When You’re Both the Landlord and the Tenant
If your business rents from an LLC you own, it's tempting to keep things casual. Don't.
Owners put the building (or the suite) in a separate LLC for good reasons: building equity outside the operating company, keeping more control over the space, and giving their CPA room to plan taxes cleanly. I've had my own business rent from an LLC I own, and I've seen how well that works when you treat it like a real landlord-tenant relationship—and how messy it gets when you don't.
The problem usually isn't the structure. It's the shortcuts: no written lease, rent that was "about right" when you moved in, one checking account paying both the mortgage and payroll. Those habits feel efficient until a lender, a buyer, an auditor, or a lawsuit asks you to show your work.
Here are the basics I'd set up first.
Put it in writing
A written lease between the LLC and the operating company spells out the rent, the term, renewals, who pays what, and what happens if someone doesn't perform. Related-party deals get more scrutiny than arm's-length ones, so a signed lease is your first line of defense that this is a real commercial arrangement—not money moving around with no rules. Have your attorney draft or review it. Then follow it.
Charge fair market rent—and keep the support
Set the rent at what a comparable third-party tenant would pay for similar space in your market. Ask a commercial broker for a written opinion, pull recent comps, or get an appraisal if the stakes are high. File that support with the lease.
Rent that's well above market can get challenged as a deduction for the business. Rent that's well below market can create other tax problems, including income treated as if it had been paid. Fair market rent protects both entities and gives lenders and future buyers a clean story. Revisit it when the market moves or the lease renews.
Separate bank accounts, separate books—and actually pay the rent
Each entity needs its own bank account and its own books. The operating company pays rent from its account to the LLC's account on the schedule in the lease—no catching it up next quarter, no floating funds when cash is tight. If rent is a real bill, it belongs on your cash forecast like any other planned outflow.
Spell out insurance, maintenance, taxes, and CAM
A real commercial lease says who carries property insurance, who carries liability, who pays real estate taxes, who handles repairs, and how common-area maintenance (CAM) is shared if it applies. Put the same clarity in yours. When those lines are fuzzy, the operating company absorbs landlord costs—or the LLC gets blindsided by a roof, a boiler, or a tax bill it didn't plan for.
Respect the LLC's formalities
A separate LLC only helps if you treat it like a separate company. Keep its records, don't co-mingle funds, sign as the LLC when the LLC is the party, and don't use the property account as a personal ATM. The liability protection you wanted when you formed the LLC depends on those habits.
Make the rent a forecasted outflow
Rent paid to your own LLC is still a real outflow for the operating company. Put it on your 13-week cash forecast, know the due date, and fund it the way you'd fund payroll or a key vendor. That predictability is one of the quiet advantages of owning the building—as long as you don't treat the rent as optional.
Bring your CPA and attorney into the details
This is general education, not tax or legal advice. Related-party leases and self-rental situations have specific tax rules that depend on how you're organized and how you participate in the business. Your CPA and attorney should set the rent approach, the lease terms, and the entity formalities for your facts.
If you're looking at buying a building, rewriting a related-party lease, or cleaning up a casual setup you've outgrown, book a free call and we can talk through how the structure fits your cash, your risk, and your next move.