|
|
 Tuesday, October 31, 2006 |
|
It is important to check that certain important facts are recorded correctly in order for agreements of lease to be valid.
This article forms a checklist for leases.
A CHECKLIST FOR AGREEMENTS OF LEASE
THE CONTENTS OF A LEASE AGREEMENT
The purpose of this document is to provide readers with a checklist in order to ensure that agreements of lease have been properly drafted and are valid and enforceable.
At the outset, let us consider the legal question:
WHAT CONSTITUTES A LEASE AGREEMENT?
A lease agreement is a specific type of contract subject to the normal principles of contract, including the principles regarding offer and acceptance.
A lease agreement in respect of premises can take the form of a written agreement or an oral agreement of lease or an agreement that is partly written and partly oral. However, in order for a lease agreement to exist in law, the following essential elements must be agreed upon between the parties:
• the parties to the agreement (whether in writing or oral) must be agreed upon;
• the premises in respect of which the lease agreement occurs must be agreed upon;
• the rental payable in respect of such premises must be agreed upon; and
• both parties must have the intention to let the premises for a certain but limited period of time.
Once a lease agreement is in place in respect of premises, obligations and duties arise for which both the landlord and tenant are responsible. These obligations and duties are normally set out in a written lease agreement but where these have not been recorded in writing, common law practice would apply.
Therefore, as the lease agreement is the primary document and is reverted to, if and when a dispute arises, it is imperative that all terms and conditions and the obligations of the parties be correctly recorded and set out within the lease document itself.
The correct recording of all information will ensure that any dispute arising between a landlord and tenant can be resolved with reference to the lease agreement.
THE PARTIES
The parties to a lease agreement (that is, the landlord and tenant) must be accurately described or a lease agreement is regarded as completely invalid and unenforceable.
The complete and accurate names of the individuals or the entities must be described on the document.
THE PREMISES
A common error amongst drafters of a lease is to define the premises too loosely or even incorrectly.
The more precise the description of premises is, the easier will be the administration of the lease later on.
Thus, a good example of the definition of the premises would be:
Suite 12, 1st Floor
Unicorn Building
63 Third Avenue
Mondeor
Johannesburg
Measuring approximately 112 square metres
Note the use of the word “approximately” and the way the measurements are inserted – simply as “112”.
Always use the word approximately to protect the landlord against misrepresentation and never insert the decimal points in a measurement as a measurement, which is precisely, but incorrectly, inserted could result in an adjustment to the rental being implemented during the currency of the lease.
THE RENTAL
The rental to be paid by the tenant to landlord needs to be defined in such a manner so that an objective person reading the lease agreement can interpret the rental independently.
Rental (in so far as the law is concerned) means ANY amounts paid to the landlord by the tenant, except metered electricity, water and gas.
Rental, therefore, includes all:
Net rental
Parking and storage rentals
Operating costs
Contributions towards municipal assessment rates
Contributions towards sanitation and refuse charges
Other special charges
All other charges (except for electricity and water)
THE INTENTION TO LEASE FOR A LIMITED PERIOD
The intention of the parties must be to enter into a lease agreement for a limited period and the agreement must show or imply a termination date.
A monthly lease terminates and re-commences each month.
Please see section 9.3.2, below, for a recommended layout and content of agreements of lease.
9.3.1 The layout and contents of a typical agreement of lease
One of the best ways to assimilate the contents of an agreement of lease is to consider the layout and contents of a typical lease, as described below:
PART ONE: THE ESSENTIALS
The four essentials that need to be accurately recorded within an agreement of lease are:
(1) The parties to the agreement, meaning the lessor and lessee
Please remember that the names of the lessor and lessee must be accurately recorded. In this respect, you might want to re-read section 9.2.1, above, again.
(2) The premises over which the lease is to be concluded
The premises need to be described accurately. Please re-read section 9.3.1 – THE PREMISES, above, again.
(3) The rental which the tenant must pay to the landlord
The term ‘rental’ in lease law means any amount payable by the tenant to the landlord as required by the lease, except metered utility (metered electricity, water and gas charges) recoveries.
The most expedient way to record a tenant’s rental obligations is to use a table which sets out the rental period, the various rental components exclusive of value added taxation, the attributable value added taxation and the VAT-inclusive monthly amount.
A separate table for each charge is the most prudent manner to record a tenant’s rental obligation.
Of paramount importance is that the lessor must always set out the value-added-taxation inclusive total of a rental component in a lease agreement as VAT-legislation requires that all amounts which are specified in a contract should be inclusive of value-added-taxation.
The various components of rental are explained in section 9.3.3 below.
(4) The period of lease agreement
The period-clause of a lease agreement should always record the intended commencement date (in a clear, unambiguous manner), the period of the lease (in years and months) and the intended termination date (again, in a clear, unambiguous manner).
