Running Head: WEEK 4 COMMERCIAL LEASE AGREEMENT ASSIGNMENT 1
Week 4 Commercial Lease Agreement Discussion Questions
Mechelle Herrera
Liberty University BUSI 561-D23
COMMERCIAL LEASE AGREEMENT
Question #1: What is the distinction between a “commercial” lease 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?
The main difference between a commercial lease and a residential lease is the
intended use of the property. A residential lease is a contract between a tenant and a
landlord to use the property for their living arrangement; typically a home used for a
residence and not for a profit. A commercial lease is a contract between a tenant and
landlord to use the commercial property to generate a profit through the sale of
goods, services, or manufacture of a product. The property is not used for day-to-day
living or overnight sleeping. (Residential agreement and a commercial lease - key
differences, n.d.)
Another major difference between residential and commercial leases is the
levels of protections provided by law for the tenants. Residential tenants are
afforded much more protection than that of their commercial counterparts. The law
looks at residential tenants as consumers and as such, is protected by various
consumer protection laws. Commercial tenants are seen as equals to commercial
landlords in terms of contract negotiation skills, experience, knowledge, training,
and access to third party professionals such as lawyers, contractors, and engineers.
(Residential agreement and a commercial lease - key differences, n.d.) It’s for this
reason I believe the current commercial landlord/tenant laws are adequate to
protect the interests of the commercial landlord over the interest of the commercial
tenant. Both commercial landlord and commercial tenants are considered equally
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COMMERCIAL LEASE AGREEMENT
capable business people and go into lease negotiations on equal footing with one
party not having any more or less access to knowledge, skills, or abilities to ensure a
favorable compromise for both parties.
Question #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.
Running a business is fluid. Occasionally remodels are needed to a business
property to either refresh or repair the space. The cost of these cosmetic changes or minor
damage repairs should fall on the commercial tenant as part of “the cost of doing
business.” Section 5 of the lease indicates that major mechanical systems or the roof are
the responsibility of the commercial landlord. This is a reasonable request as damage to a
mechanical system such as electrical wiring or the external walls, foundation, and roof
can have a serious negative impact to a business to the point of temporary closure to
repair such major mechanical issues. With all that being said, according to “A Tenant’s
Practical Guide to Commercial Leases,” a tenant “will still not be permitted to commit
‘waste,’ which is any damage which lessens the value of the property to the landlord,
owner, or future owner.” (Darlington, 2013) What this means is the commercial tenant
cannot make any alterations to a property if those alterations would cause a devaluation
of the property for the landlord. Commercial leases may even provide a detailed list of
the type of alterations that can or cannot be done.
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COMMERCIAL LEASE AGREEMENT
Question #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.
If a commercial tenant fails to pay rent by the agreed upon time set forth in the
commercial lease and the commercial landlord has followed all applicable laws and
processes to evict the tenant, then the landlord does have the right to take possession of
the property, enter the premises, and begin removing the tenant’s belongings. Whether the
landlord has a duty or legal obligation to mitigate the damage to the tenant’s belongings
depend on each individual state laws. For instance, in Washington v. Harris, the Georgia
Court of Appeals held that a “landlord who obtained a writ of possession could be liable
for conversion (an intentional tort that exposes the landlord to liability for damages)
because, instead of placing the tenant’s property on some portion of the land, the landlord
hired a salvage crew to simply remove the tenant’s property with no consideration as to
its ultimate fate.” (Zion & Harbin, n.d.) According to Georgia law, during an eviction, the
landlord must place the tenant’s belongings on land owned by the landlord outside of the
rented space or some other location as approved by the sheriff, such as a sidewalk. (Zion
and Harbin, n.d.) Since commercial lease laws vary from state to state, it is advisable to
add a clause in the commercial lease that gives a landlord a duty to mitigate or reduce
damages as it says in Section 15 of the example commercial lease.
Question #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?
As it’s written in the example lease, Section 19 favors the landlord, particularly
the parts where the landlord can commingle the security deposit with his other funds and
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COMMERCIAL LEASE AGREEMENT
when the landlord can use the deposit during tenancy to make good any arrearages of rent
or any other covenant or obligation of the tenant. Regarding the landlord commingling
the security deposit with his other funds, attorney and author Janet Portman recommends
including a clause where the security deposit is kept in a separate interest bearing account
in a federally insured bank and giving the tenants the interest when the security deposit is
refunded. (Portman, 2013)
Regarding the landlord’s use of the security deposit during tenancy, Portman
explains that unless it’s negotiated in the security deposit clause, a landlord can use the
security deposit during tenancy if the tenant is slightly late on rent due to a late payment
by a customer of the tenant, or if the landlord and tenant are disputing common area
maintenance (CAM) costs. (Portman, 2013)
The question now pivots as to whether or not the security deposit as written is
appropriate given that they favor the landlord over the tenant. I believe as the security
deposit clause as written is appropriate. Neither “advantage” to the landlord is illegal or
particularly immoral; however, it does give an indication of the tenant’s negotiating
skills. Prior to signing this commercial lease, the tenant should renegotiate the security
deposit clause so that the deposit is separate from the landlord’s other funds and earns
interest and that the landlord cannot use the deposit during tenancy without appropriate
written notice and a set timeline before the security deposit is to be used. The landlord
may reject those proposals, but may offer a compromise that is favorable to both parties.
