Property Law: A Commercial Agreement - Coursework Example

? Property Law By Due The essentials of the formation of a valid contract are offer, acceptance, consideration and legal form. When it comes to the agreements of tenancy, it is mandatory that the contract must be in writing. A commercial lease agreement is made when a commercial real estate such as an office, store, warehouse etc is to be rented. The Landlord and Tenant Act, 1954, governs these agreements. These agreements fulfill all the essential requirements of a valid contract and can, therefore, be regarded as contracts. It is essential that the terms of these contracts must provide for the lease term, annual rent, security deposit, taxes, construction and completion and obligations for repairs. A commercial agreement needs to clearly and unambiguously state the lease term. It must state when the lease begins, when it ends and what the duration of the lease is. The beginning of lease is usually from the same day that the tenant commences to occupy the property. The lease agreement must also define the exact area of land that the landlord is willing to rent. It must also clearly state whether the area to be rented is on the ground floor. If the area in question is on any other floor on a building, the agreement document must also mention the floor. If the landlord has promised to furnish the property in a particular manner before the commencement of the lease, it must also be clearly stated in the lease agreement. These renovations are known as “Tenant Improvements” and they are usually required in a commercial lease for office space. It is imperative that the landlord (the Lessor) must agree to “reasonable diligence to attempt to complete the Tenant Improvements”. The plan for Tenant Improvements must be certified by an architectural firm and the improvements must be in compliance with the plan. When the Lessor feels that he has fulfilled the requirements of the improvements, he must give notice to the Lessee. The Lessee then causes the architect firm to inspect the work and make a punch list of any deficiencies. If there are any deficiencies, the Lessor rectifies them and notifies the Lessee of the same. The Lessee must then cause the architect firm to inspect the property within five days of the notice. If the deficiencies have been properly rectified, the architect must intimate that to the Lessee and provide a certificate. Within 10 days of the certification, the Lessee must occupy the premises. The Lessor and Lessee then must “execute a memorandum in writing” that specifies the date of occupancy of premises by the Lessee. The annual rent and the amount of security deposit of the lease needs to be determined in advance and be put into writing. Lessee agrees to pay the Lessor a certain amount of monthly rent. It is usually agreed upon to be paid on 1st of each month. An additional charge of a certain amount must be provided for in the terms of agreement which is to be paid if the payment of rent is delayed for more than five days after the first day of any calendar month. The mode of payment of rent must also be provided for. More than one modes of payment can be agreed upon. A cheque that is denied by bank shall not be deemed to have constituted a valid and timely payment of rent. Where renting out of an office space is concerned, it must be agreed that the Lessee, its agents, servants, employees, customers, guests, and invitees shall have the exclusive right to park without charge in the parking lot of the premises throughout the lease term. However, the Lessee must also agree that he shall have a limited number of parking spaces and this limit must not be exceeded so that the parking spaces for other tenants of the building are not hindered. Lessor must also agree that he will not attempt to prevent the use of the allotted parking spaces by the Lessee. The Lessor agrees to grant the place in peaceful possession of the Lessee and gets it acknowledged by the Lessee that the place is in an acceptable condition. The Lessor is not entitled to disturb the possession of property the Lessee unless the Lessee starts to use the property for something other than which is agreed upon in the terms of the agreement. The Lessee states clearly the purpose for which the property would be used and the purpose is put in writing. The use of property for any other purpose would tantamount to a breach of the agreement. The Lessee is required to take good care of the premises. He is required to take the Lessor’s insurance policy into consideration and must not do anything that jeopardizes the Lessor’s policy. The Lessee must also observe the laws, rules and regulations by the Government. He must not expose the property to any hazards that can increase the existing rate of insurance for the Lessor. Furthermore, the Lessee agrees to indemnify the Lessor for any damage or injury to persons or property arising out of the use of the Premises by Lessee, its agents and employees, invitees, or visitors except that occasioned by the negligence or act of Lessor, its agents, employees, servants, contractors, or subcontractors. The Lessor can terminate the commercial lease agreement by giving a notice to the Lessor in a prescribed form and the date on which the lease ends must be specified. This date is termed as “the date of termination”. The notice of termination by the Lessor must be given at least six months and at most twelve months before the date of termination. The date of