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The Role of Law in Commercial Property Management

Commercial property management law is complex, and gaining a solid legal foundation—such as through an online Master of Legal Studies—can help ensure important factors are not overlooked.
The Role of Law in Commercial Property Management

By Miami Law Blog Contributor

Whether you work in commercial real estate or are considering becoming an investor, knowing the ins and outs of commercial property management is essential to avoiding legal trouble down the road.

So, what do you need to know about commercial property management laws — and what kinds of mistakes should you be careful to avoid?

An In-Depth Look at the Legal Foundations of Commercial Property Management

The field of commercial property management is governed by a number of laws and regulations — not just at the federal level, but also at the state and local levels. Landlords and other commercial property owners or investors must adhere to laws that apply to their individual properties. This helps mitigate liability, maintain regulatory compliance, and protect all parties involved.

Key Laws Governing Commercial Property in the United States

While this is by no means an exhaustive list, some of the most essential laws related to commercial property in the United States include:

Federal, State, and Local Regulatory Differences

One of the most important things to keep in mind regarding commercial property management laws is that they can vary drastically from one location to the next. Although all commercial properties are subject to regulatory requirements at the federal level, state and local laws aren't always consistent. Thus, commercial property owners and investors must familiarize themselves with the laws in all states and municipalities where they own property.

In California, for example, the Commercial Tenant Protection Act (SB 1103) applies to small businesses, restaurants, and nonprofits — requiring commercial property owners to provide a minimum of 90 days’ notice for any rent increases over 10%.

Meanwhile, in New York City, owners building or renovating a commercial property are required under Local Law 147 to get comprehensive safety plans approved by the city before any building permits can be issued.

Types of Commercial Properties and Their Legal Considerations

So, what constitutes a commercial property? In simple terms, a commercial property refers to any kind of real estate that is used for business purposes. Oftentimes, these properties are owned by an investor and leased out to individual businesses to turn a profit. Some of the most common types of commercial properties include:

  • Retail
  • Office space
  • Industrial
  • Mixed use

Different types of commercial properties may require careful consideration of certain legal issues, including zoning laws or lease regulations.

Office Buildings and Lease Regulations

Office building owners need to be especially careful when drafting leases for individual tenants. For starters, landlords must consider what type of leasing arrangement works best for each tenant. Common examples of leasing arrangements in commercial office buildings include:

  • Gross leases, where tenants pay a fixed amount of rent and landlords cover expenses like property taxes and utilities.
  • Net leases, where the tenant pays a base amount of rent in addition to some other expenses.

When writing a lease agreement, property owners must consider factors such as the length of the lease and any security deposit that’s due. Depending on the industry in which the business operates, property owners may also need to check for credentials to ensure they are legally permitted to operate.

Retail Spaces and Zoning Laws

Commercial property owners looking to rent out retail spaces must be especially careful with zoning and land use laws, as failing to follow these laws could result in the forced closure of a business — as well as costly fines and legal issues for property owners.

Oftentimes, commercial properties are zoned specifically for one permitted use. A commercial property, for example, may allow for the operation of retail businesses — but not industrial. Property owners must then vet all lease applicants to ensure that the type of business they plan to run out of the property aligns with local zoning laws.

Zoning and use laws may also extend to parking. For instance, property owners may be required to offer a certain number of parking spots for a zoned retail space based on factors like the square footage of the building.

Finally, zoning and land use laws can affect how and when businesses are allowed to operate. If a large retail center is located close to a residential neighborhood, businesses may be required to shut down or minimize noise levels by a certain time each night. To avoid legal issues, property owners should be aware of these details and write them into lease agreements.

Leasing Agreements: Legal Requirements and Best Practices

One of the most important aspects of commercial property management law is knowing how to navigate lease agreements with tenants. By understanding the basic components of a commercial lease, as well as some common clauses and mistakes to avoid, property owners can avoid unwanted legal trouble.

