What is the distinction between a “commercial” 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?
There are several differences between a commercial and residential lease. The most obvious difference is that a residential lease is between an individual tenant and the landlord while a commercial lease is between a business tenant and the landlord. The residential lease is leased to the individual tenant in order for the tenant to reside at the leased property. The residential leased property is not intended to be used for generating a profit. On the other hand, the commercial lease is leased to the business tenant in order for the tenant to utilize the property for profit building and is generally not used for a residence. McCluskey, Lim, McCord, & Davis (2016) demonstrate that “commercial property has distinctive and unique financial features compared to other asset classes”. These unique features include the fact that the commercial property available for lease has limited buyers, is illiquid, lacks divisibility and has high management costs (p.1). Another difference between a commercial and residential lease is how rent is assessed. For residential leases, rent is based upon current market demand, location, and occupancy level. For commercial leases, rent is based upon square footage. In some commercial leases, rent may include a percentage of profits received by the business tenant.
In a commercial lease agreement, the law should and does seek to protect the interest of the landlord. The law should protect the landlord due to the fact that, unlike residential leases, businesses often have access to better resources than the landlord. Whereas in residential leases, the landlord generally has greater access to legal and consulting resources than the individual resident. Businesses that enter lease agreements generally have much greater resources to consult with before signing a lease agreement than would an individual signing a residential lease. Business owners are often well versed in lease agreements. In addition to this, businesses often have a lawyer or a team of lawyers at their disposal, contractors and other professionals that the business can consult. Therefore, businesses are generally more knowledgeable when it comes to navigating lease agreements.
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.
The lease should impose obligations on the tenant, rather than the landlord, to make repairs, alterations, or improvements to the leased property. However, there should be a few exceptions to this rule. These exceptions are generally in the repairs category. If the leased property is faulty, deteriorates due to natural causes, or other means that does not result from normal wear and tear caused by the tenant, the landlord should be responsible. A few good examples of repairs that the landlord should be responsible for would be things such as the roof needing to be replaced on a building, a natural disaster that destroyed the leased property, or a repair that is not routine that is not caused by the tenant’s presence at the property. Other than these few exceptions, the tenant should be responsible for repairs, alterations, and improvements to the leased property. The tenant is leasing the commercial property in order to make a profit. Therefore, any wear and tear caused by business or any improvements and alterations to the leased property should be the tenant’s responsibility. Improvements or alterations to the leased property are for the sole benefit of the tenant and thus the tenant should be responsible to pay for these improvements.
In the default provisions of Section 15, what is the landlord’s duty to “mitigate” damages? Should the landlord be required to mitigate? Explain.
Unfortunately, there are situations when a tenant does not comply with the lease that was signed by both the landlord and tenant. When the tenant fails to pay rent, the landlord has to act in order to recoup or mitigate losses. Crump (2018) demonstrates that the “landlord’s costs continue whether a tenant is in place or not: the debt service on the underlying property, payments for utilities, taxes, insurance, and all of the other expenses that a property owner encounters whether there is a tenant or not” (para. 2). The landlord has a duty to himself to mitigate or attempt to recoup damages and losses incurred by a poor tenant. If the landlord fails to mitigate damages, when possible, then attempts to recoup those losses through the court system, in excess of the actual damages, the tenant should have protection from unreasonable collection of damages. The landlord has a responsibility to mitigate damages, if to no one else than himself. The landlord continues to incur expenses and costs regardless of if a tenant is currently paying rent or not. In order to protect the tenant, the landlord should be required to mitigate so the landlord can not attempt to claim damages in excess. Ephesians 4:25 says that “Therefore, having put away falsehood, let each one of you speak the truth with his neighbor, for we are members one of another” (English Standard Version). Landlords should never intentionally collect damages in excess of those actual damages owed by the tenant. In addition, tenants should never attempt to break a lease with his landlord
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?
The rights regarding a security deposit most definitely favor the landlord. “The security deposit is retained by the landlord as a reserve and is refunded upon satisfactory completion of the lease including final payment of the base rent” (Benjamin & Chinloy, 2004, p. 225). The security deposit protects the landlord from the tenant who would withhold from the landlord what is owed. Due to this fact, the security deposit is appropriate. A security deposit is a sum that is owed by the tenant to the landlord. The tenant not only needs to pay the landlord rent and additional fees, the tenant needs to pay a separate security deposit. This security deposit protects the landlord and ensures that unpaid rent or damages are at least partially returned to the landlord. The landlord has discretion over the security deposit and the landlord generally uses the security deposit to reduce the cost of fixing damages to the property. However, if the tenant is found to be in good standing, the security deposit may be returned to the tenant by the landlord. However, there is some uncertainty in what the security deposit may be used for. May tenants are unsure if their security deposit will be returned in full, partially, or not at all. Generally, this will depend on if landlord and how the landlord perceives unrecouped costs or damages.