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 okay 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 makes a solid legal document.
1. The parties: landlord and tenant. Identify the parties to the lease, indicate their names, legal age, civil status and address. If any party is a juridical person (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.
2. The property. Never sign an agreement that doesn’t clearly define 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 like furnished or unfurnished, with parking or garage, access to facilities, etc.
3. 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 tenant is entitled to possess the property and enjoy it peacefully and free from intrusions. The 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 tenant’s peaceful enjoyment of the property.
4. The lease price and security deposit. This provision indicates the amount to be paid and when it should be paid. This also provides for effects of non-payment or default. Most lease agreements require a security deposit amounting to two months of the lease price and in addition, advance rentals for two 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, negotiate to pay a lower deposit and advance rental may be good.
5. 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
6. Miscellaneous clauses. These may include access to the premises for the lessor-landlord or authorized representatives during reasonable hours to inspect the property for repairs or to show the property to other possible tenants or prospective buyers; a sublease provision on whether or not the tenant may enter into sublease of the property with others; an escalation clause that provides for the increase of the lease price after the lapse of a specified period; dispute resolution clause, which provides for the mechanism for resolving disputes between the parties. The parties can also specify the venue where they may bring the dispute to, to the exclusion of all other jurisdictions.
7. Signature of the parties. Signing on every page of the document will make sure that the instrument is complete and unaltered. The signature indicates that the parties consented to it and have done so without being forced and that they understand the terms and conditions indicated.