What are the Key Legal Differences in a Commercial Lease Versus a Residenial Lease?

There are a number of differences between commercial and residential leases. The most significant is the “use” provision. The premises leased under a commercial lease may be used for a business purpose described therein such as a retail store, office or manufacturing facility (provided it is zoned for such use).  It should be noted that a lease cannot grant a right to use space that is in violation of the applicable zoning laws.  

The premises leased under a residential lease may be used as a dwelling unit or residence but the lease may specifically prohibit commercial use in the space per the zoning laws. This prohibition may be especially relevant today with many workers working remotely or running business out of their home.  Some residential leases and zoning laws allow certain specific professions to conduct business in a residential dwelling.  Examples of such professions are lawyers, architects or therapists (which are appointment based professions rather than professions open to the public). The residential lease may list the tenant and the particular permitted occupants. 

In addition to the difference in “use”under a commercial vs. residential lease, the balance of power may change the dynamic of the lease agreement.  For instance, there is a presumption that the parties to a commercial lease may be more sophisticated and need less protection to contract in a manner that suits the parties economic/business needs.  The balance of power between the consumer/residential tenant and landlord may be less even, causing landlord/tenant laws to evolve to protect the tenant’s rights.  For example, there are more procedural steps involved in evicting a residential tenant vs. a commercial tenant for public policy reasons.  Society doesn’t want people thrown out of their homes out on the street but is possibly more accepting of a business tenant losing its lease. The business tenant can find another space with less emotional turmoil then a family losing its residential lease. 

With regard to the security deposit, a residential security deposit may be required to be placed in a separate, interest bearing account for the benefit of a residential tenant.  A residential landlord may have to carefully detail any deductions from the security deposit and may suffer penalties for wrongfully keeping the security deposit.  Whereas, a business landlord may be permitted to keep the interest on a commercial lease security deposit as a fee for administrating the funds and may comingle it with other tenant security deposits.

There may provisions in a residential lease that are not commonly found in a commercial setting, such as provision governing adding roommates, pets, rent stabilization provisions, use as an Air B&B, or use and maintenance of residential features (i.e.  backyard, pool or garage).  In the same way a commercial lease will have provisions not commonly found in a residential setting, such as a provision regarding signage and escalators/elevators.

A commercial lease and a residential lease may have many similar provisions but for the reasons described above, the form of lease used are not interchangeable.