COMMERCIAL LEASE ANALYSIS 2
Commercial Lease Analysis
1. What is the distinction between a “commercial” and a “residential” lease? How do the
differences in the 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?
There are various interests in real property, one of which is a leasehold estate. A
leasehold estate is a possessory interest transferred by contract from the property owner to the
tenant (Kubasek et al., 2023). The contract that is put in place between the property owner and
the tenant is called a lease. A residential lease is intended to provide real property rights to a
tenant for daily living. Commercial leases provide real property rights to a tenant to conduct
business. Most residential leases will prohibit the tenant from selling products or services from a
residential property. The length of the lease is usually different between commercial and
residential. The commercial lease is usually three to five years with renewal options. Residential
leases typically last one year (Brokerage Best Practices, 2020). Berson (2012) proclaims that
state laws tend to protect the interest of residential tenants more than commercial tenants. One of
the significant factors to consider when leasing a commercial property is the zoning ordinance of
municipalities. It is important to ensure that the commercial property leased is in an authorized
zone to conduct the specific type of business (Berson, 2012). The law should protect the
commercial landlord more than the tenant, as the landlord only supplies a property on which the
tenant is conducting business. The landlord is responsible for adequately maintaining the
physical building and common areas. However, the commercial tenant must ensure the business
is operated safely for all stakeholders.
COMMERCIAL LEASE ANALYSIS 3
2. Sections 5 and 6, respectively, impose on the commercial tenant the obligation of making
repairs to the leased property and 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.
According to Kubasek et al. (2023), the lease between the tenant and landlord can vary
depending on the state laws and the type of business being conducted on the commercial
property. Most states only require the landlord to ensure the property is in good condition for the
tenant to use as the tenant sees fit within the limitations of the lease. The landlord should be
expected to repair any significant issues, such as plumbing, electrical, or structural issues.
Suppose the tenant wants the freedom to design the interior and exterior of the property to
coincide with the business. In that case, they must take responsibility for modifying and repairing
the property as necessary. Otherwise, the landlord would have a say in the matter. As the current
lease is written, the tenants only need permission to modify the premises. Any personal property
that the tenant places in the commercial property is the tenant’s responsibility. If any personal
property damages the commercial property, the tenant is at fault and should repair it at their own
expense. Paul addresses the Corinthian church by saying we are stewards that should be found
trustworthy (New American Standard Bible, 1960/2000, 1 Corinthians 4:1-2). Similarly, we
should be good stewards of the physical property we lease and be trustworthy.
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.
When the tenant has broken a contract, such as a lease, the landlord will want to seek
monetary damages. For the landlord not to seek more damages than necessary, the courts have
put in place the duty to mitigate one’s damages (Kubasek et al., 2023). The landlord must show
COMMERCIAL LEASE ANALYSIS 4
the courts that they gave the tenant a reasonable amount of time to pay and avoid a breach of the
contract. This is an important law that the landlord should be required to follow as it protects the
tenant from further financial hardship. The default provision of Section 15 requires the landlord
to provide the tenant with written notification of default. The landlord can terminate the lease
agreement if the tenant does not rectify the default within the allotted time.
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?
Security deposits appropriately favor the landlord more than the tenant. It gives the
landlord confidence that the tenant will be a good steward of the commercial property being
leased. Commercial leases are usually three to five years; the security deposit may be used to
repair any damages or other defaults the tenant procures. If the security deposit is used during the
lease, the tenant must pay the balance returning the deposit to its original amount. As long as
there is no default, the landlord will return the security deposit to the tenant at the end of the
lease agreement. Depending on state law, landlords must inform the tenant where the security
deposit will be kept, whether a separate trust, business, or personal account (Portman & Stewart,
2003). Some states require the landlord to pay interest back to the tenant either monthly or at the
end of the lease. In the provided lease agreement, section 19, the landlord is not required to pay
interest and will maintain the deposit with the landlord’s other funds.
