What are common terms of commercial leases and are there regulatory controls on the terms of leases?

Real Estate (3rd edition)

Austria Small Flag Austria

Regulatory controls
Leases for residential and business purposes are in principle governed by the MRG, which applies either in full, in part or not at all, depending on the type of premise and date of the respective building permit. The Civil Code contains additional (and usually deviating) provisions for leases and constitutes the only legal framework in case the MRG does not apply; otherwise the provisions of the MRG prevail (the act is mandatory in favour of the tenant).

Increase of rent
The MRG contains, inter alia, mandatory provisions regarding the possibility of termination of the lease by landlord and, if fully applicable, on the maximum possible amount of rent. Further, in case the MRG is fully applicable and a change of tenant occurs, landlord is entitled to increase rent to the maximum possible amount under MRG provision.

Length of lease term
With the exception of leases for living spaces with a minimum of three years, there are no restrictions on the term of the lease. Parties of commercial leases typically agree to a lease period of five to ten years. The length of the period depends on the economic background of the landlord and/or the tenant (e.g. if the landlord agreed to carry out construction works for the tenant, so that the premises satisfy the needs of the tenant, the landlord might want to have a lease period long enough so that the investment costs for the work is profitable).

Maintenance and repair of the real estate actually occupied by the tenant
If the MRG applies in full, maintenance and repair are regulated in section 3 of the MRG. This mandatory provision sets out an exhaustive list of the landlord’s maintenance and repair obligations and cannot be altered to the detriment of the tenant.

Outside the full applicability of the MRG, maintenance and repair are regulated in section 1096 of the Civil Code, which states that the landlord is obliged to keep the leased premises in the state as agreed. These obligations to maintain and repair can be imposed on the tenant as this provision is not mandatory. Maintenance and repair obligations of the landlord are usually limited to material defects and roof and structure.

Frequency of rent payments
There are no specific statutory provisions regulating the frequency of rent payments, but rent is usually payable monthly, with one to five days of grace (mandatory under the MRG). Turnover-based rent is usually payable after the end of each year, after calculation of revenues by the tenant.

Brazil Small Flag Brazil

As a rule, the terms and conditions of the leases shall be those agreed between the parties, except for certain requirements or rights established by law.

For commercial urban leases, ruled by Federal Law # 8.245/1991 (the Lease Act), the following are usual terms:

