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Buy or Lease? Commercial Real Estate Pros and Cons

As the old business saying goes: location, location, location. A business often depends on the location of its commercial real estate to survive and grow. Retailers use their location to draw in as many customers as possible, while other businesses may be more concerned about lease rates, square footage, and convenient access for their employees.

Factors whether to Buy or Lease Commercial Real Estate:

  • Access to cash at the beginning of the business
  • The type of business you wish to engage in
  • Whether the company has established credit

Types of Commercial Leases

There are many different types of commercial leases a business owner may enter into with a landlord. Some examples of commercial leases are:

  • Fixed leases: A fixed lease is much like a typical residential lease. In a fixed lease, the parties agree to a specific amount of rent for a fixed period of time.
  • Step leases: In a step lease, the parties agree to increase the rent a certain amount yearly. The step lease is meant to acknowledge the potential cost increases the landlord may incur.
  • Gross leases: In a gross lease, the tenant will pay a set periodic (or fixed term) rent to the landlord. The landlord in a gross lease will agree to pay for some or all of the operating costs of the business.

Commercial Leases vs Residential Leases

  • Terms usually negotiated: Unlike in residential leases where the landlord and tenant usually sign a "form lease," parties to a commercial lease typically negotiate the terms of the lease and will tailor the lease according to their negotiations.
  • Length of tenancy: Parties to a commercial lease will typically want a longer term so as not to disrupt the business for lease renewal.
  • Evictions: The procedure and timeframe for commercial versus residential evictions varies drastically depending on your state.

Buying Commercial Property

If you have decided to buy commercial real estate, you should be aware of many factors included in your offer and affecting your possession and title to the piece of commercial real estate.  

  • Material defects within the seller's knowledge: Many states require a seller who knows of a problem with the property that may influence the decision to buy to disclose the presence of this problem to the buyer.
  • Actively conceal material defects: Generally, a seller cannot actively hide a defect in order to get you to buy the property.
  • Buyer's duty to inspect: Before you purchase commercial real estate, you should hire someone to inspect the property for any defects that are not easily noticeable. Generally, the seller will not be held liable for problems with the property that she did not know about and did not actively conceal.
  • Encumbrances: An encumbrance is something that may burden your rights as an owner of property.
  • Other potential environmental and zoning problems: See Environmental Law and Zoning, Planning and Land Use for more information.

Should I Consult a Real Estate Attorney about my Commercial Property Issue?

Before making or accepting an offer regarding a piece of commercial real estate, or deciding to lease a particular property, you should consult an attorney. Consulting experienced commercial real estate lawyers will make certain that your interests are represented in the negotiation process. A real estate attorney can also help inform you of whether renting or buying a space would be best for your business. Additionally, a real estate attorney can inform you of whether your proposed business will comply with local land use and zoning laws.

Present your cast to Real Estate Lawyers now! 

Photo of page author Ken LaMance

, LegalMatch Law Library Managing Editor and Attorney at Law

Last Modified: 05-15-2012 02:25 PM PDT

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