Though commercial and residential leases both are written contracts for the use of real estate and share some common features, the two differ in several significant ways. If you work in either or both areas of real estate, then you should understand the five key differences between a commercial lease and a residential rental agreement.
The terms themselves point to one key difference: one type of lease relates to commercial property and the other concerns residential property.
Residential leases usually prohibit the use of the property for most types of commercial activities, and commercial leases typically prohibit the use of the property as a living space.
The duration of the lease can vary for both types, but generally:
Tenants under a residential lease have several legal protections that do not apply to commercial tenants, in part because commercial tenants are presumed to have more resources and knowledge in negotiations and in part because people’s shelter is a basic need deserving of protection. These protections vary by state and, in some cases, by city. Residential tenants usually are better protected from eviction and rent increases than commercial lessees. For example, landlords must give residential tenants advance notice of rent increases and cannot evict arbitrarily. Additionally, security deposits for residential tenants are much more stringently regulated, both in the allowed amount at the beginning of the lease and the permitted deductions at lease end.
Though both types of tenants are obligated to keep the property in a reasonable condition, responsibility for completing repairs and performing significant maintenance differs.
Both types of tenants frequently enjoy the benefits of the property’s common areas, which are those areas and amenities shared by all tenants of that property. However, there is a difference in how the costs of those areas are paid.
Generally, commercial leases are for spaces where products are made, things are sold, or services are provided. They cover longer timeframes, include provisions for contributing to common area expenses and contain fewer tenant protections. Commercial tenants bear most of the burden for maintenance and making repairs. Residential leases are for places where people live. They usually span a year and contain numerous legal protections for the tenant. Residential tenants usually are not responsible for any repairs or maintenance.
Whether your interest lies in commercial property or residential real estate, take advantage of the insights and information about both types of property throughout the United States available in the Buildout Insights databases.