A lease is a lease, no matter which type of property it is for. There are key differences between a residential and commercial lease, though. Here's what to know.
- Residential leases occur between property owners and residents.
- Commercial leases happen between landlords and businesses.
- Residential lease agreements are less flexible.
- Commercial lease contracts are customizable.
- Understanding the differences in commercial and residential leases is critical for smooth tenancy.
Residential and commercial leases are documented contracts for property use and share some essential features. They have significant differences a potential tenant should understand before occupying a building, however. Here are some facts you should know about them:
- A residential lease agreement is a contract between an individual tenant and a landlord to live in a given property.
- The property could be an apartment, condo, or home.
- This contractual arrangement forbids a tenant from using the premises for commercial activities.
- A commercial lease is a contract between a property owner and a business tenant who wants to use the premises commercially.
- The tenant generates income by selling or manufacturing goods and/or services.
- They can lease a warehouse, shop, mall, or office space for a stipulated and renewable duration.
A residential lease outlines a tenant's daily living on a property, while a commercial lease specifies business activities they may conduct. A prospective tenant must therefore contract their commercial lease agreements carefully because of the stakes involved. Hiring a commercial real estate attorney is the best way to handle these agreements.
Top seven differences between real estate contracts
Real estate contracts have a lot in common, no matter which type of situation – residential or commercial – they're intended to facilitate. Here are the seven top differences between a residential and a commercial lease contract.
1. Lease duration
Commercial leases last longer than residential ones. They typically have a minimum range of between three and five years, allowing a lessee to renew them upon expiry. Residential leases usually last for a year, followed by a month-to-month basis.
2. Repair and maintenance responsibilities
Commercial and residential tenants should maintain their premises in reasonable conditions. A commercial tenant is responsible for most repairs and maintenance works, while the landlord only maintains the physical building and shared areas.
Prospective tenants should look carefully for clauses dictating who pays for these maintenance and repair costs for:
- Common areas
- Heat, water, elevator, and air conditioning
- Plumbing, electrical wiring, equipment, and machinery
- Pest control
- Damages caused by pest infestations
- Damages from fire and other natural disasters
A residential tenant has fewer repair and maintenance duties, however. They should notify the landlord or their agent when repair and maintenance works are necessary.
3. Permitted property usage
Commercial and residential leases also differ in their permitted property use. A commercial lease restricts a tenant to using the premises for income-generation purposes, so the occupant breaches the agreement if they use the premises for residential purposes. A residential lease contract meanwhile strictly narrows a premises' use to residential. It prohibits the occupant from using it for any income-generating activities.
4. Communal area maintenance
Residential and commercial leases allow tenants to enjoy a property's common areas, but often differ in terms of who pays for these shared areas' costs. In residential lease agreements, tenants don't incur additional charges to maintain common areas because the rent typically includes everything.
Many commercial leases include additional charges for maintaining common spaces, however. Depending on the terms, they might need to pay for elements such as the cost of maintaining the property's landscaping, hallway vacuuming, and parking lot repaving.
5. Legal indemnity
These two lease contracts also differ in the legal protection tenants enjoy during their tenancies. Residential tenants enjoy many indemnities commercial counterparts don't enjoy, for example. The government allows these additional protections because:
- It presumes that commercial tenants have more resources and negotiating knowledge.
- This places them in an advantageous position to negotiate safe deals.
- A human residence is a primary right and need.
- It thus deserves higher protection than commercial habitation.
It's worth noting that different states and cities offer varying tenant protection levels. They require all landlords to give tenants reasonable notices before increasing rents and refrain from arbitrary evictions, for example. The law also provides a more stringent security deposit regulation.
All tenants should read every contract clause carefully before signing it to avoid unnecessary conflict, but this is especially true in commercial deals. Always consult your commercial real estate attorney if you notice arbitrarily restrictive provisions that could jeopardize your rights. These include:
- Business hours and property usage
- Responsibility for repairs and maintenance, especially natural disasters and a building's age
- Rent increases
- Early tenancy termination conditions
6. Rent control laws
Some U.S. states and cities control residential rents, but rent price controls don't impact commercial leases. This allows landlords to increase rent upon tenancy expiry if they wish to do so. Commercial tenants only enjoy the rent increase restrictions their lease agreements dictate.
Therefore, business owners must carefully consider their agreements' renewal conditions and document them. Otherwise, your company could suffer if the landlord decides to hike the rent at your lease's end. Any drastic increase could negatively affect your business, forcing you to relocate.
7. Warranty of habitability
Lastly, commercial and residential leases differ based on the warranty of habitability. Every residential lease grants you an implied warranty of habitability. This ensures that you enjoy a reasonably safe, comfortable, and clean residence meeting all local codes.
A commercial lease doesn't guarantee habitability for a business tenant unless the lease agreement expressly provides for such conditions. Always consult your real estate lawyer regarding this matter before signing any contract.
How to get the best residential and commercial lease agreements in Florida
Commercial and residential lease agreements are essential to tenancy in any commercial or residential premises. They protect tenants and property owners, ensuring each party enjoys a fair deal, but commercial and residential lease agreements differ in many significant ways.
It's also critical to involve your real estate attorney before signing a commercial lease to mitigate any potential risks. Consulting and hiring an experienced real estate firm like PeytonBolin helps you set up your business with peace of mind. Contact our office today to enjoy excellent and affordable commercial lease agreement drafting services.