Buying property is a solid investment – a message that has been communicated to many New Zealanders.

However, in order to make your investment successful, it’s important to understand what you’re investing into.

While there are some similarities, comparing residential and commercial properties can be like comparing apples to oranges.

Let’s break down the differences:

Lease Agreements

Residential tenancy agreements typically involve straightforward terms and conditions. They are often governed by the tenancy tribunal and are highly regulated agreements and focus on providing a stable and healthy living arrangements for tenants. This means that these agreements are primarily aimed at safeguarding the residential tenant’s rights, ensuring habitability, and specifying rent payment schedules.

On the other hand, commercial lease agreements (typically in the form of an Auckland District Law Society Deed of Lease, commonly known as an ADLS Deed of Lease) are more complex and customisable. They can vary significantly depending on the type of business, lease duration, and specific requirements. As well as a whole host of special clauses which can be added. They can be at time be complex legal contracts.

Negotiating and drafting commercial leases require experience and up-to-date knowledge. These agreements go beyond rent payments, encompassing details related to business operations, maintenance responsibilities, lease terms, make good requirements, robust rental default processes and often, the potential for property modifications to suit the tenant’s commercial needs.

Tenant Types

Residential tenants are individuals or families looking for a place to call home. They have different needs and expectations compared to businesses. This includes seeking a safe, healthy and comfortable living environment that has good proximity to amenities such as public transport and recreational areas.

Finding tenants for residential properties is a different process as everyone typically needs somewhere to live. Due to the larger number of potential renters in the residential market, this typically leads to shorter periods of vacancy along with a shortage of residential rental properties available.

Commercial tenants are more diverse, ranging from small startups to large corporations. Commercial tenants also very significant from a retail premises to a large industrial manufacturing facility and everything in between. Commercial tenants require spaces that cater to their unique operational requirements, such as location, visibility, and infrastructure. Consequently, commercial spaces can be more challenging to fill because they often need a specific tenant due to the more specialised nature of commercial premises available.

Maintenance and Repairs

Maintaining commercial properties involves ensuring that the premises meet BWOF compliance requirements and industry-specific standards, which can vary significantly depending on the type of business and its operational needs. This entails compliance with safety codes, accessibility regulations and environmental standards.

Additionally, repairs and maintenance may need to accommodate business operations and schedules. Disruptions will have a direct impact on a business’s productivity, making it essential for property managers to coordinate maintenance activities effectively, often during non-business hours or planned downtime, to minimise disruption and ensure tenant satisfaction.

The Risk of Assuming Similarity

1. Legal Complexities: Ignoring the legal distinctions between residential and commercial properties can lead to serious consequences. Different regulations, dispute resolution processes, and rent review processes, and failing to comply can result in legal issues and increased costs.
2. Financial Risks: Managing a commercial property in the same way you manage a residential property may lead to underestimating the financial risks associated with commercial properties. These include vacancy periods, maintenance costs, and tenant turnover, leasing costs and incentives to fill vacancies, which have a substantial impact on your return on your investment.
3. Tenant Relationships: In the commercial sector, it’s essential to maintain a healthy and communicative relationship with the tenant to ensure tenant retention.

Choose Azure

While residential and commercial properties share some basic property management principles, they are fundamentally different in terms of purpose, lease agreements, tenant types, and maintenance requirements. Both a Residential Property Manager and a Commercial Property Manager are professional service providers in there chosen speciality.

To succeed as a commercial property owner and best protect your investment, it’s crucial to understand the unique challenges and intricacies of commercial real estate.

Connect with experts who can provide you with tailored insights and strategies to maximise the potential of your commercial property investments. Contact us today.