The ins and outs of lease agreements can be quite confusing. This is particularly true when you start comparing residential and commercial leases. The obvious difference between the two is that one is used for commercial properties and the other for residential. Most property owners start out with residential leasing. But some eventually venture into the commercial market because of the huge earning potential. If you’re considering this move, you’re probably wondering what key factors make these two types of lease agreements so different.
Level of responsibility
It might surprise you to know that a commercial lease actually carries less responsibility for the landlord than a residential lease. For residential properties, the landlord is responsible by law for
maintaining a habitable residence. And while this is still somewhat true for a commercial lease, a landlord is free to delegate those responsibilities to the tenant in a commercial agreement.
On the flipside of that, however, is the fact that many commercial properties are required to have on-site managers available. This usually depends on the codes specific to that city and to the size of the building.
In a commercial lease, the tenant also bears some of the burden for liability. If someone is injured in their place of business, they are just as likely to be sued as the property owner, whereas, in a residential lease, the landlord bears the majority of the burden for such incidents.
Lease durations for commercial leases are usually longer than residential. Most residential leases are either six months or a year. But commercial leases can last for five years or longer. This means longer commitments and landlord/tenant relationships. For this reason, among others, it is extremely important that you screen your tenants well. Start with having them fill out a free rental application. And then, conduct a thorough credit and background check. Don’t neglect to call references and make sure you know who you’re getting into business with.
Most of the time, residential leases are standard forms that everyone uses. They are the same for every tenant and there’s not much room for negotiation. A commercial lease, however, is almost always a customized agreement between the landlord and the tenant. Because they are usually longer in duration, there may be negotiations on price, maintenance, and other key issues.
Many tenants of commercial properties will have to be able to install fixtures for their business, such as lighting, dressing rooms, partitions, etc., and these types of terms have to be established ahead of time. Most landlords of commercial properties are used to this, however, and are usually able to make special provisions. But as part of the agreement, you may want to oversee revisions or give yourself the authority to approve them each before they’re implemented.
If you decide to delve into the commercial property business, it’s important to know all the facts. Check out various properties with your local realtor. But make sure they specialize in commercial real estate. For example, in Colorado, you might look for commercial real estate companies Denver. It’s also more important in commercial leasing to become a Certified Property Manager. This title lends a little more credibility to your business. But the certification also involves gaining some much-needed insight into the field. And, lastly, talk to other commercial property owners in your area. Find out what they wish they’d known when they started. Commercial leasing can be a profitable business. But it can also come with a lot more codes and regulations than residential. Make sure you go into it fully informed.