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What is the difference between commercial and residential lease?

Posted on January 30, 2019 by Genet Group

Although the principle of investing is the same, there are significant differences between the residential and commercial lease and each type has its own merits. Various factors determine the differences between residential and commercial real estate including; property value, cash flow, financing, leasing documents, and tenants.

Purpose of Property

Residential leases are generally for apartments, houses, townhouses, and condominiums. Although some renters can run small businesses out of their homes, they’re mostly sought after for living spaces. Residential properties are generally paid on a monthly basis and termination requires a short notice than a commercial lease.

The primary purpose of a commercial real estate contract is to provide a property to a tenant for running a business. The tenant can use the space for any commercial purpose like the sale of goods or services or provides a place to manufacture some product. The retail space is not meant to give a place to live, and it is often against local or state law to reside in an industrial area.

Value of the Property

The value of a residential property is calculated by comparing the market price of similar properties in that area. The commercial property, on the other hand, can be more expensive than residential properties depending upon its location, neighborhood, facilities, etc.

Length of the Contract

Commercial lease contracts tend to be lengthy in contrast to residential leases as there are a large number of lease terms that are negotiated between commercial lease parties and tenants that may not be necessary for residential contracts. For example, business concerns include security of the space, signage on the building's exterior, and access to communication equipment.

Furthermore, as the residential property can only be used as a place to live, commercial property can be used for multiple purposes. Therefore, it requires to be discussed in detail what the permitted uses of the commercial property are. Commercial leases usually run for several years whereas residential leases typically expire after one year. However, in both of the features, you have the option to renew the contract.

Benefits of Residential Leasing

Residential landlords often take care of things like keeping the premises pest-free and providing necessary maintenance including sewage, etc.  Commercial tenants are usually not accommodated with the same benefits; they’re often asked to do their maintenance for the portion of the property that they’re renting.

Payment on Installments

Most banks are willing to offer more loans for the residential property, and you can buy a residential space with a small down payment and getting 90 percent or more mortgage financing from the bank. On the other hand, banks do not provide much loan or installmentson commercial leases.

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Overall, both residential and commercial properties tend to have their strengths and weaknesses, but you should not conclude that one is better than the other because both serve different purposes for different requirements. Depending on your personal or business needs, finding the right property is possible with the help of Genet Group.