All You Need To Know About Drafting Lease Agreements?
Agreement & Contract
A Lease agreement is quite common among corporate entities. It is like an arrangement between two parties with respect to rights of possession over some property for a specific time period and consideration. The basic function of the agreement is to ensure a clear demarcation of the terms and conditions involved in the said transfer. A poorly drafted agreement, more often than not, is the reason for extended litigation in Courts. Therefore, it is absolutely essential to understand the fundamental aspects of a Lease Agreement and the necessary points to incorporate in the same.
What is a Lease?
A Lease is a transfer of possession rights over some property over an agreed-upon time period and monetary value. An important thing to note here is that in a lease, the ownership of the property is not transferred. The law governing the transfer of immovable property is the Transfer of Property Act, 1882.
The following are certain key terms involved in the framing of a Lease Agreement:
- Lessor: The person who transfers the property
- Lessee: The person to whom the property is transferred
- Rent: Consideration for the transaction to take place
- Duration: The time period of the transfer begins from the day the Agreement mentions, otherwise on the date, it was entered into
Essentials of Lease Agreement
- Parties entering into the agreement need to be competent to contract.
- The Lesser should be the true owner of the property being leased.
- The Rent i.e., periodic payment or Premium, needs to be agreed upon.
- The nature of agreement entails acceptance by the lessee in the entirety.
Key Drafting Points
A Lease Agreement needs to be specific and exhaustive enough to cover the subject matter at hand and, at the same time, protect one's interests. The following are certain key drafting points to keep in mind while framing a Lease Agreement:
- Name and Addresses of everyone involved: It is necessary to mention the name of all the owners of property along with their addresses. At the same time, it is required to mention the names of all the parties to whom the property is being leased so that the enforceability of the conditions mentioned in the lease remains effective.
- Specification of the Property: The property needs to be properly demarcated and identified so as to prevent any possible miscommunication.
- Amount of Rent: The premium/rent with their due periods needs to be mentioned in the contract. Also, it is pertinent to mention what happens if the payment is not paid on time, the penalties and conditions surrounding the same.
- Amenities: To avoid any confusion, it is frugal to mention the amenities that the lessee is entitled to use on account of the lease agreement.
- Method of Termination: The method of terminating the Lease Agreement, grounds, time period of notices, and other incidental matters effectively preclude any possible lacuna leading to litigation.
- Time Period: The term of the Lease deed should be specified.
- Charges: The agreement should specify who is required to pay the Utility charges (electricity, water, telephone, internet, etc.) and land taxes and other incidental governmental charges.
- Permitted Usage: The permitted usage (material alteration, subletting, etc.) of property should be mentioned so as to avoid any future litigation.
- Redressal Mechanism: It is absolutely necessary to identify the jurisdiction of the appropriate Court along with a dispute redressal mechanism.
- Indemnity Clause: Clause covering possible damages and liability to compensate needs to be agreed upon.
Lease Agreements, especially in a commercial transaction, consists of various complicating circumstances, especially on account of the amount of money involved. This merits proper understanding of exactly what one expects out of the lease agreement and framing the same accordingly. The twin objective of any well-drafted agreement should be to grant peace of mind to the parties entering into a contract and prevent frivolous litigation. The points discussed above, though not exhaustive in any sense, should help achieve the same.
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