Commercial Lease Agreement Analysis

Commercial Lease Agreement Analysis

Question 1

A commercial lease agreement is a contract between a commercial tenant and a landlord. In contrast, a residential lease refers to a contract between a tenant seeking a place to stay and a landlord. The differences in the use of a property affect lease agreement terms in different ways. For instance, there is more room for negotiation when leasing commercial property, including property rent, withholding deposit, notice agreement, and legal resolution in case of a dispute (Kubasek et al., 2019). As a result, a landlord with limited legal knowledge may require the help of a law expert to avoid granting a tenant too many rights. Another major difference based on the lease type is the grace period for rental payment once it falls due. In a residential property, there is little room for negotiation, and a tenant must pay rent a few days after it falls due or vacate. However, a long-term client in a commercial property can stay even a month or longer before they are required to vacate due to default.

In a commercial agreement, the law should seek to protect the rights of a tenant more than a landlord. Tenants in commercial properties use the properties for business. Given the uncertain nature of most business environments, business tenants need more protection in case they face a business downturn to help them recover.

Question 2

A commercial property tenant should take liability for repair, alteration, and improvement of parts of their rented property. The tenants should bear these costs because the changes customize the space to suit a tenant’s unique business needs (Darlington, 2013). For instance, a private health practitioner setting up a medical center may repaint their space entirely to attain a hospital outlook. Conclusively, if a repair to any part of the premise directly benefits the tenant, they should incur the repair, alteration, and improvement obligations.

However, a tenant’s obligation does not extend to roof, exterior, and structural repairs and improvements. One of the reasons why a commercial tenant should be exempted from this obligation is because making such repairs is too costly (Darlington, 2013). Also, a tenant should not take liability for repairs to any parts of the premises that are not exclusively servicing the premises, such as service ducts and other structural parts. Unless the commercial tenant leases the entire building, repair, improvement, and alteration obligations are shared between the landlord and the tenant. Therefore, the tenant takes responsibility for repairs that directly impact the immediate business needs, whereas a landlord is responsible for roof, structural, and other major improvements.

Question 3

Section 15 of the commercial lease agreement sets conditions for mitigating damages in the event of a tenant’s failure to comply with lease agreements. According to the section, a landlord should issue a 15-day notice if a tenant defaults on rent (Lichtenstein, 2014). A 30-day notice should be issued if the tenant defaults on other covenants. The section grants a landlord the right to mitigate damages. Upon the expiry of notices, a tenant is deemed to have formally abandoned a lease agreement; hence, it is incumbent upon a landlord to mitigate damages (Lichtenstein, 2014). One such way is by reentering the leased premises and recovering items for sale. Notably, the proceedings from such commercial actions are limited to the amount the landlord could have realized if the tenant had not defaulted.

Therefore, the law stipulates that a landlord shall mitigate damages if a tenant defaults on lease covenants. By operation of law and court precedents, a tenant is deemed to have abandoned the lease agreement if they default and leave the premises. In such circumstances, a landlord may enter the premises and possess items that can be commercially traded to cover the amount owed. Any actions inconsistent with the tenant-landlord relationship constitute a surrender offer by the tenant.

Question 4

Section 2 of the commercial lease agreement stipulates that a tenant shall pay a security deposit as stated on the lease agreement. On the other hand, section 19 stipulates the operation of the security deposit throughout the tenant-landlord relationship. The rights granted in sections 2 and 19 are designed to ensure the tenant complies with the terms of the lease agreement; hence they favor the landlord. The security deposit guidelines favor the landlord since they can utilize part of the amount to repair the damaged property (Kubasek et al., 2019). In such a case, a landlord must provide the tenant with a list of the damages.

The guidelines around the operation of the security deposit are appropriate. Since it is treated as a separate obligation from rental remittances, it ensures that a tenant fulfills their duties in a timely manner to protect a landlord from cash flow problems. Besides, any deduction made from the security deposit by the landlord is reinstated once a tenant fulfills the obligation triggering the deduction. A tenant cannot treat the security deposit as an advance payment, and this ensures that landlords are not cash-strapped. Additionally, it allows the tenant room to fulfill their obligation. For instance, if someone experiences salary delays, the security deposit may be deducted to act as rent and give the tenant room to fulfill their rental obligation.

