Hire an Attorney Before Signing a Commercial Lease

On Behalf of | Mar 30, 2021 | commercial and residential land use and zoning |

Although commercial and residential leases are similar in structure, the protections surrounding commercial tenants can be limited under the law. One major protection awarded to residential tenants in Illinois is the Security Deposit Return Act. 765 ILCS 710/0.01 et seq. When a lease has been terminated, this act entitles a residential tenant to receive an itemized statement of any damages beyond normal wear and tear within 30 days of the date the tenant vacated the property. Moreover, a residential landlord, leasing 5 or more units, is not permitted to withhold security deposits from a tenant without providing an itemized statement of damages. Should the landlord not provide an itemized statement, the tenant is then entitled to return of the security deposit in full within 45 days of the date the tenant vacated the premises. Unfortunately, there is no similar protection for commercial tenants and commercial leases are governed almost entirely by the terms of the lease.

However, this does not mean that commercial tenants in Illinois have never been able to receive repayment of their initial security deposit. In Auker v. Gerold, 67 Ill. App. 2d 425 (1966), the court provided certain protections for commercial tenants. First, tenants can recover deposits to secure future rent when the lease is terminated so long as the tenant did not default. Auker, 67 Ill. App. 2d 425, 427 (1966). This means so long as the termination of the lease was due to it being the end of the lease term, acceptable termination by the tenant pursuant to the lease, or some other non-defaulting reason, the tenant can recover the security deposit they paid if the purpose of the deposit was to secure future rent payments.

Second, if the lease expressly provides the security deposit is for advance payment of rent, recoverability for the tenant will be more difficult. Auker, 67 Ill. App. 2d 425, 428 (1966). However, if lease does not expressly provide the purpose of the deposit, the court will presume it was not for advance payment of rent, but rather to secure the tenant’s performance of their obligations under the lease, which means it could be recoverable upon termination.

Finally, the lessor is entitled to deduct damages from the security deposit so long as it is supported by evidence of actual damages. Auker, 67 Ill. App. 2d 425, 430 (1966). Similar to the Security Deposit Return Act, this provides commercial tenants with a protection that they will only have their security deposit reduced if the landlord can provide them with specific evidence of why the deduction is being made.

The return of a security deposit is just one of many issues that should be considered carefully when entering into a commercial lease. It is important for businesses to know the law, or lack thereof, surrounding commercial leases to ensure they are not going to be in a situation where they agree to a provision that severely limits their rights upon termination. Small or startup business owners should consider consulting with an attorney prior to signing a commercial lease to ensure there are no hidden clauses or simply to have a more complete understanding of their rights and obligations before signing a lease.