  • Activities: The lease agreement usually establishes the activity that will be developed in the premises and Lessee’s obligation to obey local zoning rulings as well as any applicable building or condominium bylaws. Lessee must obtain all the licenses and permits to perform its business activities in the leased property (commonly issued by the municipality). Lessee is also frequently required to contract insurance for any business activities to be developed in the premises.
  • Term: There is no minimum or maximum length imposed by law. Parties are free to agree, accordingly. Market practice is of five years for commercial leases. However, built to suit agreements usually have longer terms. The Lease Act also establishes that in case lessor is a married individual and the lease is for ten years or more, the spouse must jointly execute the contract. In case Lessor does not oppose to lessee remaining in the property after expiration of the lease term, the agreement will be considered automatically monthly renewed for an undetermined period and both parties may terminate the lease upon thirty days prior notice.
  • Guarantees: The guarantees permitted by Article 37 of Lease Act are: (i) bank guarantee; (ii) guarantee by a creditworthy individual or a legal entity; (iii) chattel mortgage of investment fund quotas; or (iv) bank account deposit. Double guarantees are prohibited. Guarantees must be in force during the entire term of the agreement, until the property is returned to Lessor, under penalty of termination.
  • Maintenance and Improvements: Lessee must maintain the property and its equipment as received, except for wear and tear. Unless otherwise established in the lease agreement, improvements made by Lessee that intend to maintain or avoid deterioration of the property - even if without Lessor's approval - and those authorized improvements that increase or facilitate the use of the asset should be indemnified and entail Lessee’s right to retain the possession of the leased property until the payment of the indemnification due. Authorized optional improvements – that are made for mere pleasure, but do not increase the regular use of the property, even if they are agreeable or expensive - are not reimbursable, but Lessee may remove them if this does not damage the property. Moreover, the lease agreements commonly restrict lessee’s right to modify or improve the premises without lessor’s consent. Interior improvements are usually permitted to adequate the premises to lessee’s activities, but lessor may require that the premises be restored to their original condition, upon lease termination.
  • Transfer and Subleases: As per the Lease Act, subleases require written consent of the lessor and its rent cannot exceed the rent paid under the original lease agreement. Sublease rights may be prohibited or restricted by the lease agreement. In case of assignment/transfers, the lease guarantee must remain in force or be replaced by a new guarantee.
  • Rent: Market practice is that the fixed rent is monetarily readjusted once a year in accordance to a certain index established by the parties in the lease agreement. It is also common to set a variable rent according to the turnover of the lessee’s business – in specific cases as shopping centers and hotels. After three years of lease, lessee or lessor may judicially require a rent revision in order to update the rent to market practice.
  • Charges and Taxes: Lessee is customarily liable for all the expenses related to the property, such as condominium charges, water, sewage, gas and electricity bills, etc. The Real Estate Property Tax (IPTU) and other taxes and fees related to the property may be charged from the lessee if expressly provided in the lease agreement. Utilities are frequently hired individually by each lessee. In case the utilities are hired by the condominium in which the leased property is located or the contract encompasses more than one property, it is habitual that the related costs are shared either in accordance to the proportion of the occupied area or consumption of the related utilities. Lessor is primarily responsible for the real estate insurance, but this obligation can be contractually transferred to the lessee. Lessor is liable for the payment of the income tax on the rent value.
  • Early Termination: The Lease Act grants lessee the right to terminate the lease anytime without cause, as long as the relevant penalty is paid. The penalty is proportionally reduced according to the time the lease remained in force (not applicable to built to suit or sale with leaseback agreements). The lease agreement may be terminated by mutual agreement of the parties, or: (i) in case of contractual or legal breaches (including the non-payment of rent and related charges); (ii) by Lessor, in case of lack of guarantee to Lessee’s obligations; (iii) by Lessor, in case the government determines the urgent need for works, which cannot be completed with the Lessee occupying the premises or in case the Lessee refuses to authorize the mentioned works; (iv) by the buyer of the property in the ninety days that follow the sale of the property if there is no “cláusula de vigência” (please see hereunder – “Lessee Protection – Right of First Refusal and “Cláusula de Vigência””). Note that in the event of a contractual breach or if an eviction lawsuit is filed by lessor based on outstanding rent amounts, lessee will be granted the right to remedy the default, including by depositing values in court. In case lessee uses the property as a religious space or develops school, health, hospital or elderly home care activities, duly authorized by the government, in the real estate, there shall be certain restrictions for lessor to terminate the lease.
  • Turnover of the Property further to Termination: Lessee must return the property at the end of the lease term as received, except for wear and tear.
  • Renewal Rights: Lessee has right to renew commercial leases as long as (i) the agreement has been executed in writing with a fixed term; (ii) the lease has been in force for at least five years (pursuant to one or more agreements); (iii) the property has been used for the same activity during the three years prior to the renewal; and (iv) lessee files a lawsuit in the period between one year and six months prior to the lease contractual term. Lessor shall not be obliged to renew the lease in case: (i) the government requires the property for demolition or works that will enhance the value of the property; or (ii) lessor recovers the property for its personal use, or the use of companies in which lessor or a close family member is a controller (except in shopping centers as mentioned hereunder).
  • Registration and Execution Formalities: The contract shall be executed by the lessee and lessor in the presence of two Brazilian resident witnesses, who shall sign the instrument as so. In case of guarantees rendered by a legal entity or individual, it is common that guarantor intervenes in the agreement. It is strongly advisable that the lessee registers the lease agreement at the relevant Real Estate Registry so to assure enforceability of: (i) the right of first refusal before third parties; and (ii) the contract in case of sale to third parties ("cláusula de vigência", please see hereunder). If the agreement is to be registered, fees will apply both for registration of the agreement and registration of its termination, at the end of lease term.
  • Lessee Protection – Right of First Refusal and “Cláusula de Vigência”: In case of intended property sale or assignment, lessor shall notify lessee granting lessee the right to acquire the property in the same conditions as a third-party offeror within thirty days from notice. This right does not apply in cases of loss of property, judicial sale, exchange, donation, pay in of capital stock, split off, mergers and spin in operations, secured fiduciary sales or guarantee executions. The registration of the contract with right of first refusal clause at least thirty days prior to the sale also grants lessee the possibility of, in case the right is not granted, opting between claiming damages or cancelling the transaction depositing the purchase price in court for its acquisition. If the lease agreement is not registered at the competent real estate registry office and the right of first refusal is not granted, lessee may only claim damages against the lessor, but may not request cancellation of the transaction with the third-party buyer. In addition, lessor and lessee may agree to maintain the lease in force in case of a transfer of the property to a third party. Such clause (“cláusula de vigência”) must be express in the agreement and shall be registered at the real estate registry office so to be enforceable in case of title transfer.
  • Shopping Center Agreements: The Lease Act establishes that shopping centers leases have certain contractual flexibility to establish clauses that commonly would be considered null and void for regular leases. In this sense: (i) key money may be charged; (ii) Lessee's right to renewal may be waived; (iii) Lessor cannot claim the use of the property for itself, family nor companies in which it is a controller further to one year of the lease term. In addition, lessor may not charge lessee for: (i) works and/or change of equipment that affect the common areas or require a new occupancy certificate for the building; (ii) expenses not included in the shopping budget, if not urgent or due to force majeure; nor (iii) utilities, employee related expenses or equipment maintenance of the condominium.
  • Built to Suit: The Lease Act also grants some flexibility to built to suit agreements. It (i) authorizes the waiver to rent review rights; and (ii) establishes that the penalty for early no-fault termination by Lessee may be of up to a value equivalent to the entire rent that should be paid if the lease remained in force.
    Parking spaces, publicity spaces and billboards, condo/apart-hotels, properties of the Governments, rural leases,“ground-lease” (a typical arrangement for occupation, development and use of the real property) and free lease (“comodato”) are expressly excluded from the scope of the Lease Act.

