon said it was anyone's guess who would win.
But it would be quite interesting if Pauline Hanson's team picked up another seat.
"If One Nation gets the fifth Senate seat it propels them into party status with a massive increase in resources," he told ABC radio.
