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Why are commercial leases longer than residential ones?

On Behalf of | Nov 9, 2023 | Property Law

Many different types of businesses have commercial leases, from manufacturing centers to retail locations to gyms. It could even just be an office building that a company wants to use as its headquarters.

This type of lease is typically going to run from three to five years. Every situation is unique, of course, so you can find examples of leases that are both shorter and longer than this span. However, this is the average length that is traditionally used, and it is what most people should expect when signing such a document.

They need to be worth the investment

Notably, three to five years is longer than the average residential lease, which may only be for a single year. One of the major reasons for this is that commercial tenants are often going to invest in the space themselves.

For instance, someone who purchases an empty storefront may invest tens of thousands of dollars to overhaul the interior. It all depends on what is necessary for the type of business they have. Even someone who is leasing a space for a store may need to invest in lighting, shelving, flooring, security cameras, computer systems, point of sale devices, intercom systems and much more.

If the lease was only for a year, there just wouldn’t be enough time for the tenants to recoup these costs. With a three-to-five-year lease, commercial tenants know that it’s worth putting money into the space because it will provide them with a long-term source of income.

This is just one of the differences between a commercial lease and a residential lease. Anyone who is signing or drafting a lease agreement needs to be well aware of their legal options.