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Residential and Commercial Leases and Lease Negotiation

When it comes to leasing out property, property owners have two main types to deal with; residential leases and commercial leases. While both involve generating income from others occupying rental space for a set length of time the similarities more or less end there. Lease negotiation and the enforcement of a lease contract for each type of lease is very different for each type.

Residential Leases

Residential leases are considered to be simpler by most because they are very uniform. If a property owner is renting living space to multiple tenants in the same building or complex it is likely that each person’s lease terms will look almost identical. The landlord will be able to indicate that the tenant(s) living in a space follow certain rules of conduct that are designed to minimize unnecessary wear on the property, such as restrictions on pet ownership or smoking. There may also be rules regarding noise or altering the property. Usually monthly rent is required, and lease terms are normally either month to month, or for terms that last no longer than a year or two before the lease is up for negotiation or renewal.

The property owner and/or landlord have clear responsibilities to the tenant as well to take care of maintenance requests and address any issues that may compromise the health and safety of the tenants in the building, such as taking care of pest control or providing agreed upon included utilities, such as heat.

Commercial Leases

Commercial leases are far more tailored to the tenant than residential leases. If a property owner has a building with a large amount of office space it is likely that each business tenant will have a contract that looks a lot different from the business occupying other spaces in the building. Lease terms normally last for several years, and in addition to monthly rent, there may also be an agreement that the landlord receive a percentage of the profits from the business. Business owners and landlords are also more likely to share maintenance and development responsibilities of the actual property.

Commercial leases are usually harder to break because negotiating a commercial lease in the first place is more involved than a residential lease. Before signing a commercial lease the business owner must review the terms very carefully, usually with the help of a business attorney in order to make sure the lease terms align properly with their expectations for their business.

Since the terms are longer, some businesses will insist that clauses be included that will allow them to get out of a lease if staying in the space is damaging to their business or is limiting their ability to grow. For example, exclusivity clauses are a popular request. These clauses define a directly competing business and prohibit the property owner from leasing space in the same building or complex to their competitor. Property owners may also be required to maintain a certain level of occupancy in their building in order to draw in an adequate number of customers or clients to assure a reasonable expectation of profit.

Handling Disputes

When it comes to breach of contract with either a residential lease or a commercial lease cases are handled differently, and are not looked at with the same bias by the courts. In general, when there is a dispute involving a residential lease there is a slight bias that goes to the tenant, and a higher percentage of the legal expenses are likely to fall on the landlord or property owner. This is partially due to the lack of opportunity that a residential tenant has to negotiate lease terms and the fact that they are less likely to be experienced in general business matters than a fellow business owner.

When the terms of a commercial lease come into question, the court assumes that since both parties shared in creating the terms the two businesses are starting off from a more equal place. If a business fails to negotiate a clause preventing a competitor from moving next door and then they can’t make rent they are more likely to be held to their contract and will owe their share of court fees as well as be held to the decision of the court.

One of the best ways to handle disputes is to prevent them from happening in the first place. A good real estate or business attorney can help both businesses and property owners or landlords anticipate various possible scenarios and help them create terms in their lease agreements that will maximize the potential profits for both companies. If breaking a contract does become necessary, a lawyer can help the businesses work out a systematic way to handle any changes in contract terms to minimize any adverse effects to either the tenant business or the property owner.

Being smart about renegotiating  is important too. Business tenants should always remember that renewal options are optional, and take the opportunity to alter the lease terms with the help of an attorney in a way that will better serve their businesses needs.