Commercial Leases v. Residential Leases

A residential building next to a commercial building

Commercial leases and residential leases differ in a lot of ways. Both types of leases are agreements between a landlord and a type of tenant, but they include different rights and responsibilities because they serve different purposes. A commercial lease is an agreement between a landlord and a tenant (usually a business) looking to operate their business from the property. A residential lease is an agreement between a landlord and a tenant looking for a place to live.

Commercial Leases

Commercial leases are typically used for properties located in commercially zoned areas. They outline the types of business that can be conducted there and how the property may be used. Commercial leases tend to be highly customized to suit the needs of the business involved. They often allow for more flexibility and negotiation than residential leases, and they often include allowances for the business to change the property’s appearance.

Commercial leases typically have less protections in them than residential leases. Because tenants in commercial leases are businesses or commercial entities, they shouldn’t need consumer protections and are generally presumed to be sophisticated enough to make wise decisions. Commercial leases usually last anywhere from 3 to 5 years. Unlike residential leases, commercial leases often place the responsibility of property maintenance on the tenant.

Single, Double, and Triple Net Leases

Three common types of commercial leases include single net leases, double net leases, and triple net leases. These are all leases where the tenant pays a lower rent rate while adding on the responsibility of covering at least one additional expense.

  • Single Net Leases—Tenant pays rent and property taxes; lowest risk for landlords
  • Double Net Leases—Tenant pays rent, property taxes, and property insurance; medium risk for landlords
  • Triple Net Leases—Tenant pays rent, property taxes and insurance, maintenance, and utilities; highest risk for landlords

Triple net leases (NNNs) often allow the tenant to control how a property looks. They also allow tenants to control the costs they pay and who they use for insurance. Landlords can benefit from NNNs, as they are given a steady stream of income with less maintenance headaches. NNNs tend to last longer than a standard commercial lease, starting anywhere from 10 to 15 years. NNNs are considered a higher risk for landlords because so much responsibility is on the tenant’s shoulders. Finding a reliable tenant may prove difficult for some commercial landlords.

Residential Leases

Residential leases are typically used for properties located in residential areas. They outline specific rights and responsibilities of both landlords and tenants. They must comply with their state’s landlord/tenant laws to ensure habitability. Residential leases provide tenants with more protections than their commercial counterpart. They tend to be shorter—lasting for an average of 1 year with the option to continue month-to-month after that first year. Under residential leases, landlords are responsible for property maintenance. Unlike commercial leases, residential leases rarely allow for tenants to make major changes to the property.

A Real Estate Attorney can review your lease.

Both residential and business tenants can benefit from an attorney reviewing their lease before they sign it. Whether you’re looking to sign a commercial lease or a residential lease, the attorneys at Cornerstone Law Firm can help. Protect your rights. Contact Cornerstone Law Firm today.

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