termination of the lease must not be a date earlier than the date on which the lease has to expire due to effluxion of time. The notice must also require the Lessee to notify the Lessor within two months whether he will be willing to give up the possession of the property at the date of termination given in the notice. Otherwise, the notice would not be deemed to be a valid notice of termination. For the notice to be valid, the Lessor must also state whether he would oppose an application for renewal of the lease to the court. If the Lessor declares that he will oppose such application, he must also state the grounds on which he will be doing the same. (TLTA 1954, S. 25) The Lessee is entitled to apply for a renewal of tenancy if he is in the possession of the property as a result of his current tenancy and his current tenancy is certainly for a period of more than one year. It is immaterial whether the tenancy has been continued or granted for a period of a certain number of years. The application must be given at least six months and at most twelve months before the date of the commencement of new tenancy. It is to be noted that the date of the commencement of new tenancy must not be a date earlier than the date on which the tenancy would end due to effluxion of time or could be brought to an end by notice to quit given by the Lessor. The application must be made in a prescribed form and the Lessee must state all the elements of his proposal especially about how much area of the premises is required for the new lease and how much rent he is willing to pay. If the Lessor has already given a notice of termination or the Lessee has given a notice to quit, a request for renewal of the lease cannot be made. If the tenant makes a request that is complete in all respects as to the requirements of TLTA 1954, the lease would terminate immediately before the date of the commencement of new tenancy. If the Lessor is not willing to renew the lease, he must notify the Lessee that he would oppose his request to the court and must also state the grounds on which he would be doing so (TLTA 1954, S. 26). S. 27 of TLTA 1954 states that, “Where the landlord and tenant agree for the grant to the tenant of a future tenancy of the holding, or of the holding with other land, on terms and from a date specified in the agreement, the current tenancy shall continue until that date but no longer, and shall not be a tenancy to which this Part of this Act applies.” Therefore, a tenancy can be renewed by mutual consent and agreement between the two parties also. A tenant may to choose to continue his tenancy by applying for continuance in the court. It could be done only in the case where the landlord has given him a notice of termination or where he has applied for renewal of lease which the landlord has refused. If the tenant has already given the notice to quit to the landlord, he is not entitled make the aforementioned request to the court (TLTA 1954, S. 24). The grounds on which the landlord may oppose the renewal of the lease as given in S. 30 of TLTA 1954 are: a. Where under the current tenancy, the tenant has some obligations regarding the maintenance and repair of the property and damage has been caused due to the tenant’s negligence in performing his duties; b. Where the tenant is not punctual in payment of the rent which becomes due; c. Where the tenant has committed any other breaches of agreement which are substantial in nature or any other reason regarding his use or management of the property; d. Where the landlord has agreed to accommodate the tenant at an alternate place and the conditions and timing of the tenancy at that place are satisfactory and there is no potential detriment to the goodwill of the business of the tenant; e. Where the current tenancy is reaping less profits for the landlord and he has an opportunity to rent it or dispose it off in such a way that enables him to reap the highest obtainable profits; f. Where the landlord has to demolish the property or part of the property for construction and for that purpose, he requires the possession of the property; g. Where the landlord intends to use the place for his own business or residence after the termination of the lease. Where the landlord has successfully opposed the renewal of the lease in the court, the tenant would not be able to renew the lease. Similarly, the lease would be renewed if the application by the tenant is accepted and the landlord fails to successfully oppose the renewal request. The clauses relating to renewal have a substantial impact on landlord’s holding. These clauses have given protection to the businessmen while being completely fair to the landlords. The landlords cannot feast on the goodwill of the tenants’ businesses. On the other hand, the landlords are also protected from the unfair use of their property. As discussed before, the tenants are not entitled to expose the landlords’ holdings to any risks that increase their insurance rate. The tenants are prohibited from causing any harm to the properties but they are entitled to enjoy peaceful possession of the property. The commercial lease agreements involve the question of goodwill and that is why they seem to be a little biased towards the tenants. The landlords’ holdings are automatically handled in a way which makes them fruitful to the economy without being detrimental to the lawful rights of any party involved. References The Landlord and Tenant Act, 1954 (UK) s 24-32. Read More