Cayman Islands Small Flag Cayman Islands

15.1 The terms of leases are freely negotiable. However, certain covenants by the landlord and by the tenant are implied by the Registered Land Law (2018 Revision) unless otherwise expressly provided in the lease.

15.2 There are currently no legal restrictions on rent levels. Commercial lease terms will often provide for rent to be reviewed in line with the consumer price index (CPI), by a fixed percentage or by market review. Security deposits are a matter of contract and are not protected by law.

15.3 A lease term of five years is relatively common, and may include an option for the parties to renew for one or two further terms. The parties will often have regard to the stamp duty treatment of the lease when negotiating the lease term.

15.4 Unless expressly provided for in the lease, tenants of commercial premises do not have security of occupation or a right to renew at the end of the term. However, where a tenant continues to occupy premises with the consent of the landlord after the termination of the lease, the tenant will be deemed to be a tenant holding the premises on a periodic tenancy on the same conditions as those of the expired lease so far as those conditions are appropriate to a periodic tenancy.

15.5 A tenant can usually assign the lease or sublet/share occupation with the landlord’s prior consent. Change of control of a corporate tenant is usually prohibited without landlord prior consent.

15.6 A landlord generally has no residual liability under a lease after expiry or termination, or after a sale of the freehold interest. A tenant may continue to have liability depending on the terms of the lease.

15.7 Whether the landlord or tenant is responsible for insuring and repair the demised premises will depend on the nature of the lease. In leases of part of a building , for example, the tenant is usually responsible for repairing the non-structural components of its demise and the landlord responsible for insurance and maintenance of the building and common parts. It is usual for a landlord to recover its costs from each tenant through common area charges.

15.8 The landlord can generally terminate the lease if the tenant has breached a fundamental or essential term of (these terms are usually specified in the lease). The landlord must first give the tenant written notice of the breach and allow the tenant an opportunity to remedy the breach within a reasonable time, failing which the landlord can terminate the lease. The tenant has a statutory right to apply to the court under the Registered Land Law (2018 Revision) for relief against forfeiture. Lease terms usually allow a landlord to terminate the lease if the tenant is subject to an adverse solvency event.

