Why is a Rental Lease Agreement Required

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Why is a Rental Lease Agreement Required?

A real estate contract is the base on which landlord-tenant relationships are built. A rental lease contract defines the terms of the occupancy. Whether as a tenant or owner, when you’re renting a property, drafting an agreement is essential.

A rental contract identifies the rights, duties, and responsibilities of the landowner and the tenant. As a landowner, the rented asset is your source of income. 

As a landowner, the goal is to minimize contractual obligations and liabilities. As a resident, the aim is to pay low rent while making the landlord responsible for the maintenance. That is why, for a understanding, a rental lease agreement is needed.

Contents of the Rental Lease Agreement – Inclusions

A Rental lease agreement is entered into by the lessor and lessee, so the names of the people to the agreement must be included.

Apart from this, the following information must be included in the agreements:

  • The effective date of the agreement: The valid date from which the agreement is confirmed.
  • Term of the lease: The start date and the end date of the rent/lease, as well as options for renewal
  • Computation of rent: As general leases are for more than a year, the annual rental payable month-wise must be mentioned
  • Security deposit: The security deposit amount and refunded date is mentioned.
  • Taxes: The personal property taxes, and real estate taxes payable by the lessee
  • Governing law: In the event of litigation, the state laws should hold good
  • Fixtures: Any equipment or furniture used by the lessee during the term of the contract shall remain the estate of the lessee and can be removed at any time by the tenant.
  • Subletting: The lessee shall have the freedom to sublet any division of the premises provided there has been no breach of contract
  • Loss and damage: The owner will not be liable for any loss or damage to the rented property except where there has been intentional damage by the landlord
  • Signage: The lessee will have the right to install any exterior or interior sign in accordance with the laws of the state
  • Use: The lessee can use the assets individually for the purpose mentioned in the agreement

Benefits & Drawbacks of the Commercial Lease Agreement

The benefits of having a Rental/lease agreement are:

  • The interest of both the owner and the lessee is protected. 
  • The costs related to the property like property taxes, utilities and repairs are shared between lessor and lessee.
  • Subletting: The lessee can sublet the property if the business is not doing well or if they are relocating

The drawbacks of having a commercial lease agreement are:

  • The landlord cannot terminate the lease contract prematurely to take advantage of a better lease
  • A ceiling on lease: Some tenants may insist on a ceiling on the rent increase, reducing returns for the landlord

How to Draft the Commercial Lease Agreement?

While drafting a lease agreement, the following details need to be kept in mind:

  • Parties involved: The names of the parties to the contract and the relationship between them
  • Rent payable: The monthly payable and the time period, including fines for delayed pay. The calculation of rent is usually based on the area of the property. The agreement should clearly state if the elevator, and interior walls are included while measuring the area
  • Improvements: Lessee shall obtain the needed grants and ensure that the contracts are completed in a professional manner. The permitted improvements should be stated clearly in the contract
  • Repairs: The necessity for repairs of the property should be separately stated
  • Indemnity: The resident needs to maintain public liability coverage and pay the landlord for any damage to assets
  • Term of the lease: The start and end date of the lease
  • Applicable laws: The laws of the state applicable to the agreement
  • The effective date of the agreement
  • Description of the property: The amenities being provided along with the assets should also be mentioned
  • Signs: The contract should allow setting up signs for promoting the business.