Running head: Commercial Lease Analysis
Commercial Lease Analysis
Jonathan Byrd
Liberty University
BUSI 561
Commercial Lease Analysis
1. What is the distinction between a “commercial” and a “residential” lease? In
a commercial lease agreement, should the law seek to protect the interests of the
commercial tenant more than the interests of the commercial landlord? Why or
why not?
Leases are created for the intent for a lessor to transfer the rights to for possession
and of an asset throughout the duration of the term to the lessee. One of the main
distinctions between a “commercial” and “residential” lease is a residential lease
provides property where someone will live. Commercial leases are used for the
intended purpose to operate a business and can include other real assets such as
machinery and equipment and not just space in a building compare to a residential
lease. Another difference is the length of a commercial lease, which can last more
than a couple years compared to residential, making commercial leases be more
negotiable. Many states have laws and ordinances to protect consumers in residential
leases for the use of living in a private dwelling. The commercial lease agreement
should seek to protect both the interest of the landlord and tenant. Consideration
during the negotiation process of the lease agreement allows both parties to have
good faith communication. Commercial leases tend to have fewer protections for the
commercial tenant with the rationale being a commercial tenant has a better position
to inspect the premises and to negotiate prior to the lease (Sheehan, 1974).
2
Commercial Lease Analysis
2. Sections 5 and 6, respectively, impose on the commercial tenant the obligation
of making repairs to the leased property, and of making alterations and
improvements to the leased property. Should the lease impose these obligations
on the tenant, or should such obligations be legally imposed on the commercial
landlord? Explain your answer.
As Sections 5 and 6 outline the duties related to repairs, alterations and
improvements to the leased spaced, the obligations should be imposed on the
commercial tenant. Normal occupancy will produce wear and tear on the property
where the tenant will occupy and operate its business. It would be unreasonable to
have the landlord make the tenant whole based upon the tenant’s use of the space.
Galatians 6:5 states, “ For each will have to bear his load”. Although the context is
different, a commercial tenant should be responsible for their actions and use of a
facility to maximize profit. If a tenant received consent to alter the leased space after
a signed commercial lease, the landlord would have to assume the risk of the ability
to rent out the space to a new commercial tenant, with the altered premise being
drastically different than before. The provision in section 5 does protect the tenant
from having to make repairs to systems that could be in a common area or systems
such as HVAC or plumbing. Furthermore alterations and improvements to the space
can be negotiated prior to acceptance of the lease, so if the tenant would like to alter
the space it would be impartial for the tenant to bear the obligation.
3. In the default provisions of Section 15, what is the landlord’s duty to
“mitigate” damages? Should the landlord be required to mitigate? Explain.
3
Commercial Lease Analysis
The landlord’s duty of mitigating damages is the responsibility to do everything
within their legal right to reduce the economic damages borne by the breach of
contract by the tenant. In section 15 the landlord has the right notify the tenant of
termination of the lease given ample time and notification to correct default of any
section of the lease. The landlord can reenter or take back the possession of the
premise from the tenant in order to produce reasonable efforts to reduce further loss.
The landlord should not be required to mitigate their loss unless they allow losses to
pile up just to sue for retribution. An example would be if a landlord had a property
in a high demand neighborhood and the tenant was a start-up company who defaulted
in the second year on a ten-year lease and the landlord did not do anything to lease to
new tenants or maintain the property. The landlord could use best efforts to find a new
tenant for the property like using a real estate broker. Within the law one party bears
the burden and can often lead to complex situations. In contrast what if the breaching
party should be held liable for any loss incurred by the landlord because its breach.
One example would be if a large corporation like Amazon entered into a lease
agreement for land and a new constructed building and subsequently abandoned the
project with losses incurred by the landlord. Amazon would have minute losses
compared to the landlord. Of the two scenarios requirement of mitigation should rely
on the tenant to prevent irresponsible tenants abandoning commercial leases and
would be the most efficient use of resources (Crump, 2014).
4
Commercial Lease Analysis
4. Sections 2 and 19 discuss the creation of, and the parties’ rights in, the security
deposit. Do these rights favor the landlord or the tenant? Is that appropriate? Why
or why not?
