Being a commercial landlord can be a highly profitable way to generate passive income. There are many benefits to leasing commercial property as opposed to residential, including more lucrative rental agreements, longer lease terms, site renovations and repairs made by the tenant that shouldn’t be overlooked. However, renting out your commercial property does come with a distinct set of responsibilities that you should fully understand before committing to being a landlord. Here are five things to consider before you lease your commercial property.

Create a Detailed Lease Agreement :

A full lease, written with the help of an attorney, is the wisest way to protect your investment legally and financially from the outset. Your lease agreement should include but is not limited to, proper and prohibited use of the property, tenant obligations for maintenance, tenant requirements for property and business insurance, the conditions and consequences of default, a personal guaranty, and terms if the property is to be sold during the lease period. Having a detailed lease may prevent legal issues in the future, as well as avoid potentially costly lawsuits when a disagreement arises.

Obtain Proper Commercial Property Insurance :

Not only is commercial insurance coverage required for landlords by state laws, it’s also essential to protect your investment. Your insurance should cover losses or damage to the building and equipment inside, and you might even consider a Lessor’s Risk Insurance policy to cover theft, vandalism, and injuries incurred on your property. Having insurance can keep you from going under in the event of a catastrophic event.

Stay Up to Date With Current Building Codes :

Initially, it might seem costly and time-consuming to stay on top of ever-changing property codes and industrial technology. However, in the long run being up to date with current laws and technology can save you money on heating, cooling, electricity, and, ultimately, building maintenance. Additionally, tenants working in a healthier environment are happier thus resulting in “green” properties having high market demand.

Repair Structural Damages :

Though your lease agreement should detail exactly what the landlord and the tenant each will be responsible for repairing, most often major repairs that aren’t due to tenant misuse will be the landlord’s responsibility. A partial list includes maintaining the building structure, painting, roof repair, elevator maintenance, and parking lot repair.

Maintain and Repair Major Appliances :

In addition to keeping up to date with building codes, safety, and structural maintenance, the landlord is responsible for the installation, repairs, and service of major appliances including the HVAC unit. Regular maintenance and servicing of HVAC systems in the building may not only prevent more expensive fixes later on, but it will also make your tenants satisfied long-term renters. Tenants that are comfortable are less likely to search for a place to relocate to.

Commercial property is a wise investment and becoming a business landlord is undoubtedly a smart way to create long-term, passive income. However, it’s essential to adequately prepare legally and financially for the additional responsibilities that come with leasing commercial space to reap the financial benefits down the road.

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