Commercial Lease Analysis 1
Commercial Lease Analysis
Chazmine Mitchell
09/05/2024
BUSI 561
Michael Bootsma
Commercial Lease Analysis 2
Distinction Between Commercial and Residential Leases
Commercial and domestic leases have some things in common, but they are also very different in
how they are structured and what they are used for. As stated on page 314 of Kubasek (2020), a
lease is "a transfer of the right to possession and use of goods for a term in return for
consideration. For a predetermined monthly or annual fee, tenants under any of these types of
leases can use a piece of land without having to worry about buying it outright or paying for
maintenance and taxes. Even though both types of leases allow occupants to use the leased
property, commercial leases typically place greater restrictions on that usage and regulate the
property's availability for commercial use. There is more leeway for negotiating in commercial
leases compared to residential ones, which are sometimes governed by landlord-tenant
regulations that prioritize tenant rights (LegalNature, 2021).
Since longer commercial leases are designed to address the specific needs of businesses
including worries about zoning rules and potential property changes tenants are obligated to
make a more significant financial investment. Whenever a dispute arises, the law respects the
contract's provisions, and these leases tend to be more intricate. However, residential leases are
designed to safeguard tenants' fundamental rights, such as privacy and a safe place to live, by
acknowledging the power imbalance between owners and those seeking refuge.9
However, there is still disagreement over how much more legal protection commercial tenants
have than landlords. Some people say that smaller, less experienced businesses need more
protection, but others point out that many commercial tenants have a lot of negotiating power
and lawyers, which makes it less important for full tenant protections (Geltner, Miller, Clayton,
& Eichholtz, 2013).
Commercial Lease Analysis 3
Residential leases, on the other hand, recognize the imbalance of power between landlords and
tenants and seek to protect tenants' basic rights, such as the right to privacy and the right to live
in a secure environment. Tenants are required to make a higher financial commitment because
longer commercial leases are tailored to meet the unique requirements of businesses, such as
concerns about zoning regulations and possible property modifications.
Whenever a dispute arises, the law typically respects the provisions of the contract, and these
leases tend to be more intricate. However, residential leases are designed to safeguard tenants'
fundamental rights, such as the right to privacy and a safe place to live, by acknowledging the
imbalance of power between owners and those seeking refuge.
However, there is still disagreement over how much more legal protection commercial tenants
have than landlords. Some people say that smaller, less experienced businesses need more
protection, but others point out that many commercial tenants have a lot of negotiating power
and lawyers, which makes it less important for full tenant protections (Geltner, Miller, Clayton,
& Eichholtz, 2013).
Tenant’s Obligation for Repairs and Improvements
Landlords are obligated to make a higher financial investment due to the fact that longer
commercial leases are customized to address the specific needs of businesses, including factors
related to zoning rules and potential property modifications. When a dispute arises over one of
these more intricate leases, the law will uphold the contract's provisions. Home leases are an
effort to level the playing field between landlords and those looking for a safe place to live by
addressing the inherent power disparity between the two groups. Nevertheless, the question of
whether landlords or business tenants enjoy more legal protections remains an ongoing point of
Commercial Lease Analysis 4
contention. The authors Geltner, Miller, Clayton, and Eichholtz (2013) argue that while some
believe smaller businesses should be better protected, others argue that broad tenant rights are
unnecessary because many business renters have lawyers and considerable bargaining power.
Who should foot the bill for routine maintenance and repairs: the landlords or the tenants of
commercial properties? Reasonable people can argue for both sides. Tenants in the commercial
sector utilize the property for profit-making purposes and often seek improvements to better suit
their company needs. According to Christensen and Duncan (2004), tenants ought to be the ones
to foot the bill for routine maintenance and improvements as they are the ones really making use
of the facility. In most commercial leases, Sections 5 and 6 give the tenant the authority to make
any required repairs or alterations to the property. The tenant's business ca not run smoothly
without these rights. It is better for everyone if renters pay for repairs and improvements. They
are more likely to keep the property in great shape.
While landlords should take care of major structural repairs and upgrades, tenants should be
responsible for frequent minor repairs and upkeep. Maintaining homes in good shape is
beneficial for all parties involved, and landlords should be required to pay for such repairs and
renovations (Singer, 2018). Routine maintenance protects both owners' investments and tenants'
operational needs. Tenants should be responsible for regular maintenance and small repairs,
while owners should fix and improve the building's structure. Regular maintenance protects both
the investment of owners and the safety of tenants' living spaces.