Question 5

Mediation and arbitration provisions under section 29 of the commercial property lease agreement have advantages and disadvantages for landlords and tenants. One of the advantages of the process is that it alleviates prejudice while upholding confidentiality (Mazirow, 2008). It enables both parties to maintain communication channels, including admitting weaknesses while acknowledging another party’s strengths. However, the deliberations remain confidential and cannot be used against another party if the dispute escalates to litigation. Additionally, mediation and arbitration allow the parties involved to control the process, including implementing creative measures to resolve the dispute (Mazirow, 2008). A judge can only decide who is wrong/right, award compensation, or dismiss the claim. However, a mediated process facilitates a win-win resolution.

On the flip side, there is no assurance that the meditation process will succeed. If mediation and arbitration fail, the parties proceed to the litigation process as if mediation did not occur. To that end, the time and cost attributed to the process is lost. Mediation and arbitration pose serious monetary and time wastage concerns if they fail.

The mediator and arbitrators are selected upon mutual agreement by the parties involved. Also, an arbitrator may be appointed by a court upon application by the parties. While selecting mediators and arbitrators, the parties consider industry expertise, thereby selecting someone with substantial knowledge of commercial leasing suffices.

Question 6

In a Biblical Worldview, lease agreements should align with Biblical teachings. Commercial lease agreements require changes that can bolster respect, honesty, and fairness to align them with Biblical teachings (Kubasek et al., 2019). One of the changes I would make to ensure just and flexible rent remittance requirements is to adjust the vacate notice requirement due to default. For instance, instead of issuing a tenant with a vacate notice due to rent default after 15 days, it should be extended to 60 days to allow a commercial tenant to navigate a dynamic business environment before issuing a vacate notice.

In the same breath, conflict resolution should be guided by Biblical teachings. I would implement changes that encourage peaceful and respectful conflict resolution. Besides, I would introduce clauses that discourage immediate legal litigation. As per the lease agreement, a dispute proceeds to legal litigation upon the expiry of 60 days of mediation and litigation process. I would introduce a clause that allows the process to be repeated as many times as both parties may mutually agree to make the guidelines more friendly and align with Biblical teachings. The change is informed by the possibility that the initial mediator and arbitrator were unqualified. Finally, I would ensure the lease agreement is transparent and clear by eliminating deceptive and intimidating clauses.

References

Darlington, S. (2013). A tenant’s practical guide to commercial leases. https://www.keystonelaw.com/wp-content/uploads/2019/08/a-tenants-practical-guide-to-commercial-leases-digital-version-of-book.pdf

Kubasek, N. K., M Neil Browne, Dhooge, L. J., Herron, D. J., & Barkacs, L. L. (2019). Dynamic business law. Mcgraw-Hill Education.

Lichtenstein, M. (2014). A commercial landlord’s damage remedies in a tenant’s bankruptcy proceedings. https://www.shulmanrogers.com/media/publication/151_Lichtenstein%20copyright.pdf

Mazirow, A. (2008, April 13). The advantages and disadvantages of arbitration as compared to litigation. https://www.international-arbitration-attorney.com/wp-content/uploads/796608-1-2008-arthur-mazirowthe-advantages-and-disadvantages-of-arbitrationas-compared-to-lit.pdf

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Overview

In this paper, you will review the commercial lease agreement provided and respond to questions analyzing the terms of that lease. The paper must be at least 1,200 words and include at least 3 scholarly sources other than the course textbook/materials.

Commercial Lease Agreement Analysis

Instructions

Review the Commercial Lease Agreement.

Answer the questions below with a minimum of 200 words for each answer (a total of at least 1,200 words), and a total of at least three scholarly sources other than the textbook, cited in-text and in a reference list in current APA format. While Question 6 directly addresses a Biblical worldview, such principles should also inform your answers throughout.

Add an APA-formatted title page, headers, and page numbers to your answers.

1. What is the distinction between a “commercial” and a “residential” lease? How do the differences in use of the leased property impact the terms of the 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?
2. 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.
3. In the default provisions of Section 15, what is the landlord’s duty to “mitigate” damages? Should the landlord be required by law to mitigate? Explain.
4. 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?
5. Section 29 requires mediation, followed by arbitration, in lieu of litigation, to resolve disputes. What are the advantages and disadvantages of such a provision? How should mediators and arbitrators be selected?
6. As a businessperson guided by a Biblical worldview, what changes would you make in this lease to make the terms comport more closely to Scripture?

Note: Your assignment will be checked for originality via the Turnitin plagiarism tool.

The course textbook is:
Biblical Worldview Edition of Dynamic Business Law (4th Ed.)
Nancy Kubasek
M. Neil Browne
Daniel Herron.
Lucien Dhooge
Linde Barkacs
ISBN-13: 978-1-266-18892-3
Please use 3 additional sources in addition to the text.