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Health & Fitness

What's the Difference Between a Commercial Lease & a Residential Lease?

There are significant differences between the typical lease that you may have signed for your apartment and the space that you're renting for your business.

So you’ve been living in rented space in Minnesota for years, and now you want to rent space for your business. The leases should be similar, right? Wrong! There are significant differences in the lease agreements themselves and in the protections you are afforded for your home vs. your business.

Legal Protections: Residential leases provide greater protections for tenants than do commercial leases, given consumer laws and the fundamental need of persons to have a place to live. The assumption behind commercial leases is that the two parties are more equal in terms of bargaining power, are savvier about lease terms, and have more options. Also commercial leases are for property in areas zoned for commercial use, and those zoning regulations tend to be less restrictive than the zoning for residential areas.

Right to Withhold Rent: Minnesota law allows residential tenants to withhold rent if there is a serious repair problem or code violation. However, commercial tenants can be evicted for failing to pay rent even if the landlord fails to meet landlord’s maintenance and repair obligations under the lease.

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Lease Terms: Commercial leases among tenants in the same complex may vary considerably based upon tenant needs, negotiating power and the savvy of the parties. Residential leases for tenants in the same building tend to be uniform due to the likelihood that tenant needs are similar and given the desire by landlords for contract convenience.

Negotiations: Commercial lease terms are typically highly negotiable whereas residential lease negotiations are typically limited to the rent, security deposit and length-of-lease terms.

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Length of Lease: Commercial leases typically run for several years whereas residential leases typically expire after one year. Both types may provide for renewals/extensions of the lease.

Length of the Contract: Commercial lease contracts tend to be lengthy – particularly versus residential leases – because of the multitude of lease terms that are negotiated between commercial lease parties that may not be necessary for residential leases. For example, business concerns include such things as signage on the building’s exterior, exclusivity clauses that prevent a landlord from renting space to a competitor, compliance with laws such as “The Americans with Disabilities Act”, and roof access for communications equipment. Also, whereas residential property can only be used as a place to live, commercial property can be used for many purposes. Therefore, a commercial lease also spells out in detail what the permitted uses of the commercial property are.

Tenant improvements are also a significant subject of commercial leases. Most residential real estate is rented “as is” with the landlord as the party who is required to repair and maintain the property. In contrast, commercial property is routinely modified to suit the needs of an individual commercial tenant, so the responsibilities of the landlord and tenant regarding tenant improvements need to be more specifically spelled out.

Rent: Residential leases are typically so-called “gross” leases in that the tenant pays a fixed rental price as landlord’s return on its investment in the land and building. Commercial leases tend to be “net” leases whereby the tenant pays a base rent plus more. With a “single net” lease, the tenant pays base rent plus property taxes. With a “double net” lease, the tenant pays base rent plus property taxes and insurance. With a “triple net” lease, the tenant pays base rent plus property taxes, insurance and maintenance.

©2012, 2013 Wittenburg Law Office, PLLC. All rights reserved.

Disclaimer: This Blog is for informational purposes only and is not to be construed as legal advice. If you have questions, please seek the advice of an attorney.  An attorney-client relationship is not formed by reading this Blog. If you are interested in Wittenburg Law’s representation of you, you must contact Wittenburg Law for a determination of whether your matter is one for which Wittenburg Law is willing and able to accept representation of you.

Bonnie Wittenburg, Wittenburg Law Office, PLLC, 601 Carlson Parkway, Suite 1050, Minnetonka, MN 55305 952-649-9771 www.bwittenburglaw.com bonnie@bwittenburglaw.com

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