Landlord’s Duty to Mitigate Damages
According to Section 15 of the commercial lease, the concept of mitigation of damages entails a
legal obligation for the landlord to reduce the financial repercussions following a tenant’s breach
Commercial Lease Analysis 5
of lease. This obligation compels the landlord to undertake reasonable efforts to lease the
property to a new tenant promptly, rather than allowing the property to remain vacant while
seeking compensation for damages (LaMance, 2018; Friedman, 2020). The reason behind this is
that after one party has experienced harm due to another's breach, they are obligated to take
measures to mitigate the extent of that harm, as stated in the common law doctrine of avoidable
consequences (Groll, 1968).
It is essential for landlords to take steps to minimize losses in order to prevent themselves from
unfairly profiting from a tenant's default, they must take measures to reduce damages. For
example, without a mitigation requirement, a landlord might leave a property unleased and claim
full damages from the defaulting tenant for the duration of the lease, even though re-leasing the
property could have reduced the financial impact (Silver, 2015). Landlords are incentivized to
make reasonable attempts to find new renters by the law's mitigation requirements. These efforts
may involve promoting the property, listing it with an agent, or even just putting a "for lease"
sign on the property (Silver, 2015).
Finding a generalized solution to this topic may mean examining each case individually, as each
aspect of each circumstance could influence what is considered a "reasonable effort" to mitigate
harm. No matter how unusual or ordinary the situation is; no landlord should attempt to fill
vacant apartments with unwary renters. Finding this middle ground will safeguard both landlords
and tenants from unneeded legal action. Finding this middle ground will safeguard both
landlords and tenants from unneeded legal action.
If a tenant has payment troubles or more violations, the landlord must give them a chance to
remedy them before terminating the lease, as stated in Section 15 of the lease (Friedman, 2020).
Commercial Lease Analysis 6
This method makes sure that everyone maintains their word, promotes equity, and highlights the
mitigation concept.
Security Deposit Rights
The rights connected with the security deposit are addressed under Section 2 and Section 19 of
the lease, which often give the landlord the upper hand. Landlords often have the right to use
security deposits to pay for tenant infractions like late rent or damage to the property. Also,
landlords can mix these monies with their other assets in the lease, which makes it hard to tell
what happens to them (Schaffzin, 2009). This part of the security deposit is really important
since it helps the landlord secure their property and their finances in the event that the renter
causes any damage. This arrangement raises concerns about the equitable treatment of tenants,
particularly with the promise of the restoration of the deposit. The timing and method of security
deposit refund should be clearly stated in the lease in case of damage or nonpayment of rent.
Transparency in the lease terms is vital so that tenants know their rights and what to do if they
want their deposit back (Mallor, 2016).
Landlords have a right to utilize security deposits to cover losses, but tenants have a right to
demand better safeguards. Tenants should ensure that the security deposit is stored in an account
that is accessible to both parties during the planning process. There will be less room for
disagreements about how the money was used because of this increased openness. A possible
alternative to using a security deposit as a negotiation tool is to propose that tenants spend the
money on9rent or investments. Landlords' dependence on security deposits to minimize risk has
risen in the past few years in the aftermath of serious incidents like the COVID-19 pandemic,
which affected many9commercial tenants significantly. Landlords should rest easy during
economic downturns since the security deposit serves as a safety net in case tenants do not pay
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(Warnery, 2020). Given their financial risks, landlords would9gain from legislation mandating
security deposits. Creating security deposit criteria that are clear, fair, and transparent will assist
in creating a more equal leasing arrangement. Landlords should rest comfortably during
economic downturns since the security deposit serves as a safety net in case tenants don't pay
(Warnery, 2020).
The security deposit laws do seem to benefit landlords, but that's understandable considering the
financial risks they face. It is possible to create a more equal leasing environment by making sure
that the terms of the security deposit are clear, fair, and transparent.
Mediation and Arbitration
The company lease specifies in Section 29 that any disputes must be settled by mediation or
arbitration and not by the conventional court system. The good thing about this rule is that it
generally helps settle disagreements faster and for less money. By combining the advantages of
confidentiality and cooperation and the less confrontational character of mediation and
arbitration, more amicable outcomes are possible (Taylor, n.d.; Ware, 2016).