PART TWO: THE CONSEQUENCES
The following consequences should be accurately, clearly and succinctly recorded:
(1) Suspensive and resolution conditions
It is prudent to record any suspensive or resolutive conditions that the parties wish to introduce at an early stage within a contract.
This could include the option by one- or both- parties to cancel the lease agreement prematurely or upon the occurrence of some future event or to relocate the tenant upon the occurrence of some future event.
Please refer to section 9.1, above, for an explanation of suspensive and resolutive conditions.
(2) The due date of and place for the payment of rental as well as any special requirements for the payment of rental
(3) The amount of any deposit which the lessor may wish to ask of the lessee. Please see section 9.3.7, below, which section discusses the security required of a lessee.
(4) The services to be provided by the lessor to the lessee and the responsibility for the costs thereof.
(5) The option period(s) which the parties may wish to include.
(6) The rent-review dates which the parties might wish to agree.
(7) The rental that the parties might wish to agreement regarding option period(s) and rent-review dates. Readers are referred to section 9.3.5, below, which explains options, rights-of-first-refusal and rent reviews in some detail.
(8) The use of the premises: it is possible to provide for an increase in uses of the premises as well as a reduction in the uses of the premises as time progresses. Please see section 9.3.4, below, for a discussion of the usage clause within a lease agreement.
(9) A restriction upon the lessee regarding the sub-letting of the premises.
(10) The rules related to the property (of which the premises form part), such as control of the property, visitors to the property and use of the property’s common areas and amenities.
(11) The responsibility for maintenance of the premises and the building and the condition in which the premises must be returned to the lessor.
(12) The affect on the lease agreement and the subsequent processes that the parties shall follow in the event of extensive damage to or destruction of the premises or subject property.
(13) The exclusions for which the parties do not wish to accept liability or responsibility. Please see section 9.3.6, below, in this regard.
(14) The requirement for the lessee to comply with the laws, by-laws and regulations applicable to the property (of which the premises form part), as prescribed by legislation and within the title deeds of the subject property.
(15) The breach clause: the breach clause normally comprises a material- and non-material- breach component. A lessor and lessee can elect to create any breach a material breach. The purpose of the breach clause is to regulate remedies in the event that one of the parties commits a breach of the lease agreement.
(16) Any other lessee- and lessor- obligations which the parties wish to regulate.
PART THREE: THE INCIDENTALS
The following typical consequences might be included in an agreement of lease:
(1) A discount on the rental, if the tenant elects to pay by debit-order.
(2) The method of metering and recovering utility (electricity, water and gas) consumption charges.
(3) The amount that the landlord and / or the tenant shall spend on preparing the premises for occupation. This amount is normally referred to as the tenant-installation allowance. Such amounts could be tax-deductible in the hands of the lessor or the lessee.
(4) Any (single, balloon, cancellation-fee) amounts which may become payable by one of the parties to the other upon the occurrence of a certain event, such as premature termination of the lease agreement, relocation of the tenant or inclusion of another tenant in the property of which the premises form part.
(5) Rent-free periods or reduced-rent periods.
(6) The costs associated with drafting and preparing the lease agreement.
(7) The costs of relocating the tenant or the payment of a tenant’s rental elsewhere as an incentive for the tenant to relocate to the subject premises.
(8) The option- or pre-emptive right- to occupy additional premises or relinquish a portion of the premises at a future date.
(9) The amount of time that the parties (both lessor and lessee) are granted to perform certain juristic-, administrative- or physical- acts.
CHECKLIST
The following items need to be accurate and correct before a lease agreement can be considered valid and enforceable:
1. Is the LANDLORD in the lease agreement the same as the TITLE DEED OWNER as at the date of signature of the lease agreement.
2. Are the premises correctly recorded so that an independent party can ascertain (find) where the premises are from the lease agreement.
3. Are all the components of the rental clearly set out so that an independent party can ascertain the rental by reading the lease agreement.
4. Is the period of the lease limited by either a fixed termination date or the ability of the the parties to give notice of termination.
5. Are all the suspensive conditions to the lease agreement fulfilled.
6. Have any of the resolutive conditions been fulfilled so as to terminate the lease agreement.
7. Are all the necessary consequential clauses included in the agreement of lease.
8. Are all the necessary incidental clauses included in the agreement of lease.
9. Is the usage clause correctly drafted and sufficiently succinct to the protect the parties’ interests.
10. Has the domicilia of the each party been correctly inserted.
11. Has the lease been signed by each party to the agreement.
12. Have the signatures been witnessed.
13. Have the signatures been dated.
14. Has each page of the lease agreement been initialled by the signatories and the witnesses to the lease agreement.
15. Has each alteration to the lease agreement been initialled by the signatories and the witnesses to the lease agreement.
16. Has the lease agreement been correctly revenue-stamped.
Ends.
|
|
  |
|
| |
|
