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Commercial Lease Analysis
Commercial Lease Analysis
1. What is the distinction between a “commercial” and a “residential” lease? How do the
differences in use of the leased property impact the terms of the 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?
A lease is a contract that is formed between a property owner and the occupant that will be
leasing the property. Residential and commercial leases are different in many ways. A commercial lease
can be more complex because they are binding. “A commercial lease presumes that both parties involved
are businesses (Supina, 2022). Examples of a commercial lease is if a doctor’s office leases out space to
set up his practice. A commercial lease can be more long-term compared to a residential lease. Since a
commercial lease typically involves a business there could be additional responsibilities of the business
that will be leasing from the property owner. Things like additional insurance, building maintenance, and
early terminations of the lease should be communicated in the contract negotiations.
A residential lease is usually between a property owner and an occupant who would be residing in
the property owner’s home or apartment. These lease terms are pretty straightforward compared to a
commercial lease. The tenant must pay the lease, and, in most cases, the owner of the property is
responsible for any maintenance that would need to be completed to the property. If the tenant fails to pay
the lease, then the property owner has the right to evict that occupant.
The law should protect both the tenant and the property owner equally in a commercial lease.
Even though a commercial lease has fewer protections for the property owner than a residential lease,
they should have a clear understanding of the description of the demised premises and the appurtenances
thereto (Real Estate Financing Committee, Subcommittee on Commercial Lease Checklist, 1984).
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
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Commercial Lease Analysis
legally imposed on the commercial landlord? Explain your answer.
The obligation of the tenant and landlord will be in the lease terms that were agreed upon. Many
times, this obligation can be negotiated before signing the lease. They could agree that the tenant pays for
the repairs but can deduct the monthly rental fees for the total or a certain percentage of the total cost.
“The term "improvement rent" means the amount of money added to the base rent to cover the lessor's
cost to make additional improvements to the leased premises. This cost typically is amortized over the
term of the lease. The improvement rent should be separated from the base rent because once the
improvement rent is paid, the tenant should pay only base rent” (Mazirow, 2006).
In most commercial leases, the tenant is responsible for repairs because they are the ones using
the space and if their business is used frequently this will cause depreciation to the location if it is not
kept well. If the tenant wants to keep good working conditions or make sure that customers keep
returning so that they can continue to earn profit and more customers, it is in the tenant’s best interest to
keep up with the maintenance and repairs of their business. The landlord is not utilizing the property and
is not in their interest to maintain this unless it is stated in the lease. If there are other issues such as mold
or environmental and are because of the building structure, the landlord should be responsible for those
types of repairs.
3. In the default provisions of Section 15, what is the landlord’s duty to “mitigate” damages?
Should the landlord be required by law to mitigate? Explain.
If the landlord is losing money when they are not being paid and if a tenant decides not to pay or
vacates the property without notice that is a breach of the lease agreement. “The problem is that the
landlord's costs continue whether a tenant is in place or not: the debt service on the underlying property,
payments for utilities, taxes, insurance, and all of the other expenses that a property owner encounters
whether there is a tenant or not” (Crump, 2014). They should not be required by law to mitigate but they
should also, in turn, have a right to do so if they deem necessary. As an example of what could lead to
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Commercial Lease Analysis
unwanted legal fees, if the landlord thought that the tenant had vacated the property and leased to another
tenant, then the original tenant returned to find another business in the facilities.
If the original tenant was not in default this would go to court and the landlord would be
responsible for the damages that he caused for the original tenant because they would not have a place to
run their business. The assumption by the landlord was that the tenant would not be coming back and was
a costly mistake.
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 security deposit can favor both parties if done appropriately. The security deposit is a way for
the landlord to cover damages that the tenant may leave behind when the lease expires. If the tenant
doesn’t cause any damages to the property or doesn’t violate the terms of the agreement the landlord has
thirty days to return the deposit. This timeframe can vary by state. When moving in it is suggested to take
pictures of the property so that you have some sort of evidence of damages before signing the lease.
