What Are the Differences in a Commercial Lease?
by LegalNature - April 2012
There are many distinctions between a commercial lease and a residential lease agreement, and if you are planning on starting a business, it is vital that you completely understand the differences. Unlike a residential lease agreement, commercial leases are usually in commercially zoned properties which tend to have looser building codes since the properties are not lived in. This requires the commercial lease to be much more detailed as to how the property will be used.
Commercial leases usually have much more restrictive covenants and clauses than a standard residential lease agreement. They will usually dictate things such as parking areas, signage and times that the business must remain open if it is in an office park or mall. Nearly all commercial leases have premises clauses that dictate the exact portion of the property that is being leased as well as use clauses that detail what the business is able to do with the property and any restrictions toward the use of the premises.
Commercial leases are usually not standardized forms because they must be customized to suit the needs of individual tenants. This makes the commercial lease a document that must be thoroughly negotiated and structured to ensure it fulfills the needs of the business as well as the requirements of the landlord. Commercial leases are very flexible and thus can be negotiated to address nearly anything related to the occupying of the property. This can include any shared responsibility between the lessor and the lessee regarding things such as insurance costs, building maintenance, any construction costs needed to tailor the property to the new business, rent increase schedules and any early termination stipulations.
Commercial leases are understandably longer term and much more complex than residential leases and are more binding since the landlord usually invests some capital in preparing the property for the tenant. This requires a stronger commitment from the tenant and also means there are less legal protections for them than in a residential lease and therefore makes it vital that the tenant ensure they can fulfill all their obligations under the terms of the lease. Commercial leases can be complicated and confusing due to their lack of uniform structure, but as long as a potential tenant understands that they can be favorably customized, a properly negotiated commercial lease can be a valuable starting point for a new business.