Building Lease Agreements

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Building Lease Agreements

A Brief Introduction About the Building Lease Agreements

A building lease contract is required when the owner of a property wants to lease the property to a tenant for which a lease rental is charged. The lease is granted to the tenant for a given tenure, which is known as the term of the lease.

The lease may be renewed by serving a notice to the other party, but the request for renewal needs to be made before the expiry of the lease. The tenant reserves the right to terminate the lease on payment of a fixed amount along with any other financial obligations. The details of the property being leased are mentioned in the agreement.

If there is a clause for extension of the contract, then the contract may be extended on mutually agreed terms and conditions between the landlord and the tenant. There is a major difference between a commercial lease and a residential lease. A commercial lease would be drafted for properties let out to businesses for carrying out their operations, while residential leases are meant for use by individuals for residential purposes. The rental frequency would differ from contract to contract, and there would be a penalty for delayed payments.

Who Takes the Building Lease Agreements? – People Involved

These agreements could be taken for both residential use and commercial use. There are two parties to such agreements, the landlord and the tenant. The structure of commercial and residential agreements is different. Lease rental is payable by the tenant.

Purpose of the Building Lease Agreements – Why Do You Need It?

If you look at a commercial lease contract form, you will find the various clauses in such contracts. These contracts are made by the laws of the state relating to commercial and residential lease agreements.

The landlord and the tenant know their rights and responsibilities, and this leads to the minimization of disputes between them. Even if there is a dispute, the process of resolution of disputes is also stated. If the landlord does not receive the lease rental within the due date, then they can take legal action against the tenant to recover the dues along with all charges like attorney fees incurred to realize the claim.

The tenant has the right to use the property for the purpose mentioned in the agreement for the entire term. It is the responsibility of the tenant to pay the personal property tax and real estate taxes.

Contents of the Building Lease Agreements – Inclusions

The agreement should include all the clauses required by the applicable laws of the state, which protects the interests of both parties.

Here are the contents of the agreement:

  • The effective date of the agreement
  • The parties to the agreement, the landlord and the tenant
  • Term of the lease: The start date and the end date
  • The consideration payable: The rent payable by the tenant and the due date along with the late fee
  • Extension clause: The notice to be served by either party for extension
  • Security deposit
  • Taxes payable by the tenant
  • Purpose of leasing the property

How to Draft the Building Lease Agreements?

Points to Consider While Preparing the Agreement

When drafting a commercial lease agreement, a commercial property lease contract template may be referred to. The template can be modified according to the nature of the agreement.

The points to consider while drafting is:

  • Adherence to law: The agreement should be drafted by the laws of the state
  • The consideration payable by the tenant and the mode of payment
  • Terms of the agreement: The interests of both the parties to the contract should be protected. It should not be unfair to either party
  • Dispute resolution clause: The jurisdiction, use of arbitration or litigation and payment of attorney fees
  • Termination clause: The contract can be terminated prematurely by providing sufficient notice to the other party
  • Signatures and dates: The signatures by both parties indicates an acceptance of all the clauses in the agreement

Negotiation Strategy

The tenant needs to determine the fair value of the property from official records under building lease agreements. This will help them negotiate a reasonable rental. The landlord can then make a counteroffer. Both parties should agree to all the terms before signing.

Benefits & Drawbacks of the Building Lease Agreements

The benefits of agreements are as follows:

  • The interests of both parties are protected. The landlord gets their monthly rental and the tenant the right to use the property
  • The agreement can be terminated by either party through a notice
  • Extension of agreement: This is possible if both parties agree to it
  • Minimization of disputes: The agreement defines the responsibilities of both parties, so there is a lower possibility of conflict

The drawbacks of building lease agreements are given below:

  • Non-payment of dues: Without an agreement, the tenant may default in payment
  • Higher possibility of disputes: Since the rights of both parties are not defined, there would be frequent disputes
  • No legal remedy: Without the agreement, the injured party will not be able to take legal action

What Happens in Case of Violation?

If there is a breach of contract by either party, it would be advisable to sort out the problem amicably. The remedies which are available to both parties are as under:

  • Money damages need to be paid to the injured party for total or partial damage
  • Restitution: The money or property of the landlord has to be returned
  • Rescission: Cancellation of the contract due to fraud(1)
  • Reformation: The court drafts a new contract that is fair to both parties
  • Specific performance: The tenant needs to fulfill the contractual obligations. Money damages are not accepted

Building lease agreements are important in any lease, whether commercial or residential. The agreements need to have all the clauses like the dispute resolution clause for resolving disputes and termination clause for premature termination of the agreement.