As for the tenant, the security deposit could motivate you to take care of the property that you are
leasing so that when your lease is expired you get that money back. If the landlord doesn’t give the tenant
the security deposit back, there needs to be an explanation for why. The state of North Carolina advises
the tenant to write a letter or go see the landlord with a friend to get the reasoning behind why they are
not giving it back (NC HCBS: Landlord-tenant laws, nd). You will have to go to small claims court if
your landlord does not respond.
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 mediators and
arbitrators be selected?
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Commercial Lease Analysis
The advantages of mediation and arbitration to resolve a dispute are that it can be done quicker
than going to court to resolve the dispute and it is also cost-efficient. It allows the parties involved to hear
the opposing view of the other person without being confrontational and can resolve the issues with each
other instead of going to the courts. Another advantage is getting a mediator that has no bias toward either
party involved. This person may have training and should be able to help both parties agree on their own.
Mediation if done properly, can produce a binding agreement.
The disadvantage of this method of mediation and arbitration is if an agreement can’t be made
and both parties can not come to a resolution the process is a waste of time, effort, and money. Another
disadvantage is getting a mediator that doesn’t help the parties with a resolution.
The mediators and arbitrators should have experience in commercial and residential leases. Both
parties can state in the agreement what experience they expect the mediator or arbitrator should have. If
they are unsatisfied with the appointed person, they can ask for a different person. Both parties benefit if
they cooperate.
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?
This lease can be more closely aligned to the Bible with a few changes. The first step is ensuring
that the lease is honest and fair for the landlord and tenant. II Corinthians 8:21 states, “Providing for
honest things, not only in the sight of the Lord but also in the sight of men” (King James Version, II
Corinthians 8:21). This verse sets a precedent that we should be honest as Christians. Living this example
before people that don’t know Jesus who we do business with can make a difference and can help lead
them to Christ.
Being fair to the tenant especially if they are struggling financially can go a long way. I am not
saying that the landlord should let them live rent-free, but being charitable is Biblical. Giving them an
extension or reduction on their rent when the tenant is financially unstable is a great way to show God’s
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Commercial Lease Analysis
love to a person. I Corinthians 13:13 states, “And now abideth faith, hope, charity, these three; but the
greatest of these is charity (King James Version, I Corinthians 13:13). Jesus is teaching us through his
scriptures that we should give shelter to people who do not have it, give food to the hungry, and clothe the
poor. I am sure that other changes could be made to the lease but honesty and being fair are an important
part of the Biblical worldview. God was fair to me and granted me mercy when I asked for forgiveness.
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Commercial Lease Analysis
References
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).
King James Bible. (2017). Cambridge University Press. (Original work published 1769)
Mazirow, A. (2006, Fall). Focus on commercial real estate: navigating the complex world of business
property leasing--the tenant's side. Real Estate Issues, 31(2), 47+.
https://link.gale.com/apps/doc/A157037002/GBIB?u=vic_liberty&sid=summon&xid=bf25ac16
NC HCBS: Landlord-tenant laws. (n.d.-a).
https://files.nc.gov/ncdhhs/documents/files/hcbs/landlord_tenant_brochure.pdf
Real Estate Financing Committee, Subcommittee on Commercial Lease Checklist. (1984). A
PRACTICAL GUIDE TO REVIEWING A COMMERCIAL LEASE. Real Property, Probate and
Trust Journal, 19(4), 891–940. http://www.jstor.org/stable/20781722
Supina, S. (2022, June 20). https://news.stthomas.edu/outside-consultant-how-do-commercial-leases-
vary-from-residential-leases/. Outside Consultant: How Do Commercial Leases Vary From
Residential Leases? . https://news.stthomas.edu/outside-consultant-how-do-commercial-leases-
vary-from-residential-leases/
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