A lease is a contractual agreement used to convey landed property to another party for a definite period of time (usually months or years), in return for a specified payment. The right of a lease beneficiary is known as Possessory Right. This is because a lease does not confer ownership, but a rental of the property for an absolute term of years or months. A lease can be for residential or commercial purposes; each with different categories. Every lease comes with terms (covenants) relating to how the contract will be carried out for the stated period. Because the tenant in a leased property is at the receiving end, many laws have been enacted to protect them in diverse ways. However, the location of the property determines the applicable laws; hence, an intending tenant should check the law applicable to the location of the property through the services of a legal practitioner or personal due-diligence actions before signing a lease agreement.

Types of Leases (Residential and Commercial)

Residential Leases

All forms of a residential lease falls within one of the following categories:

  1. Tenancy for Years: This type of lease has a specific term for the lease period ranging from one month to 2 years or more. As soon as the stated end-date is reached, the lease automatically terminates without notice.
  2. Tenancy at Will: A tenant at will resides in the property until such time the landlord or the tenant discontinues the lease without notice.
  3. Tenancy from Period to Period: This lease takes the form of the tenancy for years but does not terminate automatically, instead, it is renewable at the discretion of the landlord or tenant. It could be weekly, monthly or yearly.
  4. Tenancy at Sufferance: When a contract of lease has been terminated and the tenant remains in the property without the express permission of the landlord, such arrangement is called tenancy at sufferance.

 Commercial Leases

Here, the type of tenancy is usually determined by the form of business the tenant operates.

Percentage lease: In this lease, the lease payment is usually the base rent alongside a percentage of monthly sales profit. Commonly used for retail business owners.

Net Lease: The tenant pays the base rent and/or fees for insurance, maintenance and taxes. It is commonly practiced with small commercial business owners.

Double Net Lease: A double net lease is an advanced form of the net lease where it is compulsory for the tenant to pay the baser rent, taxes and insurance compulsorily.

Triple Net Lese: The commercial tenant pays the base rent, maintenance, taxes and Insurance compulsorily.

Gross Lease: In a gross lease, the landlord pays the entire cost(s) incidental to the base rent, that is, taxes, maintenance and insurance, which is later passed on to the tenant as a ‘load factor’ when calculating the total rental amount.

What are the essential components of a Lease Agreement?

Property Possession: The landlord must state that the tenant will possess the property for full enjoyment without interference from the landlord except for inspection purposes where adequate notice must have been given beforehand.

Ways to use the Property: A lease contract stipulates what is forbidden and what is allowed. For example, a residential lease may state that subletting is prohibited, while a retail lease may specify all products not to be sold. Where there is no restricted use, a tenant can do whatever he pleases during the term of the lease as long as it’s within the ambit of law.

Lease Tenure: One main feature of a lease is that, it has a definite duration; usually mentioned in the contract of lease for clarity purposes.

 Deposit:  A deposit is required to offset instances where there are damages to the property beyond the general wear and tear.

 Leased Property Maintenance: In most lease types, whether residential or commercial, the landlord bears the cost of maintaining the property to keep it in usable condition throughout the lease period. However, in some commercial leases, the tenant may bear the burden of maintenance as contained in the lease agreement signed before its commencement.

Few Lease Terms to note

Common terms to note in emergency situations.

  1. Incidental expenses: These are extra cost(s) paid besides the main rental amount; such as insurance, taxes, utilities, maintenance and repair(s).
  2. Common area maintenance: This is used to describe fees for areas the tenant shares with neighbors around the property. An example is the fees paid for janitorial services or for weed and snow removal.
  3. Tenant improvement allowance: This allowance comes in form of savings on rents or an outright cash gift, given by the landlord for renovation purposes since he is usually primarily in charge of a leased property’s general maintenance.
  4. Trade fixtures: Trade fixtures include moveable furniture and fixtures which can be taken with the tenant upon termination of contract. Examples of these are computers, cabinets, moveable wardrobes and mattresses.

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Published on 15th June 2017

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