Anatomy of a Lease Agreement
A common question we encounter in the practice of law is “Is this agreement/contract legal?”, referring to a lease agreement. The follow up question is usually “Is it ok for me to sign it?”. Whether you are a lessor-landlord or a lessee-tenant, knowing the essentials of a lease agreement helps you ask the right questions to your attorney.
A lease agreement should contain basic language that is designed to define the terms and conditions of the lease and protect the parties. Having these provisions in place make a solid legal document. This week, we dissect the lease agreement.
- The Parties: Landlord and Tenant
Identify the parties to the lease. Indicate the name of the landlord and the tenant. Include the personal circumstances: of legal age, civil status and address. If any party is a juridical person, i.e. a corporation or partnership, indicate the name of the entity and its principal place of business. Also indicate the duly authorized representative of the entity. Ideally, the representative should be empowered by a board or partnership resolution. Natural persons with authorized representatives should be empowered by a power of attorney. These authorization instruments should be attached to the lease agreement for easy reference.
- The Property
The subject property should be clearly identified. Never have a lease agreement without clearly defining the property it pertains to. Indicate the address of the property and describe the property in such a way that it cannot be mistaken. Indicate the unit number, building, and location. Identify inclusions to the lease. Furnished or unfurnished, with parking or garage, access to facilities, etc.
- The Lease Term
In a previous article on contracts, I mentioned that it is essential to have terms to operationalize them by indicating a starting time or effectivity date and termination date.
The commencement date of the lease indicates also when lease payments accrue. Until the period of lease expires, the lessee-tenant is entitled to possess the property and enjoy it peacefully and free from intrusions.
The obligations of the parties take effect during the lease period. The lessee-tenant is obliged to pay the lease price, take care of the property and use the property. The lessor-landlord has the obligation to deliver the property, make necessary repairs, if any and maintain the lessee-tenant’s peaceful enjoyment of the property.
- The Lease Price and Security Deposit
This provision indicates the amount to be paid by the lessee-tenant to the lessor-landlord and when it should be paid. This also provides for effects of non-payment or default.
Most lease agreements require the lessee-tenant to pay a security deposit amounting to two (2) months of the lease price and in addition thereto, advance rentals for two (2) months. The security deposit is intended to cover expenses, utilities and other obligations at the end of the lease period. If you are a lessee-tenant negotiate for paying a lower deposit and advance rental may be good.
- Obligations of the Parties
These provisions provide for the responsibility of the parties. Use of the property may be limited and specified. If the property is residential, it cannot be used for commercial purposes. Restrictions on noise may also be imposed. Parking can be designated. Cost of repairs may be assigned to either party
- Miscellaneous clauses
Access to the Premises
This is a clause that allows the lessor-landlord or authorized representatives to enter the premises during reasonable hours to inspect the property for repairs or to show the property to other possible tenants or prospective buyers.
This is a provision that provides if the lessee-tenant may enter into sublease of the property with others. The parties may agree on whether this is allowed.
This is a provision that provides for the increase of the lease price after the lapse of a specified period.
Dispute Resolution Clause
This is a provision that provides for the mechanism for resolving disputes between the parties. The parties can indicate that in lieu of going to court or as a condition precedent thereto, they should explore amicable means of resolving conflict. Examples of these mechanisms would be mediation or arbitration.
The parties can also specify the venue where they may bring the dispute to, to the exclusion of all other jurisdictions.
- Signature of the Parties
Of course, to signify that the parties consent to the agreement, they must affix their signature on the instrument. Signing on every page of the document will make sure that the instrument is complete and unaltered.
Signing the lease agreement would indicate that the parties consented to it and have done so without being forced and understanding the terms and conditions indicated.
First published on 31 May 2019 https://propertyreport.ph/anatomy-lease-agreement/