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 Kentucky, businesses seeking to lease commercial spaces such as offices, warehouses, or retail locations are typically required to enter into a commercial lease agreement. Unlike residential tenants, commercial tenants are considered more knowledgeable and are expected to understand and negotiate the terms of their leases. Kentucky law does not offer the same level of protection to commercial tenants as it does to residential tenants, which means it is crucial for a business to carefully review and negotiate the lease agreement to safeguard its interests. Key provisions in a commercial lease often include the payment of a security deposit. This deposit serves to protect the landlord from property damage and to secure rent payment. The lease should clearly outline the conditions under which the landlord can retain the security deposit upon lease termination, whether at the end of the term or through early termination. It should also specify the landlord's obligation to return the security deposit if there are no grounds to withhold it. An attorney can provide valuable assistance in reviewing and negotiating commercial lease agreements to ensure that a business's operational and financial interests are protected.