Residential & Commercial Lease Provisions

Instructor: Shawn Grimsley
Real estate leases outline the rights and responsibilities of landlords and tenants in both residential and commercial rental properties. In this lesson, you'll learn about common provisions that are found in residential and commercial leases.

Leases

As you may know, a lease is simply a contract between a landlord and tenant regarding the renting of real property outlining the responsibilities and rights of each. Let's explore some of the more common provisions in both residential and commercial leases.

Residential Lease Provisions

You should see some basic but essential information in every written residential lease, which involves property used for a home. The lease will identify the tenant and landlord as well as the address of the property. The term or duration of the lease will be included. A lease should also state the monthly rent, the date the rent is due, the late fees as well as any required security deposit.

The lease also allocates responsibilities between the landlord and a tenant. It will address whether the tenant or the landlord is responsible for payment of utilities, such as gas, electricity and garbage. If you're a tenant, you'll want to pay attention to the repairs and maintenance for which you'll be responsible.

A residential lease will often restrict how tenants may use the property. The lease may restrict the occupants to those who have signed the lease and their minor children. It may also restrict the number of guests and the length of their stay at the property. Many leases restrict the type of pets a tenant may keep and may even prohibit pets completely. You may find that some leases prohibit the conducting of any type of business on the premises. Residential leases typically restrict modifications to the property, such as painting, wallpapering, changing flooring, appliances, cabinetry and the like. In fact, there are almost limitless restrictions that can be imposed upon the tenant so long as the restrictions do not violate federal and state law.

Most standard residential leases will have other important legal provisions you'll want to pay attention to. The lease will outline the landlord's right to inspect the property. It will also tell you how the parties will communicate and provide notice to each other. Whether subleasing (where a tenant subleases the property to someone else) is permitted is often addressed in residential leases too. Importantly, the lease will also outline the circumstances under which the lease may be terminated by the landlord or by the tenant. Finally, the lease may address dispute resolution including provisions regarding litigation and payment of attorney's fees.

Commercial Lease Provisions

A commercial lease is simply a lease concerning real estate used for business. Commercial leases are generally more complex than residential leases, but they do have many provisions that are similar. The landlord and tenant will be identified. The address and specific part of the building will be identified if you're only leasing part of a building, like a space in an indoor mall or office building. You'll see a term clause that tells you the duration of the lease. You'll also find clauses addressing communication and notice, inspection, dispute resolution and conditions for termination of the lease as well.

Although some parts of a commercial lease will be similar to residential leases, others are different enough to merit discussion. A commercial lease will address security deposits and rent, but rent for commercial tenants is often quite different than it is for residential properties. Commercial leases include gross leases, net leases, double net leases and triple net leases. A gross lease is very much like paying rent for a residence, where you just pay rent and the landlord takes care of insurance, taxes and most maintenance. In a net lease, you pay rent and your share of the property taxes. In a double net lease, you pay rent and your share of taxes and insurance. A triple net lease is like a double net, but you also have to pay maintenance costs.

Commercial leases may have use and exclusive use clauses. A use clause pretty much restricts what you can do with the property. For example, if you are leasing an office building, it may prohibit you from opening a retail boutique or bar. An exclusive use clause means the landlord agrees not to lease part of the building to another tenant that offers the same goods or services as you do. For example, if a mall bookstore gets an exclusive use clause, no other bookstores can be in the mall.

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