Essential Components of a Commercial Lease

While no two lease agreements will look exactly alike, some basic components of most commercial leases include:

  • A description of the lease term
  • A detailed description of the premises itself, including square footage and address and/or suite numbers
  • The amount of rent being charged and terms of payment (including responsibility for additional costs, like property insurance)
  • Details on security deposit amounts and requirements for tenants to recover their security deposit at the end of their lease
  • Expectations for building maintenance and repairs

Common Clauses and Legal Pitfalls

Most commercial leases will include special clauses that cover details like permitted use. This outlines what type(s) of business can be conducted on the property (e.g., retail, mixed use, office space, etc.). To prevent unwanted modifications to the space, property owners may also want to include clauses that cover any permitted/prohibited changes, as well as the process for getting modifications formally approved.

When drafting a commercial lease, there are some common mistakes that property owners should be careful to avoid, such as:

  • Using a one-size-fits-all lease agreement
  • Not having clear language to cover maintenance/repair responsibilities
  • Being unclear or ambiguous about rent or additional costs (such as common area maintenance fees or utilities)
  • Failing to carefully screen applicants before approving them

Remaining aware of these mistakes helps property owners take proactive measures to avoid them.

Tenant Rights and Landlord Obligations

Before leasing out a commercial property, it's important to remember that your tenants have legal rights, just as you do.

Anti-Discrimination and Fair Housing Laws for Commercial Properties

You've probably heard of the Fair Housing Act (FHA), which prohibits discrimination in the sale, rental, or financing of residential properties based on factors like religion, color, or disability. It’s worth noting that while the FHA does not directly apply to commercial properties, however, landlords may still be prohibited from discriminating based on these factors under the Civil Rights Act of 1866.

Similarly, FHA could indirectly apply to commercial properties in situations where the property is zoned for mixed use. For example, a commercial shopping space with apartments located on the top floor may be subject to Fair Housing Act laws.

Maintenance Responsibilities and Habitability Standards

When renting a commercial property out to a tenant, landlords must understand their own legal obligations and responsibilities regarding repairs and maintenance. For starters, all tenants have a reasonable right to habitability, meaning that the property they are leasing should meet basic standards for cleanliness and safety.

Unless otherwise noted in a lease agreement, property owners are generally responsible for maintenance items such as:

  • The structural integrity of a commercial building
  • Any maintenance related to local building, health, and safety codes
  • Larger building systems, including HVAC, plumbing, and electrical
  • Common areas, including lobbies and parking lots

Managing Financials within Legal Boundaries

Renting out a commercial property (or part of a commercial property) comes with some special considerations, particularly those regarding security deposits, rent increases, evictions, and other financial factors.

Security Deposits and Escrow Rules

Commercial lease agreements should always include detailed information about tenant security deposits, how they can be used by the property owner, and when (and under what conditions) they should be returned. This agreement should also describe the amount of the security deposit (usually a few months' worth of rent), as well as the exact process for returning the deposit.

If the deposit is held in an interest-bearing account, the lease agreement should specify whether the tenant or property owner is entitled to the accrued interest when the deposit is returned.

Rent Collection, Increases, and Legal Eviction Procedures

Different states and cities may have drastically different laws when it comes to increasing rent amounts and evicting tenants, so this is something you'll want to research carefully in your locality before renting out. In some areas, for example, you may be required to provide an advance notice of several months for any substantial rent increase.

Risk Management and Compliance in Commercial Property

From a risk management and compliance standpoint, there's a lot of information to consider when renting out any commercial property.

Insurance, Liability, and Safety Requirements

Property owners must hold the proper insurance coverage on their commercial properties at all times. Along with property insurance, this may include liability insurance, which can protect against lawsuits and damages. Of course, this doesn't negate the legal obligation for owners to meet basic safety requirements on their properties, including requirements for fire safety (such as smoke detectors and fire extinguishers).

Strengthen Your Knowledge of Commercial Property Management Law in an M.L.S. Program

The world of commercial property management law can be complex, and without the right legal framework, many important factors could be easily overlooked. This is where having a solid foundation in this type of law can make all the difference.

Ready to advance your education with an online Master of Legal Studies? The University of Miami School of Law has a program for you, including an M.L.S. with a dedicated Real Estate and Construction Law and Regulation track. Get in touch to learn more or apply today.

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