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How For Rent by Owner Commercial Property Works

Published: 08-21-24 Category: Leasing/Renting

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If you're a business owner actively looking for commercial space to rent, you may occasionally see the term “For Rent by Owner” or FRBO.

While this approach to commercial real estate (CRE) leasing isn't nearly as common as those managed by licensed agents, it may be something you'll want to consider. A transaction and subsequent relationship with an RBO landlord may offer you some unique advantages.

However, a FRBO property isn't for everyone. There are potential drawbacks, especially if you're unfamiliar with the contractual requirements or don't have a CRE attorney or broker as your professional guide.

In this article, we'll explore how FRBO commercial property works, its benefits and potential drawbacks, and how to navigate this process successfully.

First, here's a basic definition of this type of arrangement.

A Typical FRBO Commercial Property

A FRBO commercial property describes a leasing arrangement where the property owner directly manages the rental process, eliminating third parties such as CRE agents and brokers.

This means that, as a potential tenant, you'll be dealing directly with the property owner or their representative throughout the leasing process. This can be a positive if you feel confident you can handle the contractual details.

If you're actively seeking commercial space to lease, you may not have seen very many marketed as FRBOs. Here are some reasons why.

How Many FRBOs Are Out There?

While exact statistics on FRBO commercial properties aren't available, this approach is less common than properties listed through commercial real estate brokers.

However, FRBO listings have become more popular, especially among smaller property owners, owners of multi-unit properties, and in certain market segments.

Here are some reasons why FRBO commercial properties generally make up the minority of available spaces to lease.

Property Size and Type: FRBO listings are usually for smaller commercial spaces, such as individual retail units or small warehouse or office spaces. Larger properties are more likely to be handled by CRE management companies or brokers.
Location: While you probably won't see many FRBO listings in mid-sized and large cities, they're often more prevalent in small towns. This is because small-town owners usually have close ties to the local business community.
Economic Conditions: During economic downturns or within competitive markets—and most recently, the post-COVID decline in office space demand due to the acceptance of remote offices—some property owners choose the FRBO route to save on brokerage fees.
Online Platforms: The rise of online commercial real estate platforms has made it easier for FRBO property owners to list and market their properties at little or no charge.
Owner Experience: Property owners with years of real estate experience, or those who own multiple properties, may be more inclined to manage rentals themselves. A few have obtained their own real estate license.

While FRBO properties represent a minority of the market, they can offer unique opportunities for businesses willing to engage in a more direct leasing process.

As a potential tenant, it's worth considering both FRBO and broker-listed properties to ensure you explore all available options in your commercial property search.

It's also worth taking a serious look at the various pros and cons that come with a FRBO leased property, such as the ones we'll describe later in the article.

Why Leasing FRBO Can Save Money and Reduce Stress

Perhaps the most significant benefit of a FRBO tenancy is that you, the tenant, will deal directly with your landlord.

This can mean you'll have more flexibility. And if anything breaks down, you don't have to wait until a property manager is back in their office. Instead, you'll call the person who can arrange repairs.

Other potential benefits include:

A personalized management experience. FRBO owners often have in-depth knowledge of their property and can quickly answer your questions about its features and amenities.
Lower rent rates. Since the owner is not paying a commission to a CRE broker or property manager, savings may be shared between you and the owner.

Next, we'll discuss the FRBO leasing process and how it differs from leases handled by agents.

What to Expect During the FRBO Process

After you find a FRBO property that may be suitable for your requirements, you'll contact the owner.

If the details the owner shares are similar to your lease requirements, you'll probably be invited to an informal walk-through of the space.

By now, you probably have questions about the property and its amenities. You'll discuss these with the owner.

If you feel the property is suitable, it's time to negotiate the lease contract. The terms will include, but not be limited to, the length of the lease term, who is expected to finance renovations and/or build-outs, and whether any amenities are included.

If negotiations are acceptable to both parties, your future landlord will prepare a commercial lease. While you're waiting, it's time for you to carry out due diligence on the property.

Due diligence should include as much research as possible since you don't have a CRE agent or broker to carry this out for you.

Make sure the property's ownership is clearly defined, there's no bad press about chronic problems with the building, and there are no liens that could interrupt your business after you've moved in.

If you're undecided about whether an FRBO property will meet your needs, here are some guidelines to consider.

Choosing the Ideal CRE Rental Process

Here are some things to consider when you're considering a FRBO property for your business' next home.

A FRBO property could be ideal if:

You have experience in commercial real estate;
You have time to dedicate to the search and negotiation process; and
You want a flexible, personal arrangement with your landlord.

Working with a CRE agent or broker might be best for you if:

You're new to commercial real estate;
You want to view several properties before making a choice;
You prefer professional guidance; and
You need more time to dedicate to a property search.

While renting an FRBO commercial property requires more involvement, you may be rewarded with favorable terms and a hands-on landlord.

Remember, whether you choose an FRBO property or work with an agent, the key is to find a space that provides a solid foundation for your future growth.