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How do commercial and residential leases differ?

On Behalf of | Jan 17, 2021 | Commercial Leases

For new commercial landlords, understanding the difference between residential and commercial leases is vital. Particularly if you have been mainly involved with residential real estate in the past, there are some very striking differences in the commercial market. 

Any time a business rents a commercial property in order to conduct business from that specific location, you must offer a commercial lease. According to Business News Daily, commercial leases are generally less-regulated than residential ones and they do not offer as many protections. 

How do the regulations differ?

One of the biggest differences is that, as a landlord, you will need to tailor each commercial lease uniquely to the business at hand. Most of the time with residential leases, all residents of a particular building will sign similar-looking contracts. 

This means that many of the assumptions that come along with residential leases do not apply to commercial leases. For instance, the most common length of a residential lease is one year. On the other hand, with a commercial lease, the length could be as long or as short as benefits both landlord and tenant. 

What protections are missing?

This is also related to the comparative lack of regulation described above. Since residential leases govern residential properties, the government at all levels (federal, state, county) has protections in place to ensure that the landlord is providing safe and habitable housing. 

The caliber of tenant you will get with a commercial lease is generally higher in terms of knowledge about real estate, so the lack of protections actually give you and your potential commercial tenant more room to negotiate terms.