Aspects of a Commercial Lease

Below is a conversation between Steve Freeman and Attorney Steven Katkov regarding commercial lease issues.

Steve Freeman: I’m sitting with Steve Katkov of JUX. Let’s talk a little bit more about the aspects of the lease itself. And one of those would be security deposits. This seems like it can be all over the board and it depends on whatever the parties agreed to. But in your mind, what would be the best way to handle security deposits? First off, the amount. Secondly, who holds that? And lastly, what would give the landlord the ability to hold that security deposit after the tenant has moved?

Steve Katkov: As we mentioned earlier, often the distinctions between residential landlord-tenant law and commercial landlord-tenant law become blurred. And in an era of consumer protection, the issue surrounding security deposits are very serious ones and have been addressed by almost all the state legislatures with regard to security deposits. Because what had happened, without casting any negative comments upon residential landlords—but if they got into a dispute with their tenant, either over damage to the property after the tenant left without breaching the agreement but left at the end of its term, or the tenant left early, or the tenant isn’t paying rent—is taking the security deposit against those charges. And in residential law now, security deposits, to your question, are held by the landlord. But in interest bearing accounts and the interest earned, is the property of the tenant, not the landlord. And the state laws are very specific about how to deal, or what the restrictions are, for the landlord in dealing with security deposits. Commercial real estate, again, have far fewer requirements, far less regulation. The assumption is these are sophisticated parties who understand how to negotiate and bargain, and may have access to professionals to help them in that exercise.