What Every Tenant Must Know Before Leasing Commercial Real Estate

Many new business owners believe that leasing commercial space is like renting an apartment—simply pay the rent on time, and the landlord takes care of everything else. However, they are often shocked to discover that leasing commercial property is much more akin to buying a property than to residential renting. Understanding and preparing for these differences is essential for any business owner aiming for long-term success.

Responsibility for Maintenance and Repairs

One of the most unexpected aspects for new commercial tenants is realizing that they often need to handle the maintenance, repairs, and even replacement of essential systems within their leased space. Many commercial leases, particularly "triple net" (NNN) leases, require tenants to pay for property taxes, insurance, and maintenance in addition to the base rent. While landlords generally manage major structural components like the roof and foundation, tenants are typically responsible for everything inside the space, such as HVAC, plumbing, and electrical systems, from the moment they take possession. Therefore, it is crucial to conduct a thorough inspection before moving in. 

Long-Term Commitment

Unlike residential leases that typically last 12 months, commercial leases often span 3, 5, 7, or even 10 years. This long-term commitment means it is essential to approach a commercial lease with the same care and strategy you would use when buying property. Just as you wouldn't rush into buying without considering location, condition, and future growth, the same logic should apply to leasing space for your business. When you buy a property, you’re making a decision that impacts your financial and personal future for years to come, leasing a commercial space has a similar weighty impact on your business

Landlord Incentives Aren’t Always Enough

Landlords understand that commercial spaces frequently require modifications to suit a tenant's business needs. To draw in tenants, they might provide incentives such as "tenant improvement allowances" to help with some of the renovation expenses. However, these incentives rarely cover the full cost of renovations. Tenants need to have a clear financial plan for the total investment required to adapt a commercial space to work best for their business.

Should You Buy Instead of Lease?

If leasing is so similar to buying, you might wonder if it’s better to purchase commercial property instead. Ownership offers benefits like building equity, controlling costs, and having complete autonomy over the space.

However, there are challenges to buying commercial real estate. Depending on the type of property, it may be difficult to find the perfect space that is small enough for your needs, especially in prime areas. Purchasing a property may also require a larger upfront investment, cutting into the cash you will have available to grow the business. Real estate is often not a very liquid asset, meaning you may need to deal with market fluctuations when it comes time to sell. For many small business owners, leasing offers greater flexibility and requires less capital upfront.

The Role of a Commercial Real Estate Expert

When it’s time to lease space for your business, approach it with the same diligence you’d use when buying a property. One of the best ways to do this is to partner with a commercial real estate advocate to ensure you’re making a sound financial investment. If you’re ready to lease your next commercial space—or if you’re wondering if buying is a better option—I would love the opportunity to help you navigate every step of the process.