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.
All forms of a residential lease falls within one of the following categories:
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.
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.
Common terms to note in emergency situations.