Need to Know Differences Between a Commercial and Residential Lease

It is important to know the differences between a residential and commercial lease because both are treated differently under the law. The distinctions will set out certain rights and obligations for both parties involved in the contract.

What is a Residential Lease Agreement?

A residential lease is most often between a landlord and an individual tenant or family. The agreement is to provide a living arrangement. It is usually set up to include a monthly payment, but not always. The term varies from month-to-month to a term of several years, although one-year leases are perhaps the most common.

These types of leases usually apply to houses, apartments, townhouses, or condos. The location is generally not used for profit. However, some areas do permit residences to run a business out of their home.

What is a Commercial Lease?

Commercial leases involve a contract between a landlord and a business. The business can be a sole proprietorship or a corporation. The purpose of the arrangement is to provide space so that the business can sell goods or provide service. The goal for the company is to use the area to generate a profit. It is not designed for sleeping or to meet the residential needs of a business owner or its employees.

Commercial spaces are usually locations such as:

• Warehouses

• Office space

• Strip Malls

• Stand-alone structures

The rent that the tenant pays is usually based on the square footage of the property. Some agreements also contemplate that they will charge a portion of the business’s gross sales over a specific period as well. Commercial leases are also often much longer in duration.

Why the Differences Matter

Commercial tenants and residential tenants have different protections under state law. States across the country, and the federal government, see significant value in ensuring that residents have safe and secure housing. There is also a substantial imbalance of power between a residential tenant and a landlord. As a result, residential tenants have special protections under both state and federal law.

For example, when a property has problems that make it uninhabitable, the landlord is required to fix those issues. These include things like:

• Water

• Heating

• Security (usually locks, but also alarm systems and lighting in some circumstances)

• Sanitation

• Pest control

A tenant who is having problems with any of these issues may have special legal protections. In some situations, a tenant may be able to withhold rent or break their lease entirely.

Commercial properties do not have the same protections. Commercial tenants are often required to provide their own maintenance as well. Unlike residential tenants, commercial tenants are often considered to be on equal “footing” as their landlords, because they have more resources and business experience than the average residential tenant would have. Generally speaking, a commercial contract is much more challenging to break than a residential lease.