The rights in Section 2 and 19 associated to the security deposit favor the landlord
more than the tenant. The first part of this reasoning is because the landlord receives a
lump sum that shall not be considered part of the lease payments. Depending on the
initial negotiations this could be a significant amount. It is important to note that both
parties can agree upon this amount. Unfortunately for the tenant there is no uniform
law or guidance on the amount a security deposit can be. Based on this lease, the
ability to commingle security deposit funds with other funds could lead to abuse by
the landlord. The rights for the landlord are appropriate because the security deposit
can protect the landlord’s interest if a tenant doesn’t pay or makes a late payment and
will allow the landlord to cover any mortgages. Additionally if the tenant defaults to
make repairs caused by normal occupancy during the course of the lease, the landlord
would be able to use that money to make the necessary repairs and provide a receipt
or invoice. The alternative would be the landlord sending an invoice to the former
tenant and the tenant subsequently denies the dispute.
5. Section 29 requires mediation, followed by arbitration, in lieu of litigation, to
resolve disputes. What are the advantages and disadvantages of such a
provision? How should the mediator and/or arbitrators be selected?
In the event that a dispute arises there are few different courses of action that can
be taken to resolve a disagreement of a contact. With Section 29 requiring mediation
5
Commercial Lease Analysis
and arbitration before litigation, it creates a sense of resolution versus proceeding
down the road of litigation. Mediation possesses a few benefits compared to trying to
resolve through litigation. The first benefit is the ability to allow both parties to
preserve their relationship (Kubasek et al. 2018). The second benefit it allows for the
parties to find different ways to resolve an issue by placing the onus on both disputing
parties to be more committed to working together than relying on the court. It is
oriented in an amicable dispute resolution, controlled by the parties to the mediation
(Atutienė, 2016). One of the major disadvantages is that it masks any potential
inequity of power and some parties may just go through mediation to waste time.
Mediators are usually trained experts in mediation. Arbitration can be less expensive
than litigation most of the time and both parties can choose an arbitrator. This can be
attractive, but by going through arbitration both parties give up their right to litigate
despite not being happy with the outcome. The arbitrators are typically selected from
the Federal Mediation and Conciliation Services or the American Arbitration
Association (Kubasek et al. 2018).
6. As a businessperson guided by a Biblical worldview, what changes would you
make in this lease to make the terms comport more closely to Scripture?
As a businessperson guided by a Biblical worldview I would create a lease
agreement that would protect my rights and the rights of the lessee in the eyes of the
law. I would not create yoking clauses or provisions that would inherently limit the
rights of the future tenant. Furthermore having a contract that is fair and just in terms
of reasonable timing of notices and market prices for the rate for rent and security
6
Commercial Lease Analysis
deposit could be a long-term asset when it comes to forming relationships in business.
The one thing that is important for Christians is that we use scripture to guide us to
resolve issues, with prayer being paramount to any physical action we take. Romans
12:17-18 GNTA reads, “If someone has done you wrong, do not repay him with a
wrong. Try to do what everyone considers to be good. Do everything possible on your
part to live in peace with everybody.” I think this would be a strong principle to abide
by especially when doing business. There can be many situations where we can feel
that we were wronged (intentionally or not), but it’s important to not react with a
hateful heart or to allow our flesh to lead our decisions.
7
Commercial Lease Analysis
References
Atutienė, E. (2016). business dispute mediation agreements. Social Transformations
in Contemporary Society, 2016(4), 5-17.
Crump, D. (2014). Should the commercial landlord have a duty to mitigate damages
after the tenant abandons? A legal and economic analysis. Wake Forest Law
Review, 49(1), 187.
Kubasek, N. K., Browne, M.N., Herron, D., Dhooge, L. J., Barkacs, L. (2018). Business
Law. [E-Reader version]. Retrieved from
https://online.vitalsource.com/#/books/9781309051788/
Sheehan, C. A. (1974). Commercial versus residential leases: new double standard.
University of Pittsburgh Law Review 35(4), 901-909.
8
Powered by TCPDF (www.tcpdf.org)
