Courts interpret commercial leases very differently than residential leases. Tenants in residential leases receive protections of local ordinances and consumer protection laws. There is often an assumption in commercial leases that both parties are on equal footing or have a certain level of sophistication in negotiating lease terms. Commercial leases are therefore interpreted more strictly.
Small businesses seeking leasing space should be aware of potential pitfalls in commercial lease agreements. Unlike residential leases where the law provides many consumer protections, tenants in commercial leases are free to negotiate nearly any terms – even if terrible consequences may result.
Below are five common lease terms that small business tenants should avoid:
1. Confession of Judgment
Pennsylvania is one of only a handful of states that still permit a Confession of Judgment. A confession of judgment clause is a lease term that permits the landlord to file a judgment with the court against the tenant if the tenant breaches the lease. A confession can be thought of as an automatic judgment that may include possession of the property, back-owed rent or liquidated damages. The tenant does not receive a hearing or opportunity to present a defense except under limited circumstances.
2. Personal Liability
A small business owner should limit liability in the lease to the business entity only, not in the personal name of the owner. Landlords often demand personal liability as disincentive for a tenant’s decision to default and walk away from the business. But a confession of judgment paired with personal liability is a terrible combination for a small business owner.
3. Responsibility for Repairs for Damages Caused by Another
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