How are commercial leases different from residential leases?

How are commercial leases different from residential leases?

When you sign a residential or a commercial lease, you are agreeing to rent a home or commercial space for a period of time for a specified amount of money. While there are many similarities between these two types of leases, there are also many differences as well. Here are a few of the key differences that anyone who is looking to sign their first commercial lease should be aware of. 

Who is Included on the Lease or Liable For the Lease

One of the key difference among residential leases and commercial leases is who is included on the lease and who may be liable for the lease. On a residential lease, individuals are responsible for the lease. When it comes to commercial leases, the lease may hold you personally responsible, it may hold your company responsible for the lease, or it may include both you and the company. It is important to understand who is listed as the tenant. If your business fails and you are listed personally on the lease, filing bankruptcy on your business will not protect you. You may personally be held liable for that lease, so always carefully read whether you personally or your business is responsible. 

The Duration of the Lease

Another key difference between residential leases and commercial leases is the duration of the lease. Most residential leases range from six month to two years. Commercial leases are generally a lot longer. They may start at five or ten years, with the option to renew or re-up the lease every five or ten years. Businesses want to establish themselves and not move frequently, so it makes sense to look for long leases that provide you with the option to renew over time. 

Rent Increase Language

The rent language increase may also vary on commercial leases. As many commercial leases are longer in length, they often included automatic rent increases in the lease language. Rent may increase by one percent yearly, or may increase by five percent every time the lease is renewed for another five or ten year period of time. Some property management companies increase the rent by a set fee each year, rather than a percentage. 

Common Area Maintenance Fees

One of the terms that you may see on commercial rental contracts that you do not see on residential contracts is common area maintenance fees, or CAM fees. TheCAM fees are a fee that is charged in addition to your rent. The money for these fees goes to cover common areas that all tenants use, including the parking lot, landscaping services and security services. Some management companies or owners charge CAM fees based on the size of the space you are renting, while other companies and owners charge each tenant the same amount in fees. CAM fees may be due monthly, quarterly or yearly. 

Commercial Tenant Improvement Information

Another term that you may see on commercial rental contracts that you do not see on residential contracts is commercial tenant improvement. Some building owners will give you money to transform the space based on the lease you sign. This may include offering you money for replacing the flooring or to paint the space so that the space has the look your business prefers. The amount for tenant improvements should always be listed in the rental contract. 

Maintenance and Upkeep

Finally, commercial rental contracts will detail what types of maintenance and upkeep you as the renter may be responsible for. With residential leases, the tenant is not typically responsible for maintaining the property. However, with commercial properties, you may have some of the burden. For example, if you run a restaurant, you will be responsible for grease trap cleaning rather than the building owner. Always read the maintenance and upkeep clauses to find out what you may be responsible for and what the building owner pays to maintain. 

If you or your business are looking to sign your first commercial lease, it is recommended that you hire a commercial lease lawyer to review the lease. This helps to ensure you understand exactly what you are signing and that the lease is a fair and legal lease. If you are a commercial building owner, it is also recommended that you hire a commercial lease attorney to help you to put together a legal and enforceable lease. Contact a commercial lease lawyer today to schedule your appointment. 

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