What’s the Difference Between a Commercial Lease and a Residential Lease?

The average person may believe that residential and commercial leases operate in the same manner. However, that is simply not true. Many differences exist between these two due to the different uses of land common on both. Therefore, it is vital to understand a few of these variations. 

If you don’t understand these factors, you might find yourself in a challenging legal situation. For example, you could be in a commercial lease that you can’t break that wears on you financially. Legal help may be required to understand and prepare for the potentialities of your business entirely.

Types of Protections 

An excellent residential lease is designed to protect the buyer in various ways that you don’t often get with commercial leases. But, of course, that doesn’t mean that you don’t get some protection with a commercial lease. However, the government typically puts a stronger emphasis on safety in a residential lease. That’s because they want homeowners to be safer and protected when they are at home. 

Just what kind of protections does a residential leaser get that a commercial one does not? For example, residential landlords must usually maintain the property for the leaser, including paying for repairs to exterior elements. By contrast, a commercial lease usually requires you to care for the property and asks for minimal steps to be taken by the landlord who owns it. 

These terms vary depending on the state in which you live and what kind of contract you make. For example, commercial landowners may make more restrictive and difficult leases than those of residential landowners. But, again, this fact is due to the usage of the property. Governments protect people within their homes but know that people in a commercial facility do not live there and (therefore) may not need as many protections. 

Potentially Restrictive Clauses

By law, residential leases must be transparent and contain very few, if any, restrictive clauses. However, commercial landlords have more freedom. What are restrictive clauses? They are statements within a contract that restrict how property can be used. For example, residential landowners may put in clauses about pet use and minimize changes to the property’s structure. 

Commercial leases may have more restrictive options than these and may even focus on various elements. For example, they may spell out the need to repair a building due to natural disasters, even if the owner has an insurance policy to cover such an issue. Other restrictive clauses may put the responsibility on you to buy business insurance, maintain the property, and pay for new construction. 

Commercial leases cannot force you to pay for any changes to the facility that the landlord makes on their initiative, of course. However, you will have to pay for any changes you make that benefit you. These lease changes often challenge many businesses and make operation much harder. Even worse, you might have built-in rent increases and a complex clause dictating when you can end a lease.

Commitment and Terms

A residential lease typically has minimal commitment clauses for the landlord beyond maintaining the property and keeping it in great shape. They must make the home presentable and livable for the homeowner, including making repairs. Beyond that, their investment in the house is minimal. For example, they don’t have to (but may) buy furniture for the residents to use while they live there. 

Commercial leases have a higher level of commitment from the landlord. They are usually more complex and bind the landlord and the business more tightly. Why? Landlords often commit to and invest capital in preparing the business and the property. In a sense, they have invested in the company itself in a way that residential landowners have not. Does this benefit them or the leaser?

The leaser benefits from the landlord’s time preparing the property for rental and may even get direct investment from the owner to keep the business running. However, the lease terms usually last longer than residential options and provide more legal protection for the landlord than the tenant. As a result, it is vital to go over these terms carefully to ensure you are fully protected. 

Other Differences

A few other variations to consider between these leases include how:

• Residential leases have rent control protection: commercial leases do not
• Commercial lease values may vary based on property taxes
• A residential lease cannot be purchased by another party: they can buy a commercial lease

Help is Available for You

Are you struggling with a residential or commercial lease and need help from a team you can trust to have your back? Talk to us today to find a commercial lease attorney who understands your needs as a business owner. Our team is ready to fight for your rights and ensure you have a fair and reasonable commercial or residential lease that considers your best needs.