Lease Contracts

Lease contracts have significant financial consequences for both the lessor and lessee. For the lessee, you may be deciding on a place to live or locate your business. You might be leasing a piece of equipment crucial to your business. Once you enter a lease, the terms might apply and affect your life or business for years to come.

As the lessor, you want to monetize your property while ensuring the lessee will properly care for it and make the payments as required by the contract. You must protect your property while ensuring you have legal recourse should something go wrong.

Lease contracts are binding agreements between the lessor and the lessee. Each has rights and obligations under the terms of the agreement. Therefore, you must be extremely conscious of what you sign ahead of time because you will be bound by the contract. A St. Petersburg lease contracts attorney can carefully review and negotiate when you are dealing with a complex agreement that requires give-and-take between the lessor and lessee. They can certainly benefit you if you are involved in any disputes about the lease agreement and possible litigation.

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Why People or Businesses May Lease Property

Property and equipment can be very expensive. It may require a heavy capital investment that people may not have. In addition, there may be a lengthy construction or building process that a person or business does not want to manage on their own. Actually building something on your own might require you to obtain significant financing, and you or your business may wish to spend that money elsewhere.

At the same time, there is money for owners to make in leasing their property. The sum of the lease payments they will receive over time can exceed the amount they spent to build or acquire the property in the first place.

A lease contract is exactly that – it is a contract between two parties. The lessor is the person who owns the property that is to be leased to the lessee. The lessor makes the property available to the lessee in accordance with the terms of the contract. Both the lessor and lessee have obligations to follow under the agreement. Not only must the lessor provide the usage of the property to the lessee, but they may also need to follow various other terms related to the property, such as maintenance and other services. In exchange for what the lessor does, the lessee must make lease payments as specified by the contract.

Types of Lease Contracts

The standard residential real estate lease is just one type of lease agreement. Different agreements may exist for commercial property or other types of complex agreements.

Some types of lease contracts include:

• Sale and leaseback – The property owner sells it to a new owner, but then leases the property back. You may get more favorable terms and less exposure to short-term fluctuations in the market when you do a sale and leaseback transaction.
• Triple net lease – The lessee pays not only the rent but is also responsible for all of the building costs, including property taxes and maintenance. Single and double net leases are similar types of contracts, but they involve the lessor paying for one or two categories of expenses simultaneously.
• Gross lease – The lessee makes one payment to the landlord, and they are not responsible for any further expenses relating to the property, including utilities and maintenance.
• Percentage lease – The lessee pays the lessor a fixed monthly payment and a percentage of the profits they earn from the use of the property.

The type of lease in question depends on what the lessor is offering and the amount of negotiating power you have. If you have negotiating room regarding the type of lease, an attorney can advise on the best type of lease for your situation and handle the negotiations for you.

Leases with Options to Own

Some lease agreements allow the lessee to take ownership of the property at the conclusion of the lease. These agreements may benefit lessors because they want to make money from the property but are not yet ready to sell. They avoid paying a broker their commission and gain some certainty by locking in a potential buyer and sales price right now. The lessee will know the money they are spending to lease will go toward the ultimate purchase price in the future, so they know they are getting more for their rent payments. A locked-in sale price gives them certainty and the ability to buy something they already know they need or like.

Some terms that you may find in a lease-to-own agreement include:

• The amount of rent that the lessee pays (rental payments are higher because they are going to be applied to the eventual sale price of the property)
• The time when the lessee must decide whether they intend to buy the property
• The eventual sale price of the property
• An option fee that the lessee pays now for the right to buy the property in the future (this fee will be surrendered if the lessee chooses to walk away and not purchase the property)
• Any penalties for breach of the contract

Whether they are the lessor or the lessee, you may decide that a lease-to-own agreement suits your own needs and purposes. Still, you must carefully negotiate it upfront because you are agreeing to both a lease and the terms of any eventual sale.

