Most people have entered into a residential lease agreement at some point in their lives. Due to this, they believe that when they enter into a commercial lease agreement, it is similar. Truthfully, there are many differences between residential and commercial leases. This is largely due to the differences between residential and commercial properties, including their financial implications, management, and intended use. Investors and large companies often own commercial buildings and rent them out to other businesses. On the other hand, residential properties are used as dwellings and so, they are owned or rented by families and individuals.

It is critical that both landlords and tenants understand the differences between residential and commercial leases. Below, our Houston real estate lawyer explains what these are.

Intended Use

Of course, the biggest difference between residential and commercial leases is the intended use of the property. Commercial leases involve renting a property for commercial or business purposes. This can include retail stores, office spaces, industrial facilities, or any other type of property used for conducting business activities. These spaces are sought by business owners looking for a place to run their company from.

Residential properties include houses, apartments, and condominiums. These properties are sought by families and individuals looking for a place to live.

The Duration of Lease Agreements

Generally speaking, commercial lease agreements are usually longer in duration than residential lease agreements. Commercial leases typically range between three and five years in length. There are instances when a commercial lease may also extend for ten years. This is due to the fact that business owners need time to establish their company and recover their initial investment. Residential lease agreements, on the other hand, are usually for just one year in Houston. Depending on a landlord’s own preferences and local laws, some landlords may offer residential leases that are shorter or longer in duration.

Commercial leases are often more complicated and binding. Landlords of commercial buildings invest a great deal of capital into the building, and so, they need a stronger commitment from tenants. Commercial lease agreements cannot be easily changed or broken without the tenant paying a significant amount of money.

Property Valuations

Commercial property is also valued differently from residential property. Commercial property values are based on the amount of income they generate. Residential properties are valued based on their location, size, and nearby amenities. Location is a very important factor when valuing residential properties, and so landlords often choose to invest in school districts and areas that have significant curb appeal. Desirable locations are also important when valuing commercial properties, as well. For these properties, though, it is important that they are easily accessible by employees and customers.

Landlords of commercial properties also often have a higher return on their investment because their value increases more easily than that of residential properties. Property value is also important for commercial tenants because it impacts their rent, as well as their own return on their investment.

Common Areas

Common areas are present in most commercial buildings, and they are also included in some residential dwellings. Common areas are those that are used by all tenants of a building. They can include hallways, parking areas, lobbies, elevators, and recreational facilities. The restrooms in commercial buildings are also considered common areas. 

Due to the fact that common areas are used by all tenants, they are generally maintained by the individual or company responsible for managing the property. Most commercial leases include maintenance fees provisions, while residential leases are for a fixed amount of rent.

Warranty of Habitability

Residential leases also include a warranty of habitability, while commercial leases do not. A warranty of habitability is a legal concept stating that landlords must ensure tenants have a habitable living space that is safe, clean, and comfortable. These are minimum standards, and when landlords fail to provide them, tenants can take legal action against them. It is critical to speak to a Houston real estate lawyer in these cases.

Responsibility for Maintenance

Commercial tenants are usually responsible for performing maintenance on their space, including the rented unit, as well as repairs to the building. Residential tenants, though, are rarely responsible for performing maintenance on their unit. In either case, it is critical that a lease agreement clearly defines who is responsible for maintenance on a rental unit, in the event of everyday wear as well as natural disasters and more.

Negotiations

Due to the fact that businesses are so distinct from each other and have such unique needs, there is often more room to negotiate when agreeing to the provisions in a commercial lease. Commercial tenants can negotiate according to their needs, including buildouts or renovations for the tenant’s use. Residential leases are not as customizable, and they are typically standardized and less flexible.

Security Deposits

It is not unusual for landlords to require tenants to pay security deposits. These deposits are meant to cover the expense of repairing damage to the rental unit after the tenant vacates the premises. While Texas law does impose restrictions on how much residential landlords can charge for security deposits, this is not the case with commercial landlords. As such, security deposits for commercial properties are usually higher.

Rent Structures

Rental amounts in commercial leases often include the base rent, common area maintenance fees, and operating expenses. When a commercial landlord wants to increase the rent, they generally negotiate with the business owner for terms that are agreeable to both. Residential leases typically only outline a fixed monthly amount for rent. When residential landlords want to increase rent, they are not limited by any laws restricting the amount they can charge.

Our Real Estate Lawyer in Houston Can Draft Your Agreement

Whether you are entering into a residential or commercial lease, our Houston real estate lawyer can help. At Integrity Law Group, PLC, our experienced attorney can negotiate the terms of your lease so they are favorable and will protect you for years to come. Call us now at (832) 280-9197 or fill out our online form to schedule a consultation and to learn more about how we can help with your case.

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