Which Clauses in a Lease Agreement Ensure Maximum Protection of the Parties' Rights?

A Lease Agreement is a an agreement entered into between two parties where one (the Landlord) intends to let out their property for a period of time and the second party (the Tenant) wishes to live in or possess the property for that period of time.

The Lease Agreement sets out the terms on which the property will be let out to the Tenant so that there is clarity and all matters can be governed by the agreement in the event that there is a disagreement or in the extreme case, a need for legal action arising from a breach.

Hence, it is clear that the Lease Agreement is meant to serve as protection for both parties. With this in mind, it is important for the parties to a Lease Agreement to ensure that any such agreement they wish to enter must offer them the best protection for their respective needs. For example, where a tenant 's financial situation makes it more convenient for it to pay rent on a quarterly basis (i.e. every 3 months), they should ensure that the Lease Agreement for the property they wish to let reflects this situation otherwise they could find themselves in either financial troubles or ultimately breaching the agreement.

The need for the protections of a Lease Agreement is applicable to both residential properties and commercial properties. While in a residential lease, the tenant will be more concerned with protecting their right to enjoy and possess the property, in a commercial lease, the tenant will be more concerned with ensuring that they can carry on their business successfully while possessing the property.

While a Lease Agreement will have different clauses that are specific to the type of lease and the type of property involved, there are a few universal clauses that are very important to the effectiveness of the Lease Agreement, and the specific provisions of these clauses should reflect the intentions of the parties to offer the most protection. These 10 important clauses that must be included in the Lease Agreement are:

1. Rent Clause

The rent clause sets out the price of leasing the property, the frequency of the rent payment, the consequence of missing a rent payment and other issues relating to the rent. A Lease Agreement that is unclear as to the matters relating to rent payment is very likely to cause problems for both the landlord and the tenant of the property. A comprehensive rent clause must:

state the amount of rent that is to be paid;
state when rent is to be paid (e.g. monthly, annually, quarterly etct);
clearly state the repercussions of late payment of rent; and
state any interest or additional fee that will apply to a late rent payment.

2. Duration of the Lease/term of the agreement

The duration/term clause provides how long the property wil be leased for and whether this period is fixed or flexible. This clause is very important because it provides certainty of term for both paries. On the landlord's part, they will be certain that after the term of the lease, they can reclaim their property and during the term they can enforce the rights granted under the agrement and seek legal remedies if the need arises. Similarly, the tenant will be certain that they can enjoy/possess the property for the term granted in the agreement and be from from unwarranted disturbance with their possession. A comprehensive duration/term clause must state:

how long the property will be leased to the tenant;
if the length of the lease can be extended and how this will be;
whether the term of the lease will be automatically rolling after the original term (e.g. after a 1 year term, the lease will continue to roll upon the payment of rent monthly by the tenant); and
how the lease may be terminated before the end of the term.

3. Repair and Damages clause

The lease agreement should clearly state how repairs will be done on the property and what repairs would be carried out by the tenant or the landlord. For practical and convenience reasons, both parties should know what they are responsible for repairing so that they can also monitor how such things are maintained and how frequently they are serviced. Without clarity on who is responsible for repairs, the property can fall into which wil be unfavourable to the landlord (as they are the owner of the property) and the tenant (as their enjoyment of the proper will be compromised). A comprehensive repairs and damages clause should state:

what repairs are the tenant's responsibility;
which repairs are the landlord's responsibility;
how the tenant is to inform the landlord about repairs;
what the repercussions of not informing the landlord of a need to repair;
the timeframe within which repairs are to be carried out, or within which the landlord should be informed about the need for repair; and
if applicable, the details of an emergency contact.

4. Sub-leasing or Assignment of the lease

Subleasing of the lease refers to the tenant's ability to transfer possession of the property to another party (a sub-tenant) through a Residential Sublease Agreement or Commercial Sublease Agreement (whichever is most appropriate), while still retaining posession of the property themselves.

Because the property will be possessed/occupied by someone other than the tenant, the landlord will be very particular about this. A good Lease Agreement will have a clause that clearly addresses what the landlord's feelings are about the sublease and how/if the tenant can transfer the property to another person as a subtenant. To the landlord, the sublease clause assures them that they are aware who occupies their property and that that person agrees to maintain it in an acceptable manner. To the tenant, the sublease clause helps them consider whether they can transfer the property to a third party for a fee in the event that they are having financial issues and do not want to end the lease. Having clear subleasing terms can help the tenant avoid breaching the agreement unknowingly. A comprehensive sub-leasing clause should state:

whether the tenant can sublease the property;
how the tenant is to inform the landlor and ask for permission to sublease;
how the landlord will communicate the acceptance or refusal of the tenant's request;
the kind or person that can be a subtenant of the property; and
whether there will be a separate document dealing with the particulars of the sublease (e.g. a sublease agreement).

In addition to a subleasing clause, the lease agreement should also provide for the assignment of the lease. Assignemt refers to full transfer of the lease to a third party and the tenant will no longer have possession or accompanying rights in the property any more. A comprehensive assignment clause should also have identical provisions as that of a subleasing clause.