Terms You May Find in a Lease Contract

• The duration of the lease
• Disputes resolution mechanism
• Who is responsible for maintenance and repairs
• Whether there is an option to purchase at the conclusion of the lease
• The payment to the lessor
• Any restrictions on the lessee’s usage
• A description of the property to be leased
• Any security deposit to be paid by the lessee

Some types of lease agreements are standardized, and the lessor generally dictates the terms of the agreement to the lessee, who can choose whether or not to sign the contract. However, when there are more complex leases involving more money, the lessee has negotiating power and can agree on or challenge the individual terms.

Implied Duties in a Lease Agreement

Not only does the lease impose actual contractual obligations, but there are other duties the law implies for parties to a contract. Under the laws of every state, each party has the implied obligation to act in good faith when they have signed a contract. The implied duty of good faith may mean the following:

• Each party cannot act to keep the other from receiving the benefits of the contract
• Each party must cooperate in the other’s performance under the contract
• Both must avoid acts of bad faith
• Each party must act in the spirit of the bargain

Bad faith in a lease contract may make the party liable to the other for damages.

If the lease contract involves property, there is also an implied obligation to provide a habitable premises. The premises must be safe and fit for occupancy or use. In other words, the lessor cannot provide a dangerous premises. If the landlord has the obligation to make repairs (in some commercial leases, they may not have this requirement), they must do so in a reasonable amount of time. This duty is particularly crucial in a residential real estate lease, where people must live in the property on a daily basis. Here, the property must not be a danger to their health, such as presenting a risk of fire or disease.

What Happens When a Lease Contract Is Broken?

Since a lease is a contract, there are penalties for breach. The lease itself may specify a procedure and damages in advance if one were to breach the contract. For example, if you were violating a residential lease by moving out early, the landlord may specify that you need to pay several months’ rent as the cost for the breach. You may need to continue to make lease payments until the owner can lease the property to someone else. However, the landlord does have a duty to mitigate their own damages by at least trying to lease the property elsewhere.

Conversely, if the lessor has failed to uphold their own obligations under the lease, the lessee can sue them for damages. In some circumstances, the lessee may be able to withhold their own lease payments, although they are taking a legal chance when they do because they could be liable for breach of contract if they improperly withheld payments. If the lessee can prove that the lessor violated the lease, they may receive financial compensation.

Some examples of lease disputes include:

• Repairs: The lessor is required to make repairs under the terms of the contract and refuses or takes too long.
• Money Due: The lessor and lessee disagree about calculations of the money owed under the terms of the contract.
• Assignment: The tenant sells their business and tries to assign the lease to the buyer, but the landlord will not approve them
• Ejectment: The lessor wants to end the lease and eject the lessee because they are not following the terms of the agreement
• Misrepresentations: The lessee claims that the lessor made misrepresentations about the property

The hope is that any lease dispute can be resolved in discussions between the lessor and lessee. It is certainly possible to settle any disagreement without the need for litigation. Hiring a lease contracts lawyer at the outset of your dispute can actually increase the chances that you can work out a solution without having to go to court. Of course, it is your legal right to file a lawsuit when you are a signatory to a contract that the other party is not following.

Why You Need a Lease Attorney

No matter what type of lease you have, you may need a real estate lawyer or some other type of attorney for your case. Depending on the type of lease, you may need to hire a real estate attorney when you are negotiating it. For example, if you have a complex lease that involves commercial real estate or an expensive piece of equipment, you may need an attorney to help you negotiate the terms. Since commercial real estate agreements involve a large amount of money and your place of business, you need a real estate lawyer to review the language of the lease contract before you sign it. A commercial real estate attorney can suggest changes to the language to help protect your legal interests.

You certainly need an attorney to represent you if you are involved in a dispute about the actual performance of the lease. If either party breaches the lease, there can be serious financial consequences. It is better to involve a real estate lawyer (or other type of attorney) early in the dispute to lessen the chance that you may need to litigate your case. If you need to file or defend against a lawsuit, you should certainly hire an attorney for your case. They can build your case and present legal arguments to obtain the best possible outcome at trial.

Although you may not need a real estate attorney for a standard residential lease, they can provide valuable advice and guidance when it comes to negotiating with your landlord.  You should definitely consider one when you are leasing commercial property or when there are very high monthly payments. Hiring a lease contracts lawyer is a small investment you can make that can help protect your legal interests in the future, and it is worth it to do so.

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