Mixed-use buildings can be great investments, but they also get discounted quickly when leases aren’t structured properly. Buyers look very closely at mixed-use leases because one poorly written commercial lease can outweigh the income from multiple residential units.

Most of the value loss doesn’t come from vacancy. It comes from lease terms that create uncertainty, limit flexibility, or lock the next owner into a bad position.

One of the biggest mistakes owners make is using residential-style leases for commercial tenants. Commercial tenants operate differently. They need clear terms for rent escalations, responsibility for utilities, maintenance, insurance, and build-out obligations. When these items are vague or missing, buyers assume the worst and price in risk.

Another common issue is poorly structured rent escalations. Long-term commercial leases with flat rent and no increases hurt value over time. Buyers expect rent to grow. If a lease runs five or ten years with no built-in increases, the income quickly falls behind the market. Even modest, predictable escalations are better than none.

Renewal terms are another frequent problem. Automatic renewals at pre-set rents often favor the tenant and limit the owner’s flexibility. Buyers dislike leases where they can’t adjust rent or re-position the space without waiting years. Renewal options should be clear, limited, and priced thoughtfully.

Expense responsibility is another area where mistakes are common. Leases that don’t clearly state who pays for utilities, maintenance, repairs, and common areas create confusion. In mixed-use buildings, buyers want certainty. If it’s unclear whether the commercial tenant pays their share, buyers assume the owner does — and discount the property accordingly.

Many owners also underestimate how much tenant concentration matters. When one commercial tenant represents a large portion of the building’s income, buyers look closely at lease strength. Short terms, weak credit, or unfavorable renewals increase risk. Strong leases can stabilize a building; weak ones can cap value.

Another mistake is not updating leases over time. As markets change, leases should evolve. Outdated terms that no longer reflect current operating realities make a building feel neglected and harder to underwrite.

Finally, some owners wait too long to review leases before selling. By the time a property is on the market, it’s often too late to fix unfavorable terms. Buyers see what’s written, not what an owner intended.

The takeaway is simple. In mixed-use buildings, leases don’t just define income — they define risk. Clear terms, reasonable escalations, and flexible renewals make a property easier to value and easier to sell. Poorly written or outdated leases do the opposite.

If you own a mixed-use building and plan to sell in the future, reviewing lease terms sooner rather than than later can preserve value and widen the buyer pool. Small changes made early often prevent big discounts later. If you’d like help reviewing your mixed-use leases through a buyer’s lens, I’m always happy to walk through them with you and give you my straightforward opinion.

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