Although the laws of each state in this country vary with respect to commercial and residential leases, each state consistently makes a distinction between the two which has a big impact for both the landlord and the tenant depending upon the issues that arise.
Residential lease/agreements
A residential lease simply is a lease (or rental) of a property designed solely for use by a person, persons or a family to live in on a day-to-day basis. Typical residential leases are for homes, townhouses, condominiums, and apartments. There is no commercial purpose (sale of goods, services, or manufacture of product) with respect to a residential lease.
Price for the occupation of a residential rental is typically based upon a set amount per month varying in terms of a month-to-month lease to a term of years.
Commercial lease
A commercial lease pertains to a lease (or rental) of property designed solely for the sale of goods, services or manufacture of product. Premises subject to a commercial lease are not units designed for sleeping and day to day living of the tenant. The premises are typically warehouses, strip malls, office spaces and industrial or commercial buildings. Price is typically based upon amount per square foot occupied by the tenant plus in some instances a percentage of the gross received by the tenant.
The term of a commercial lease is typically for a set number of years where the tenant has an option to extend the lease near the end of it for another set term or more.
Protections regarding residential versus commercial lease arrangements
Governmental entities have an interest in protecting the rights of individual residential renters from being taken advantage of by an unscrupulous landlord. The rationale is that everyone needs a place to call home where they sleep, eat and live. Additionally, the prevailing thought is that people who enter into residential leases typically do not have the degree of skill, knowledge or sophistication of a commercial tenant (a commercial tenant enters into a lease with a landlord to make a profit in his or her business venture). Therefore, there is a great deal of law in every state protecting the rights of tenants in residential leases, stemming from the landlord’s failure to provide required safe and habitable housing to the landlord’s failure to timely return a former tenant’s security deposit. Moreover, there are many statutes that allow a tenant attorneys fees for habitability violations of a residential unit (for example, a landlord who knowingly fails to provide heat or remove rodents or cockroaches from a residential rental).
The thinking behind awarding attorneys fees comes from the unequal bargaining power between a residential tenant and a residential landlord. When there is a commercial lease, the states are pretty uniform holding that there is very little if no protection to the commercial tenant as opposed to the residential tenant due to the perceived stronger bargaining position and sophistication in the commercial lease setting. Commercial tenants are presumed to have the training, experience, knowledge and sophistication to enter into the written commercial lease and have access to skilled third party professionals to assist them in deciding whether to enter into a commercial lease or not. Third party professionals would be contractors, accountants, engineers, attorneys, surveyors and the like.
In many commercial leases the tenant is typically a corporation or a limited liability company (an entity created by the owner of the business to protect himself from personal liability). If the tenant is an entity, the landlord requires a personal guarantee by the individual owner on the lease that he will make good on the contract should the tenant entity fail to make the monthly payments.
The laws in all states do not protect a commercial tenant in the same manner as a residential tenant . Commercial tenants are considered to be on equal footing with commercial landlords with respect to the negotiation of commercial contracts unlike residential tenants. As a result, the amount of statutes protecting commercial tenants as opposed to residential tenants in this country is quite small.
Conclusion
There are significant distinctions between residential leases (places of occupation for living) as opposed to commercial leases (places for business). As a result state laws protect the residential tenant much more in comparison to the commercial tenant.