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What Does It Mean to Lease or Rent Commercial Property?

Published: 06-20-2022 Category: Flexible Lease

When leasing a commercial building for rent, you become its tenant, rather than its owner.

This is common for businesses in their early stages that don’t have the capital to buy real estate and to choose a commercial building for rent.

However, leasing can be an affordable and beneficial option even if your business has grown and it makes more financial sense to lease instead of buying.

Learn what a commercial building for rent is and what it entails so that you can make the best decision for yourself and/or your business moving forward.

Renting Commercial Property vs. Renting Residential

Sometimes, people confuse leasing commercial property with renting residential property. It’s important for you to understand the differences between the two.

Here are some primary differences between a residential and a commercial building for rent:

Residential real estate is primarily single-family homes and small apartment complexes or duplexes
Most commercial properties are rented by businesses
Large multifamily apartment complexes are considered commercial properties

In short, a commercial building for rent is used for a purpose that generates income.

The Commercial Tenant vs. the Residential Tenant

Commercial tenants are often businesses. This includes businesses of all sizes, such as startups that lack the capital to invest in their own commercial real estate.

The average residential tenant is under the age of 44 and is more likely to be living alone.

A higher percentage of renters are Black and Hispanic than are homeowners.

Why Lease Commercial Property?

For commercial property owners, commercial building for rent provides opportunities to generate long-term monthly income from commercial tenants that rent the space.

The money from commercial building for rent can also help cover the cost of purchasing and maintaining the building since having tenants can keep properties in better condition.

For businesses that want to lease a commercial building for rent, it is more cost effective to lease space over buying it.

A commercial building for rent allows new and established businesses to get their business off the ground at a reduced cost or to expand without having to buy more space and pay additional costs associated with it.

The Different Leases Used to Rent Commercial Property

There are different leases that landlords use to lease a commercial building for rent. These include the following.

Full-Service or Gross Lease

In a full-service or gross lease for a commercial building for rent:

Tenants pay base rent;
Landlord pays maintenance fees, insurance, and taxes;
There’s a higher commercial rental rate.

Having full-service gross leases may have a clause that limits how much landlords pay up to a certain amount.

For this reason, it is important both parties read the lease carefully to understand possible exceptions.

Net Lease

With net leases, tenants must pay a portion of the property’s operating expenses. Each type of net lease has its own share of expenses tenants pay.

The three most common are:

Triple Net Lease: NNN net leases have tenants paying the operating expenses of the building, including maintenance, property taxes, and insurance.
Double Net Lease: NN net leases have tenants paying for rent, utilities, property taxes, and insurance, while the landlord pays for maintenance.
Single Net Lease: N net leases have tenants paying for property taxes but not property insurance or taxes.

Net leases are much more affordable than gross leases for a commercial building for rent.

However, net leases shift some or all of the costs associated with building operation and maintenance to tenants in exchange for the lower rate in net leases.

How Do You Actually Lease Commercial Property?

Before starting the process of leasing a commercial building for rent that seems to fit your needs, it’s important to do your due diligence first and gather the information that you’ll need about your business including its business registration and financial documentation.

Once you do that, it’s time to find the right commercial building for rent.

Defining Your Needs

Your first need to define what it is that your business needs from a commercial building for rent.

Think about what you’ll store in the space and how many people will work there.

Once you have that answer, then you’ll be better prepared to start searching for a commercial building for rent.

Finding the Right Property for Your Needs

You can work with a commercial lease broker to find property for lease that meets your needs.

A commercial lease broker can help you define what you’re looking for and filter the available properties to find the right one.

A commercial lease broker can also help you find exactly the right property to lease based on your business needs and requirements.

They’ll also be able to negotiate the best deal possible, handle all of the legal formalities and paperwork, maintain key relationships in your market, and more.

Negotiating the Best Deal Possible

After you’ve narrowed down your list of commercial properties to choose from, it’s a good idea to have a commercial lease broker evaluate the properties and help you negotiate.

A commercial lease broker be able to look at the pros and cons of each property and help you make an informed decision about which one to choose.

Taking Care of Your Now-Leased Commercial Space

After you’ve secured your commercial building for rent and found commercial tenants, it is important to maintain the space and the tenant-landlord relationship.

There will be maintenance and repair issues that you’ll need to work out.

Plus, you’ll need to do a visual inspection of the commercial building for rent on a regular basis for health and safety reasons as well as for its business operations.

Having a clause about communication, the amount of notice required for inspection, and other factors of the tenant-landlord relationship can help.