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What Does It Mean to Lease or Rent Commercial Property?

Published: 06-20-22 Category: Leasing/Renting

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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 their own real estate. However, leasing can still be an affordable and beneficial option even when your business has grown enough to justify buying rather than renting.

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

It’s easy to confuse leasing commercial property with renting residential property. As a business owner or commercial property investor, it’s important that you understand key 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; and
Large multifamily apartment complexes are considered commercial properties.

In short, commercial buildings for rent are used by businesses to house their operations and provide coworking spaces for their teams; residential buildings are rented to live in.

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 all the way up to large enterprises that may have multiple locations.

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

Why Lease Commercial Property?

For commercial property owners, commercial buildings for rent provide opportunities to generate long-term monthly income from commercial tenants that rent the space: Commercial leases tend to be longer than their residential counterparts.

The money made from commercial buildings for rent can then be used to help cover the costs of maintaining those spaces and acquiring new ones.

For businesses that want to lease a commercial building for rent, it is generally more cost-effective to lease space over buying it, but you should consult with a commercial real estate agent or broker to help you decide what’s best for your operation.

A commercial building for rent also 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 the additional costs associated with doing so.

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.

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

For this reason, it’s important that both parties involved read the contract 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 on top of their base rent but not property insurance.

Net leases are generally 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 a lower base rent.

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

You 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 will 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’s important to maintain the space and the tenant-landlord relationship.

There will likely 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.