A business that leases real estate and improvements (buildings, etc.) in the form of space for offices, a warehouse, a restaurant, a nail or hair salon, a clothing store, a coffee shop, or other commercial (nonresidential) space will usually be required to sign a written contract known as a commercial lease agreement.

The tenant (the business occupying the space) who signs a commercial lease agreement is generally expected to be a more savvy, sophisticated, and informed tenant (also known as a lessee) than a tenant in a residential lease, and the law usually does not provide a commercial tenant with the same protections as residential tenant receives.

Because the law does not provide a commercial tenant with many protections, it is up to the commercial tenant to read, understand, and negotiate protections in a proposed lease agreement before signing it, as most every paragraph in a commercial lease agreement can have a significant impact on a business’s operations and financial stability.

Many commercial leases include a provision (paragraph or paragraphs) requiring the tenant to pay a security deposit to protect the landlord against damage to the property and to ensure the payment of at least some portion of the rent.

The security deposit provision should include the circumstances under which the landlord may be able to keep some or all of the security deposit following termination of the lease at the end of the lease term, or earlier termination, as provided by the agreement. The security deposit provision should also provide for the landlord’s obligation to return the security deposit to the tenant following termination of the lease when the landlord does not have the right to retain some or all of the security deposit.

In North Carolina, businesses engaging in leasing commercial real estate for various purposes such as offices, warehouses, or retail spaces are required to enter into a commercial lease agreement. Unlike residential tenants, commercial tenants are considered more knowledgeable and are expected to negotiate the terms of their leases, as there are fewer legal protections in place for them. It is crucial for a commercial tenant to thoroughly review and understand the lease agreement, as each clause can significantly affect their business operations and financial health. Commercial leases often include a security deposit clause, which outlines the conditions under which the landlord may retain the deposit in the event of property damage or lease termination, and the conditions for its return to the tenant. The tenant should ensure that the lease agreement clearly specifies the terms regarding the security deposit to avoid future disputes.