Commercial vs. Residential Leases: Key Differences and Types of Commercial Lease Agreements

Leasing real estate is a fundamental part of both personal and business life. But the legal and practical frameworks governing residential and commercial leases are very different.

In Ohio, residential leases are governed by specific statutory requirements—particularly Ohio Revised Code Chapter 5321. These laws impose habitability standards and responsibilities on landlords. Commercial leases, however, are far more flexible and far less regulated, giving parties broad freedom to negotiate terms.

This difference can surprise business owners entering their first lease. It’s critical to read a commercial lease agreement carefully to fully understand what you're responsible for and what’s excluded.

Key Differences Between Residential and Commercial Leases

1. Purpose and Use of the Property

• Residential leases are for personal housing needs—apartments, condos, or single-family homes. Ohio law provides strong protections to ensure livable conditions. For example, R.C. 5321.04 outlines the landlord’s legal duty to maintain safe, sanitary, and habitable living conditions.
• Commercial leases are intended for business operations. There’s no statutory standard for the condition of the property. A commercial tenant may even choose to lease a building in poor condition to customize it.
  

2. Lease Duration and Renewal

• Residential leases are usually one year, with options for month-to-month renewal.
• Commercial leases often span several years—three, five, or even ten—and include detailed renewal and termination clauses.
  

3. Legal Protections and Tenant Rights

• Residential tenants have significant statutory protections. For instance, if a landlord fails to meet obligations under R.C. 5321.04, tenants may pay rent into escrow until repairs are made under R.C. 5321.07.
• Commercial tenants do not have these protections. The law assumes both parties are sophisticated and can negotiate for their needs. All rights and remedies are determined by the lease agreement itself.
  

4. Flexibility and Negotiation

• Residential leases are usually standardized with limited room for changes.
• Commercial leases are highly negotiable and can be tailored to business operations, size, and location.
  

5. Maintenance and Repairs

• Residential _landlords are required by law (R.C. 5321.04) to maintain the premises in a habitable condition, including functional plumbing, heating, and electricity.
• Commercial tenants often bear responsibility for maintenance, depending on the lease type. In Triple Net (NNN) leases, tenants may be responsible for all repairs, including to the building structure and systems.
  

6. Rent Structure and Additional Charges

• Residential rent is usually fixed and inclusive, with moderate increases upon renewal. It generally cannot vary based on third-party costs like taxes or insurance.
• Commercial rent frequently consists of base rent plus Common Area Maintenance (CAM) charges, insurance, and property taxes. CAM fees can vary and escalate unless capped in the lease.
  

7. Termination and Eviction Procedures

• Residential evictions are governed by strict notice and procedural rules under Chapter 5321.
• Commercial evictions are primarily controlled by the lease terms. The process is more flexible and less regulated—another reason why lease terms must be carefully reviewed.
  

The Spectrum of Commercial Lease Types

There are several types of commercial leases, each defining how costs are divided between tenant and landlord.

1. Full-Service (Gross) Lease

• Tenant pays: One all-inclusive rent.
• Landlord pays: Taxes, maintenance, utilities, insurance.
• Common in: Multi-tenant office buildings.
• Advantage: Predictable monthly expenses. But even in these leases, there is no legal assumption of habitability as in residential situations.
  

2. Modified Gross Lease

• Tenant and landlord share: Some operating costs. Specifics vary by agreement.
• Common in: Office and retail spaces.
• Advantage: Offers flexibility for tenants and landlords to split responsibilities (e.g., tenant pays for cleaning, landlord handles HVAC).
  

3. Net Leases

These leases shift more property-related costs to the tenant. Variations include:

• Single Net (N): Tenant pays base rent + property taxes.
• Double Net (NN): Tenant pays base rent + taxes + insurance.
• Triple Net (NNN): Tenant pays base rent + taxes, insurance, and all maintenance, including building systems and structure.
  

Triple Net Lease (NNN) in Detail:

• Tenant responsibility: Covers nearly all costs related to the property.
• Landlord responsibility: Typically limited to structural issues—if any.
• Common in: Retail plazas, warehouses, industrial buildings.
• Important for tenants: Always review the lease for expense caps or provisions to limit rising costs, especially under CAM charges.
  

4. Percentage Lease

• Tenant pays: Base rent plus a percentage of gross revenue.
• Common in: Retail, especially in shopping centers.
• Advantage: Aligns landlord incentives with tenant success. Helpful for new businesses managing startup costs.

Legal and Financial Risk Allocation in Commercial Leases

Because commercial leases are governed by contract—not statute—risk is allocated entirely by negotiation. Parties must clearly define:

• Who maintains which parts of the property
• Who pays what (and whether those costs can escalate)
• How disputes will be resolved
• What happens if a party breaches the agreement
  

There is no legal safety net like there is in residential leasing. Businesses must read carefully, negotiate wisely, and consult counsel.

Final Thoughts: Knowledge is Power

The differences between commercial and residential leases are substantial. Commercial leases offer flexibility, but that freedom comes with higher risk, fewer protections, and more legal responsibility.

From full-service leases to NNN and percentage leases, each lease type has unique cost and risk implications. Understanding these terms—and the legal framework that supports them—is critical before signing.

Considering a Commercial Lease?

Before signing, consult an attorney who can explain your obligations, negotiate better terms, and help you avoid hidden risks. Don’t assume commercial leases follow the same rules as residential ones—they don’t.