5. Alterations to the property

Whether the property is a residential property or a commercial property, the tenant will want to know if they can make alterations to the property that will give them more satisfaction and enjoyment of the property. Similarly, the Landlord will be like to know that the integrity of their property is maintained any changes made to the property do not compromise its integrity. For this reason, it is very important to have a clause on alterations to the property where both parties can agree on what approach is most suitable for them. A good alterations clause should clearly state:

whether alterations are permitted;
if alterations are permitted, what types of alterations do not require landlord's consent (for example, minor alterations inside the property);
for alterations that require landlord's consent, how such consent can be gotten;
whether the landlord will supervise the alterations;
the implications of alterations on the property after the lease expires (for example, whether the tenant will disassemble the alterations or leave them on the property); and
whether alterations are limited to the interior of the property or exterior alterations are also permitted.

6. Premises clause

While this applies both to commercial leases and residential leases, it is most important for commercial leases. It is very important for the tenant to be know clearly whether it is the whole property that is being leased to them or whether it is just a part of it. If the whole property/building is being leased to the tenant, this is very straightforward. The address of the property will suffice as description of the property. However, where only a part of the property is being leased, then it is very important to have a premises clause that describes the portion being leased in great detail. This comes into play for example where the whole property will be shared by more than one tenant i.e. a co-tenancy space. The tenant would like to avoid encroaching on another person/tenant's space and the landlord will also want to avoid any disagreements that may arise between co-tenant or where there is just one tenant, avoid a case of unknown trespass arising.

7. Use of the property clause

A use of property clause will provide how the tenant is permitted to use the property and what use will amount to a breach of the lease agreement. A use of property clause should be as specific as possible so that the parties can be aware of what they can use the property for. For example, the landlord of a residential property may not permit the use of the property for any form of business activities. Similarly, the landlord of a commercial property may not permit the property to be used for certain kinds of commercial activities, for example storage of toxic substances. It is therefore needful for the parties to review the use of property clause and make sure that it reflects how they wish to use the property concerned. The risk of not having a clear use of property clause can result in the tenant breaching the terms of the lease agreement.

8. Insurance clause

While there are losses or damages to the property that may be borne by the landlord or tenant, there are those losses that rise to the extent that the cost of repair or replacement is too great for either the landlord or tenant to bear. Such losses are should best be insured against. For example; fire damage, natural disasters (earthwuake, storms, flooding etc), damages caused by riots or war, burglary etc. The parties should make sure that there is a provision for insurance in the lease agreement that will address these kinds of incudents. A comprehensive insurance clause should state:

what kinds of losses are insured;
how much is the insurance for the losses and what the maximum payout is;
who will be responsible for paying the insurance (some insurances can be borne by the landlord while some can be borne by the tenant);
what will happen where the amount of the loss is greater than the insurance cover (i.e. who will pay the remainder of such amounts); and
how such insurances will be maintained or renewed.

9. Breach of lease clause

As with any agreement, it is necessary for the parties to know of the consequcnes of breaching the lease. It is common for tenant, and also landlords to claim that they were not aware of the consequences of breaching the lease and as such complain about the severity of the consequences of such a breach. Additonally, it is in the interest of transparency and good faith for the parties to be aware of the consequences of a breach of the lease. This helps them pay closer attention to keeping to the terms and obligations of the lease agreement. Along with this clause, the parties should also make it clear what laws and jurisdiction will apply in governing the lease agreement and addressing a breach of the terms.

10. Termination of the lease

Just as the parties meet to enter the agreement, so also it is possible for parties to choose to end a lease agreement before the end date of the agreement. It is very possible for either party to wish to end the lease well before its end date for a variety of reasons such as financial issues on the part of the tenant, the landlord wishing to repossess their property, the tenant wanting to move to a better property and so on. As such, the Lease Agreement should make provision for ways that the lease agreement can be ended by the parties and where applicable, state any fees that may be payable by the party seeking to end the lease agreement. In a practical sense, there should always be a clause stating how parties can exit the agreement in case they choose to day so. Both parties (the tenant and the landlord) should make sure that the lease agreement clearly provides for such an eventuality. A comprehensive termination clause should state:

what are the consequences of early termination;
whether there are events or situations that will grant the right to early termination;
whether any amount will be payable by a party wishing to terminate the lease agreement before its term; and
how a party should be notified about an early termination of the lease agreement.

Conclusion

Just as it is with any agreement, the parties have the right to customise the agreement to reflect the specific situation they find themselves as well as the peculiarity of their situation. This is likely to reflect in the clauses that are included in the lease agreement. While this is normal, the clauses listed above are almost always part of a comprehensive lease agreement and they are targeted at ensuring the protection of the parties. This, when entering a lease agreement they parties should ensure that these clauses are included in the agreement and where they are included, they should ensure that the provisions therein accurately reflect what they want as it pertains to protecting their interests.