Commercial Lease vs Residential Lease- Are you protected?

While the commercial and residential real estate fields do often overlap, they are two very contrary markets. Generally, people think about a lease and think it is an all encompassing document that will offer the same rights and protections to businesses as they would a tenant who is renting a residence. This could not be more incorrect. Merriam-Webster defines a lease as “a contract by which one conveys real estate, equipment, or facilities for a specified term and for a specified rent”. That is about all that the two documents have in common, the type of lease you enter into is where things get complicated.

Residential leases
Residential leases are structured with tenant protection in mind. Generally, residential tenants are viewed as unequal to the landlord in terms of sophistication, and skill in negotiation. Residential leases protect the tenant from an unscrupulous landlord who may fail to remove pests from the home or fail to make essential repairs to the home, such as having a functional heater. Tenants in a residential lease are also protected against a landlord keeping a security deposit without just reasoning. A landlord must offer the tenant a safe and secure housing with essential repairs being made promptly and correctly.

Commercial lease
In a commercial lease, it is assumed that the tenant is experienced and knowledgeable and has access to skilled professionals such as contractors and lawyers during negotiations with the landlord. That being said, most states are in agreement that commercial leases should offer no protection to the tenant as they are skilled enough to negotiate their own rights into the lease contract. Commercial leases are tailored to the tenant and their specific wants and needs, such as a beauty salon needing multiple sinks, or an office suite needing a private conference room. These, along with other “Build Out” requests would be negotiated into the lease. Other items that would be tailored into a commercial lease would be a deposit, which would be much higher and have more stringent guidelines on when a refund would be due. Since only a portion of the property is being leased (in most cases) the use and access would also need to be determined. Often times access to the property after a certain hour is limited and use of covered or garage parking spaces can be restricted if not clearly defined in the lease.
While a residential lease offers the protections that provide a safe and habitable environment no matter what lease document is signed, a commercial lease can leave you out in the cold if not properly negotiated. Many commercial tenants find this out the hard way after negotiating a lease on their own without any representation. Make sure your business is protected by consulting with a commercial Realtor or real estate attorney before you sign your lease.