Thomas Bennett Real Estate Lawyer Boston MA

Wednesday, June 27, 2012

A Comparison of Commercial and Residential Tenancies



by Thomas V. Bennett

Although both residential and commercial leases create a contractual relationship between the tenant and the landlord, providing space in exchange for rent, vast differences exist in the rights and duties of tenant and landlord in each instance.
 
The landlord-tenant relationship can be the subject of a tenancy at will, under which occupancy by the tenant is from month to month and can be terminated by either party on thirty days notice, or it can be covered by a lease, which in a residential setting will generally be a year with extensions thereafter and in a commercial setting will typically be for a number of years. The lease spells out all of the rights and obligations the landlord and the tenant. In a commercial lease the provisions can be extensive. For example, in a mall where there are issues dealing with not only the space lease, but also the hours of operation and a common area costs for cleaning, marketing, security and the like.
 
With respect to a residential lease, a landlord provides a particular space to a tenant and the tenant has rights to use that space provided that the tenant pays the rent. However, the tenant usually is not in much of a bargaining position (particularly in today's tight rental market) when it comes to dealing with a landlord. Because the government views decent residential housing as an individual's essential right and, therefore, feels it has a legitimate interest in protecting the public in that area, residential leases are subject to extensive regulation protecting the rights of tenants. Many laws and regulations have been passed in order to level the playing field. These include laws dealing with health, safety and occupation; security deposits and last-months rents; and probably the most drastic of all, rent control provisions which have now been eliminated by a statewide referendum.
 
The ongoing relationship between residential landlord and tenant involves many issues, not the least of which concern habitability. The landlord basically agrees to provide to the tenant a safe and clean space which will be consistent with local health and safety laws. He must provide the tenant heat, light and ventilation, and must keep the building in which the apartment is located in a clean and safe condition. There has been much litigation involving landlords and tenants, not the least of which is the famous Hemingway case, which held that a tenant may offset rent if a landlord fails to maintain the apartment and building in compliance with sanitary and health code regulations.
 
Commercial leasing is very different in that the parties generally have much more equal bargaining power and often negotiate the lease terms. This leads to variations in the relationship which can be as creative as the landlord's and tenant's needs. A good example is construction in air rights over the Massachusetts Turnpike. The Commonwealth of Massachusetts, as the landlord, will lease the air rights to a tenant who will construct entire buildings and structures and then lease portions of the buildings to others.
 
Very often in commercial leases the tenant will have the entire responsibility for maintaining the building, for paying for insurance, for paying real estate taxes and for upkeeping any grounds. The landlord's relationship with the tenant in that instance is basically limited to receiving the rent and paying the mortgage.
 
Not all buildings are exclusively residential or commercial. Some house mixed uses but this can lead to a considerable amount of strife between commercial tenants, landlords and residential tenants, given the different "personalities" of the commercial and residential use and the differing expectations of commercial and residential tenants.
 
Typically in a residential setting there are form leases which generally follow the requirements set forth in state and local rules and regulations. A tenant usually does not need an attorney for the garden variety residential lease. Commercial leases are different in that the lease terms are open to negotiation and form a contract between the landlord and the tenant as to how the real property will be used and which party will have responsibility for various aspects of property ownership. There, the parties should seek the advise of an attorney.

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