A commercial real estate lease makes retail, industrial or office space available without locking a company into a specific facility indefinitely. Many entrepreneurs and business leaders reviewing commercial leases for the first time have a false sense of confidence because they have previously signed residential leases.
However, commercial leases differ from residential leases in many significant ways, including these three major differences outlined below.
1. Longer lease duration
Many residential leases only last for 12 months. In some cases, they only offer month-to-month living arrangements for tenants. Commercial leases tend to require multi-year commitments from tenants. Leases lasting two to five years or even longer are relatively standard in the commercial sector.
2. Additional costs
Residential tenants typically only pay one set amount in rent each month. Commercial leases include a base rent amount. They may also include common area maintenance (CAM) fees if the tenant shares a parking lot, bathrooms and other amenities with other units. Landlords may also have tenants sign net leases that may make the tenant responsible for taxes and other costs associated with the property.
3. Tenant maintenance responsibilities
In a residential lease scenario, tenants generally rely on landlords for all significant maintenance and repairs. Commercial leases are different. Landlords frequently include provisions that require tenants to perform some of the facility maintenance and repairs. In some cases, the tenant may be responsible for almost all property management responsibilities.
With so many different terms standard in commercial leases, a careful review of documents is critical for prospective tenants. Reviewing a lease with a skilled legal team before signing it and negotiating appropriate terms, given the intended use of the space, can help protect business leaders from overextending their organizations when acquiring business space.