15.9 It is not uncommon for commercial leases to contain clauses for abatement of rent or part of it in the event of damage to premises that render the premises or part of them unusable. The landlord and the tenant may have termination rights in certain circumstances following substantial damage to the premises (for example, where there is major damage following a hurricane and the landlord elects not to rebuild or reinstatement of the building is not possible).

15.10 The tenant can terminate the lease on common law contractual principles if the landlord is in breach of a fundamental or essential term of the lease. The tenant can also terminate the lease if there is an express right to break the lease. Express termination rights for a breach by the landlord are not usually specified in the lease.

Cyprus Small Flag Cyprus

The notion of “the protected tenancy” is part of the legislation of Cyprus. When the property which is the subject of a tenancy is in certain areas as specified by the council of Ministers, the Tenancy Tribunal Act applies. In order for the Act to be applicable the property must have been built before 31/12/1999. For the Act to apply, the property must be used as residence or as shop. Furthermore, for the Act to apply the tenancy period must be longer than 6 months. The increase of the rent, the right to evict and several other issues are formulated by the Act in such cases.

For all tenancies other than protected tenancies, the terms of the tenancy agreement govern the tenancy

It is standard practice to include in the tenancy agreement the names of the parties, the amount of the rent and the frequency of payments, the period of the tenancy, the rights and obligations of the tenant and the rights and obligations of the landlord, the payment of the guarantee deposit, the responsibility for the payment of utilities and other charges arising out of the possession of the property, the obligation to effect repairs, the right to modify the property, a prohibition on subletting, the permitted use of the property, the rights of termination etc

Subletting the property is permissible if not expressly prohibited in the agreement.

If the right to renew is included in the tenancy agreement, a provision is usually made as to the amount of increase of rent. If the tenancy is a protected tenancy, the increase cannot be higher than 14% every 2 years.

Termination of the tenancy is possible upon expiry of the tenancy or when one of the parties commits a serious breach which is of the essence of the agreement. In protected tenancies the right of the landlord to evict is limited in specific situations. When the rent is overdue for 21 days after a notice to pay is served, the landlord can start eviction proceedings. If the tenant pays within 14 days from the service of the eviction proceedings to him the eviction process stops. Other breaches by the tenant can justify eviction, for example when the tenant causes nuisance or causes damages or sublets when this is expressly prohibited or uses the property for illegal purposes. If the landlord wishes to use the property to reside in it or for his/her immediate family to reside in it, eviction may possible under certain circumstances and conditions. The same if the landlord is going to demolish the building or carry out major construction works at the property.

Denmark Small Flag Denmark

The Danish Business Lease Act (in Danish: erhvervslejeloven) governs most business leases regarding buildings. As an important exception, ground leases without buildings fall outside the scope of the Danish Business Lease Act. The Danish Business Lease Act is in general considered to be well balanced. Landlords and tenants are in most instances free to agree on the terms and conditions in respect of a business lease and, accordingly, the parties are entitled to amend and modify rights and obligations imposed on the parties originating from the Danish Business Lease Act.

However, there are certain mandatory provisions protecting business tenants which cannot be deviated from by way of agreement. Most notably, a landlord can only terminate a lease if the landlord has a valid reason. The valid reasons are few, listed in the Danish Business Lease Act and cannot be expanded by way of agreement.

France Small Flag France

The French legislation for commercial leases governs the duration, the renewal and termination of commercial leases, the fixing and review of rents, the service charges and taxes that could be reinvoiced to tenants, etc. Several of its provisions are mandatory.

Duration:
The minimum term of a commercial lease is 9 years. If the term of the lease exceeds 12 years, the lease must take the form of a notarized deed and be registered at the land registry. Since the taxes for the registration of a lease with a term of more than 12 years are very important, most of commercial leases are concluded for 9 or 12 years.

If the tenant rents the premises for the first time, the parties can enter into one or several short-term leases for a total duration which cannot exceed 3 years.

Tenant's right or earlier termination:
A tenant has three yearly right to freely terminate the lease subject to a 6-month's prior notice. If the premises are let exclusively for office use or if the term of the lease is superior to 9 years, the tenant may agree to waive its break option right at the end of one or several 3-year period(s) of the lease so that the lease will have a fixed-term of 6, 9 or 12 years.

