Commercial vs Residential Leasing

Let’s say you’re thinking about starting a new business venture, and of course, you will be needing a commercial space for it. You might not think it through as you already have experience with renting property. I mean, how different could it be, right? Wrong.

Unlike in residential rentals, commercial leases are far more complicated than you think. Of course, there are a few similarities as well but the considerable amount of differences shows that there is a need for you to weigh your pros and cons before making a move.

Commercial Leasing

As we have mentioned above, commercial leasing tends to be a lot more complicated compared to residential leases. For one, they are much longer, some reaching up to 20 years or even longer, including an option of lease extension annually compared to residential leasing which is shorter in length and can be easily renewed.

The thing about commercial leases is that they are harder to break and their rent regularly increases per year.

Negotiation

In commercial leasing, the tenant is expected to have the same benefits as the landlord in terms of  the contract negotiation –which is not the case in residential leasing.

However, there are no definite terms even if the same property is being rented. The terms and conditions still greatly dependant on the tenant’s needs and their talent in negotiating.

Terms that are subject to change are:

• Amount of rent
• Length of the lease
• Rent increase
• The capability to assign a lease
• Some allowable improvements

Commercial leases include a make good clause, and maintenance and management clause that serve as extra protection for the property owner/landlord. Laws that apply to consumers of a residential tenancy does not cover consumers of a commercial tenancy. There are even less laws on consumer protection because it is believed that business owners are more knowledgeable compared to residential tenants.

Calculation of Rent

Rent in a commercial property is calculated by the rate per meter, however, this varies with the property being rented and all its features such as location, size, services, car park allowances and the likes. Unlike the residential renters, commercial tenants pay for all outgoings.

Tenant’s Responsibilities

Commercial leasing is more complicated and it entails a greater amount of responsibility. Whilst the landlord or property manager is primarily required to oversee the repair and maintenance of the property in a residential tenancy, it is not the case with commercial properties. Alterations and modifications are regularly done on the property in order to suit the business’s needs so it is expected that tenants should take the lead in the maintenance and repair of the property.

Vacating the property

Unlike in residential tenancy, if the tenant wishes to vacate a commercial property, there is a chance that they would be made liable to pay the ongoing rent, maintenance cost and all other rates, including insurance for as long as a new tenant hasn’t been found yet.