Yet, there are also downsides to using these alternate conflict settlement methods. The difficulty
in finding an unbiased and objective mediator or arbitrator is a major cause for worry. It could be
unfair if the party with more resources or bargaining strength ends up benefiting accidentally
from the process (Kubasek et al., 2018). It's also important to note that arbitration decisions are
generally final and ca not be changed. This can be a problem if the outcome is seen as unfair.
To prevent bias in conflict resolution, mediators,9arbitrators and9judges must be carefully
selected. It is critical to make sure the mediator or arbitrator has the training and tools to deal
with cases of this complexity (Ware, 2016). A deep9understanding of the law is vital for
Commercial Lease Analysis 8
mediators and arbitrators9to prevent disputes. This could come from being practicing lawyers or
judges who have dealt with business lease agreements before. If these experts are held to a strict
code of behavior and the interests of both the landlord and the tenant are balanced, the settlement
process can be made more efficient and fair. Another crucial aspect is the openness with which
they choose candidates.
Biblical Worldview Considerations
As a businessperson with a Biblical worldview, it is important to ensure that commercial lease
deals align with biblical principles of fairness, honesty, and justice. The Bible stresses the
significance of doing what is right rather than what is expedient in business. "Better a little gain
with righteousness than much gain with injustice" (Proverbs 16:8) proclaims the author of
Proverbs. Similarly, Psalm 112:5 affirms fair transactions by saying, "Good will come to those
who are generous and lend freely, who conduct their affairs with justice."
For one's9lease to represent these principles, one should revise it somewhat. Landlords and
tenants should equally split the repairs and maintenance expenses so that neither party bears an
undue burden. The lease must be9prepared in clear, easily understood English so that both parties
fully grasp their responsibilities and protections. Changing the terms of security deposits will
make everything more open and equitable, align with the biblical mandate for honesty (Leviticus
19:13), and lessen the likelihood of disputes, so it's beneficial for everyone.
The lease should also promote collaborative conflict settlement and gracious enforcement. In
keeping with the biblical emphasis on reconciliation (Matthew 18:15-17), engaging in open
communication and amicable resolution of difficulties is encouraged before turning to legal
remedies. It is also consistent with the values of generosity and sharing found in 1 Timothy 6:18,
Commercial Lease Analysis 9
which provides tenants grace periods to fix arrears or discuss payment plans before pursuing
harsher penalties. By adhering to these standards, landlords and tenants benefit from a more fair
lease arrangement and a more biblically-based corporate climate.
Commercial Lease Analysis 10
References
Christensen, S., & Duncan, J. (2004). Tenant's Obligation for Repairs and Improvements.
Journal of Property Management, 22(2), 28-35.
Friedman, L. M. (2020). Landlord’s Duty to Mitigate Damages. Cambridge University Press.
Geltner, M., Miller, N. G., Clayton, J., & Eichholtz, P. (2013). Commercial Real Estate Analysis
and Investments. South-Western Cengage Learning.
Groll, S. (1968). The Doctrine of Avoidable Consequences and Mitigation of Damages.
University of Pennsylvania Law Review, 116(3), 306-321.
Kubasek, N. (2020). Distinction Between Commercial and Residential Leases. Prentice Hall.
LaMance, K. (2018). Mitigation of Damages in Real Estate Leases. Journal of Legal Issues and
Cases in Business, 6, 1-15.
LegalNature. (2021). Understanding Commercial vs. Residential Leases. Retrieved from
https://www.legalnature.com
Mallor, J. P. (2016). Security Deposit Rights. In Business Law and the Regulatory Environment
(pp. 455-467). McGraw-Hill Education.
Schaffzin, K. (2009). Security Deposit Utilization in Commercial Leases. Real Estate Law
Journal, 37(4), 345-358.
Silver, L. (2015). Commercial Lease Law and the Duty to Mitigate. Journal of Business Law,
8(1), 14-22.
Singer, P. (2018). Landlord Responsibilities and Tenant Rights. Real Estate Review, 48(2), 54-59.
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Taylor, J. (n.d.). Mediation and Arbitration in Commercial Leases. Retrieved from
http://www.leasemediation.org
Warnery, G. (2020). The Role of Security Deposits in Commercial Leases During Economic
Uncertainty. Journal of Property Management, 24(3), 12-19.
Ware, S. J. (2016). Principles of Alternative Dispute Resolution. West Academic Publishing.