Rent indexation:
Most of commercial leases provide an annual rent indexation.
Under French law, indexation clauses and the choice of the index are strictly regulated. As a result of the provisions of the financial and monetary code on indexation clauses and their narrow interpretation by French courts, are prohibited:

  • upwards only indexation clause as well as any cap or floor in the indexation of the rent, and
  • indexation based on the growth of the minimum wage, on the general level of prices or salaries, or on the price of goods, products or services which is not directly related to the object of the contract or the activity of one of the parties.

The index usually chosen for office leases is the index of rents of tertiary activities (indice des loyers des activités tertiaires or ILAT) and for retail leases, the index of commercial lease index (indice des loyers commerciaux or ILC).

Rent review during the term of the lease:
Any party to a commercial can apply for a rent review:

  • each time the rent has increased or decreased by more than 25% since the last fixing of the rent by the parties or by the court as a result of the indexation clause stipulated in the lease;
  • every 3 years since the last fixing of the rent by the parties or by the court when evidence of a material change in the local commercial factors giving rise to a change of more than 10% of the rental value of the premises is brought.

The reviewed rent is, then, fixed in accordance with the then current rental value (valeur locative) of the leased premises in the same manner as for the fixing of the rent in the event of a renewal of the lease.

Renewal of the lease:
The aim of the French legislation for commercial leases is to grant to tenants security of tenure (propriété commerciale) so that they may ensure the continuation of their going concern and the retention of their clientele. At the end of the lease, a tenant is entitled either to renew the lease for a further nine-year term or to receive compensation if the landlord refuses to renew the lease.

In order to benefit from security of tenure, the tenant must have operated a going concern in the leased premises over the 3 years preceding the expiry date of the lease and must be registered a the commercial and companies registry for this going concern.

The lease is renewed on the same terms and conditions than the previous lease with the exception of the rent for a minimum term of 9 years.

If the landlord refuses to renew the lease, the tenant is entitled to receive compensation for eviction corresponding to the loss it suffers The amount of this compensation could be important if the non-renewal of the lease results in the loss of clientele and, thus, of the tenant's going concern.

Fixing of the rent upon the renewal of the lease:
If the parties fail to agree the new rent, the most diligent party must apply to the judge who will appoint an expert with the duty to assess the then current rental value (valeur locative) of the rented premises.

Rental values assessed by judicial experts do not correspond to market rents, since for assessing the rental value, they take into account:

  • various references of rents of renewed leases for similar premises located in the vicinity of the leased premises whether these rents have been amicably agreed between the parties or fixed by the court and not exclusively references of market rents;
  • the terms and conditions of the lease to be renewed: certain provisions are considered as marked-up factors whereas other are discount factors depending from whether they are favourable or not to the tenant; for example, a stipulation of an authorization for the tenant to sublet is considered as a marked-up factor increasing the rental value of the leased premises since this provision is favourable to the tenant.

Taking into account all the aforementioned criteria results "mechanically" in the assessment by the experts appointed by the courts of rental values inferior to the market rental value.

Furthermore, there are cases where the increase of the rent upon the renewal of the lease is either capped (i.e. the difference between the initial rent under the original lease and the rent at the date of renewal cannot exceed the variation of the ILC or ILAT over the duration of the lease) or spread so that the tenant does not have to bear an increase in the rent of more than 10% per year.

For these reasons, it has become usual to stipulate in commercial leases that in the event of the renewal of the lease, (i) the application of the provisions of the legislation relating to rent capping are excluded and (ii) the new rent will be fixed exclusively in accordance with market rents by departure from the legislation on commercial leases.

Subletting:

Sub-letting is prohibited unless the parties have agreed otherwise.

Assignment:

Exclusion of the right to assign a lease is null and void to the extent that it prevents the tenant from assigning the lease to a purchaser or future owner of its going concern or business undertaking. Accordingly, a clause excluding the right to assign the lease is only valid in the case of an assignment of the lease exclusively, apart from the going concern operated by the assignor in the leased premises.

The lease may, nevertheless, provide that the right of the tenant to assign the lease, even together with its going concern, is subject to prior approval of the landlord.