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?
Litigation can be a very time-consuming and costly process for both parties involved.
Many businesses prefer alternative dispute resolution methods, such as mediation and arbitration,
COMMERCIAL LEASE ANALYSIS 5
to avoid the emotional toll and financial burden of litigation (Kubasek et al., 2023). Mediation is
an extension negotiation where the disagreeing parties meet with a neutral party to communicate
and recommend ways to resolve the disagreement (Kubasek et al., 2023). The neutral party is
referred to as the mediator, who should be someone with experience in mediation and familiar
with the disagreement at hand. Mediation’s main advantage is that it helps preserve the
disagreeing parties' relationship and find unique ways to compromise between the two parties. It
avoids the “I am right, you are wrong” perception and creates an environment where the parties
come together to find a solution (Kubasek et al., 2023). The disadvantage of mediation is that it
can obscure the imbalances of power between the two parties in which the party with the most
influence benefits from the mediation. Another disadvantage is that some people use mediation
to prolong the disagreement (Kubasek et al., 2023).
Arbitration is an alternative method in which “disputes are submitted for resolution to
private nonofficial persons selected in a manner provided by law or the agreement of the parties”
(Kubasek et al., 2023, p. 55). An arbitrator can be anyone who is honest, impartial, has subject-
matter competence, and follows the Arbitrator’s Code of Ethics. The Federal Mediation and
Conciliation Services (FMCS) and the American Arbitration Association (AAA) are two
standard organizations that provide arbitration (Kubasek et al., 2023). One advantage of
arbitration is that it is less expensive than litigation. Arbitration gives the disputing parties more
control over the process concerning formalities. It also gives the arbitrator more flexibility in
decision-making as they do not have to provide reasons for their decisions (Kubasek et al.,
2023). The disadvantage of arbitration is that the appealing process is more complicated, and
losing litigation rights may cause parties to lose civil or other potential rights without knowing
(Kubasek et al., 2023).
COMMERCIAL LEASE ANALYSIS 6
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?
From a Biblical worldview, I would change the lease's security deposit section,
identifying that the deposit would be put in a separate trust to earn interest. The tenant would
have the option to have the interest earned returned to them at the end of the year or prorate the
interest into their monthly rent. Providing the tenant the opportunity to receive the interest earned
on their security deposit will build trust between the landlord and tenant. Although the security
deposit is not a loan, it can still be used to earn interest. Much like the parable Jesus tells in
Matthew 25:14-30, the talents given to the servants were entrusted to them, and all but one
servant invested the talent. When the master returned, all but one servant could show him their
faithfulness and stewardship over the talents given to them. The one servant was cast aside.
Returning the interest earned to the tenant shows faithfulness and trust between the landlord and
tenant.
COMMERCIAL LEASE ANALYSIS 7
References
Berson, B. L. (2012). The commercial leasing environment: Navigate the business aspects of
landlord-tenant law.GQuality,G51(10), 14. https://search.ebscohost.com/login.aspx?
direct=true&db=bth&AN=83406576&site=ehost-
live&scope=site&custid=liberty&authtype=ip,shib
Brokerage Best Practices. (2020, April 21). Commercial lease vs. residential lease: 5 key
differences. Buildout.com. https://www.buildout.com/blog-post/commercial-vs-
residential-lease
Kubasek, N. K., Browne, M. N., Barkacs, L., Herron, D., & Dhooge, L. (2023).GBiblical
worldview edition of dynamic business law(3rd ed.). N. J. Kippenhan (Ed.). McGraw
Hill Education
New American Standard Bible. (2000). Zondervan. (Original work published 1960)
Portman, J., & Stewart, M. (2003). The ins and outs of security deposits.GConsumers’ Research
Magazine,G86(5), 25. https://search.ebscohost.com/login.aspx?
direct=true&db=bth&AN=9898589&site=ehost-
live&scope=site&custid=liberty&authtype=ip,shib
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