It might sound obvious, but commercial and residential leases are not the same – not even close.
A commercial lease is a contract between a landlord and a business tenant. On the other hand, residential leases are signed between landlords and individuals looking for a place to live.
While the distinction may not seem overly significant at first glance, if you're an aspiring landlord, there are key differences between commercial and residential leases which you should be aware of.
Here's an overview of the major differences between these types of leases and some tips on how to protect your interests as a landlord if you're new to commercial leasing and drafting contracts.
Commercial Leases Are Not Boilerplate
Let's start with the most obvious difference: the contract itself.
To some extent, residential leases are fairly boilerplate because they're guided by statute. If you're drafting a residential lease, you simply turn to laws like the Wisconsin Statute Chapter 704 and Chapter ATCP 134 of the Wisconsin Administrative Code for help with which clauses to include to ensure your lease is legally sound.
There's no such guidance regarding commercial leases, so these contracts are often long, complex, and more detailed, which is why it's best to consult an experienced attorney rather than draft these documents yourself.
In Commercial Leases, Language Is Everything
Since there's no such thing as a boilerplate commercial lease, language truly is everything. As a landlord, you want to avoid:
- Vague wording
- Clauses that are too general
- Leaving out key details, e.g., how taxes are paid, the extent of the rental property
If a clause is too vague or unfair in some way, it could be voided, which means you can't enforce the clause against the tenant. A landlord-tenant attorney can help you avoid such a scenario.
Commercial Leases Allow More Room for Negotiation
There's a lot of room for negotiation on both sides when it comes to commercial leases. You can negotiate everything, including:
- Security deposits
- Repair and maintenance obligations
- Rent value
- Lease duration
- Early termination
- Payment of legal fees in the event of a dispute
If you're an inexperienced commercial landlord, and you don't instruct an attorney to help you negotiate a lease, there's a chance you will accidentally give tenants more rights than necessary. So, while it's great that there's plenty of room for negotiation in commercial leasing, you must understand your rights and how to protect them at every stage of the process.
Security Deposit Deductibles in Commercial Leases
When it comes to security deposits, residential and commercial leases are, for once, actually pretty similar.
By default, commercial landlords can only withhold sums from a tenant's security deposit in very limited circumstances under the Wisconsin Statute 704.28.
If you want to withhold money from a security deposit for any reason other than what's indicated by statute, you should agree to a separate written document, the “Nonstandard Rental Provisions,” with your tenant.
An attorney can help you negotiate this ancillary document to reflect the specific circumstances of your premises and the lease agreement.
Beware the “Right to Cure”
A “right to cure” allows a tenant who defaults on a contractual obligation (such as rent payment) to make things right within a certain timeframe.
In residential leases, tenants typically have just a few days to pay rent after it falls due, or else they must leave the property. Commercial leases, however, are a little more complicated.
Under Chapter 704.17 of the 2011 Wisconsin Code, if it's a commercial tenancy for a year or less, the tenant has five days to pay rent or vacate the property if they can't pay. However, if it's a tenancy for longer than one year, the tenant has a whole 30 days to pay or vacate the premises.
Meaning, as a landlord, you could face serious cash flow problems if a long-term commercial tenant repeatedly fails to pay on time.
If you're worried about a tenant who is in breach of the lease, contact a landlord-tenant attorney today for help.
How a Commercial Landlord Can Protect Their Interests
If you're looking to rent out a commercial property, let me leave you with some pointers to remember.
- Commercial leases are, by nature, far more complex than residential leases, and it takes a fair amount of knowledge to draft them properly.
- Although you have responsibilities as a landlord, you have rights, too. A poorly drafted lease can result in handing over far more rights to your tenant than necessary, which compromises your position.
- Commercial leases are often long-term, so consider what you need from the rental arrangement and keep this goal at the forefront of your mind during potential negotiations.
The easiest way to ensure your commercial lease is watertight? Instruct an experienced attorney to draft the lease for you. An attorney will work with you to ensure your rights as a landlord are fully protected, and they can help you navigate any negotiations with potential commercial tenants.
Let an Experienced Landlord-Tenant Attorney Help You
Commercial leases are complex beasts, and if you don't draft your contract carefully, you could find yourself in a suboptimal position.
Here at Richard Steele Law, LLC, we understand the unique challenges commercial landlords face, and we know how difficult it can be to draft complex commercial contracts, especially if you're a new landlord with little experience in this area.
Let us help you draft and negotiate a commercial lease you can rely on – contact us now for help or to ask any questions.