Question #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?
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COMMERCIAL LEASE AGREEMENT
The way this section is worded is good because it encourages mediation before
arbitration. Handling disputes through a mediator shows good faith by both parties that
things can be resolved amicably and a professional working relationship can be
preserved. Arbitration is an adversarial process and can drive a wedge between parties.
Mediation seeks agreements where as arbitration delivers decisions. There are many
advantages to using mediation over arbitration:
Time and Cost: Mediation can be much less expensive and time consuming that
arbitration. Mediators typically charge $1000 to $5000 per day with the cost being split
between tenant and landlord. Arbitration can cost a great deal more and take years to
resolve. (Kaufmann & Parker, 2013)
Control the Process: Mediation allows the parties to negotiate their own
resolution on their own terms. It allows “outside the box thinking” and agrees on a
“creative solution.” Binding arbitration means once a decision is rendered, there is no
recourse for either party to make changes to that decision. (Kaufmann & Parker, 2013)
Amicability: The main purpose of arbitration is to find out who is right and who
is wrong and award one party a monetary sum or dismiss the claim. (Kaufmann & Parker,
2013) Like a trial, both sides’ goal is to discredit the other in an effort to win the
arbitration hearing. With mediation, the goal is to create an alliance and form a
collaboration to resolve the conflict.
Choosing a mediator is also a joint effort. Both parties agree on a neutral third
party to act as a facilitator and move through the dispute to come to a reasonable solution.
With arbitration, Section 29 states the arbiter will be chosen for them in accordance with
the American Arbitration Association. Because the arbitration is named in the lease
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COMMERCIAL LEASE AGREEMENT
agreement, I’m assuming this landlord probably used arbiters from the AAA in the past.
This can lead to questionable objectivity as the landlord and the arbiters for the AAA may
have worked together on previous disagreements. Also as mentioned before, a binding
decision by an arbiter is final. There’s little if any recourse either party has to change the
outcome. (Is mediation a better choice than arbitration? | Mediation v. The
Alternatives | Marin, San Francisco, n.d.)
Question #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 Christian businessperson, there isn’t anything I would change with the
Commercial Lease as it’s written. There appears to be nothing illegal with the wording.
Also, there appears to be nothing written that puts either the Landlord or the Tenant in an
overly advantageous position. With that said, I would still retain a good Commercial Real
Estate lawyer to review this lease to ensure that.
As a Christian businessperson, it would be the execution of this lease that would
speak volumes on whether or not I’m glorifying God in my business. Numbers 30:2
(ESV) states, “If a man vows a vow to the Lord, or swears an oath to bind himself by a
pledge, he shall not break his word. He shall do according to all that proceeds out of his
mouth.” Jesus reiterates this in Matthew 5:37 (ESV) when he said, “Let what you say be
simply ‘Yes’ or ‘No;’ anything more than this comes from evil.” What these verses say is
if I agree to a contract, I keep my word and fulfill everything I say I’m going to do or not
do. As a tenant, I would pay my rent on time, every month. I would take care of the
building as if it’s my own. If I have a disagreement with the landlord, I avoid arbitration
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COMMERCIAL LEASE AGREEMENT
and opt to resolve the issue either with a conversation with the landlord, or if needed, a
mediator. As a Christian, I should avoid lawsuits when necessary, especially if I know the
landlord is a brother in Christ. 1 Corinthians 6:1 – 11 is clear regarding lawsuits against
other Christians. The Apostle Paul was urging the Corinthians to work out disagreements
with each other as brothers in Christ instead of bringing them before a magistrate who
would most likely be an unbeliever. God is most glorified when the world can see
brothers in Christ sit down together and work out their differences in a peaceful and
respectful manner.
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COMMERCIAL LEASE AGREEMENT
References:
Darlington, S. (2013). Tenants guide to commercial leases: The essential
guide to the practical considerations to be ..Place of publication not identified: Stuart
Darlington.
Is mediation a better choice than arbitration? | Mediation v. The Alternatives |
Marin, San Francisco. (n.d.). Retrieved November 8, 2018, from
http://www.neimanmediation.com/is-mediation-a-better-choice-than-arbitration/
Kaufmann, W., & Parker, B. (2013). Arbitration and Mediation of Commercial
Lease Disputes. Arbitration and Mediation of Commercial Lease Disputes. Retrieved
November 8, 2018, from http://www.dv-law.com/docs/default-
source/Articles/arbitration-and-mediation-of-commercial-lease-disputes--
december-2016.pdf?sfvrsn=0
Portman, J. (2013, July 29). How Landlords Use Security Deposits in
Commercial Real Estate. Retrieved November 7, 2018, from
https://www.nolo.com/legal-encyclopedia/clb-landlord-use-security-deposit-
commercial-real-estate.html
Residential agreement and a commercial lease - key differences. (n.d.).
Retrieved November 7, 2018, from https://real-estate-law.freeadvice.com/real-
estate-law/real-estate-law/residential_lease_commercial.htm
Zion, A. D., & Harbin, R. E. (n.d.). Commercial Lease and Landlord /Tenant
Enforcement and Disputes. Retrieved November 7, 2018, from https://bloom-
law.com/wp-content/uploads/2016/07/Commercial-Lease-and-Landlord-Tenant-
Enforcement-and-Disputes.pdf
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