When you invest in residential property you are essentially dealing with people. When the rent is late, you have to deal with a person – the tenant. If you feel the property is not being looked after properly, you will have to deal with people who may have a different opinion from you.
With commercial property, you are essentially dealing with contracts. If the rent is not paid on time, then the contract (lease agreement) stipulates a series of remedies that the landlord can take. If the property is not kept up to a certain standard, then the contract may stipulate that you can send in a commercial cleaner and send the bill to the tenant.
Generally, governments around the world have countless rules governing the renting of property to residential tenants, which override anything that you may put in your rental agreement. For example, in the UK, if a tenant is behind in their rent, you cannot just evict them. There are all sort of protections in place so that the tenants will not be exploited. You have to allow them to fall behind in rent for at least 30 days before you can start eviction proceedings.
With commercial property, what is in the lease contract is generally what goes. Many commercial leases have a clause in them that stipulates that if the rent if late by more than a week, then penalty interest will be applied to the amount of rent outstanding. If the tenant still has not paid the rent a certain period of time thereafter, then you have the right not only to change the locks and take your premises back, but also to seize all the tenant’s fittings, furniture and equipment on the premises, and to sell them to recover the rent owing. Your rights as a commercial landlord are far stronger than those as a residential landlord.
With commercial property, the tenants usually derive their income at your premises. Therefore they have a vested interest in keeping your property in good condition. With residential tenants, there is not the same drive to maintain your property, let alone improve it. With my commercial property, I spent thousands of pounds changing the business from a men’s hairdressers (which it had been for the previous 30 years) – into a real estate business. In fact, for the first couple of years, we often had men coming to the property and looking inside expecting to have their haircut.
With a commercial lease, the tenants often paint their premises every couple of years so that it will be attractive to customers. In fact, in a commercial property, the tenant is responsible for whatever maintenance repairs occur. So if there is a plumbing problem in a commercial property, it is up to the tenant to bring in his own plumber and to be responsible for whatever bills are presented to him. In a residential property, the tenant is entitled to call the landlord or the management company – they are compelled by law to fix whatever repairs are necessary.