Costs, repairs and services charges:
Landlords can no longer recover from tenants:

  • the expenses relating to major repairs mentioned in article 606 of the civil code (i.e. mainly those affecting the main walls and the ceiling vaults, the restoration of beams and the entire replacement of the roof) and fees relating to the performance of these repairs;
  • the expenses relating to works performed for remedying wear and tear or for putting the leased premises in compliance with applicable regulations if they correspond to the aforementioned major repairs;
  • the taxes, in particular the contribution économique territoriale, taxes and levies for which the legal debtor is the landlord or the owner of the leased premises or of the building in which these premises are located; it is, however, possible to provide that by departure from this provision, the tenant shall reimburse the landlord for the land tax (taxe foncière) and the additional taxes to the land tax (such as the tax on waste collection), as well as, all taxes and levies relating to the use of the premises or of the building or to a service of which the tenant benefits directly or indirectly;
  • the fees of the landlord in relation with the management of the rents of the premises or of the building subject of the lease agreement.

The landlord must, furthermore, provide to the tenant the following information and documents:

  • upon the signature of the lease agreement:
  • a precise and limitative inventory of the categories of service charges and taxes;
  • a forecast of the works that the landlord contemplates to perform on the property in the next 3 years together with a budget forecast;
  • a summary statement of the works that the landlord has performed on the property in the last 3 years;
  • every year and within the course of the lease, the landlord will have to inform the tenant of any new service charges and taxes;
  • every 3 years, the landlord will have to provide the tenant with a forecast of the works that it contemplates to perform within the next 3 coming years, together with a budget forecast and a recapitulative statement of the works performed in the past 3 years.

Tenant's right of preference:
The single tenant of premises for retail or craft workshop use benefits from a right of preference if the lessor contemplates to sell the leased premises. The tenant's right of preference is, however, not applicable in the event of:

  • a sale of the leased premises by the landlord to someone of its family or to a co-owner of a property complex,
  • a sale of the leased premises together with other commercial premises,
  • a sale of the totality of the building including the leased premises and other premises, and
  • a sale of various premises forming a commercial property complex including different retails and/or craft workshops.

The provisions of the commercial code relating to this right of preference are mandatory. The tenant cannot, therefore, waive its right of preference beforehand upon the signature of the lease.

Germany Small Flag Germany

The below summary focuses on typical occupational leases rather than lease-back arrangements or heritable building rights, which generally have substantially different terms.

Generally, German statutory lease law is rather tenant-friendly and provides for the rent being a "gross rent" including most of the service charges, repair works etc. Material deviations from that framework may be regarded as null and void under German statutory law. Therefore, "triple net" leases are not the normal case in Germany, but rather so-called "Dach & Fach" leases where the landlord bears all obligations and costs in relation to maintenance and repair of roof and building structure.

Typically, terms including the following:

Duration: Leases can be indefinite or for a fixed period. The legal maximum fixed duration for a lease is 30 years after which time period the lease is terminable within a statutory notice period (generally 3-6 months). For residential leases a fixed term without termination right for the tenant is only allowed in very limited cases. The duration of office and industrial leases will usually not be more than between 10-15 years with extension rights; however, 5 years (or even shorted) terms with extension options for the tenant giving tenants more flexibility are frequently seen as well.

Rent: There are no regulatory controls as to the amount of rent other than for the residential market. Rent is usually payable monthly in advance. In commercial leases, landlords will generally grant tenants rent-free periods (or other incentives, such as one-time payments) to cover costs of moving, fit-out works or simply to incentives the tenant to take the lease.

VAT: Generally, leasing is not subject to VAT, therefore the landlord has to opt for VAT if it wants to recover VAT that it has paid with respect to investment on the premises. With regard to residential use it is not permitted to opt for the application of VAT and the same applies to the uses by banks, insurances and certain other financial institutions (and consequentially the landlord cannot recover VAT paid on services and supplies received with regard to the real estate in such a case). Whether the landlord may opt for VAT depends on the actual use of the premises, therefore a commercial lease will typically limit the allowed type of use to such use that does not prohibit the landlord from opting for VAT.

Rent review: Other than in the residential sector, there are no regulatory controls as to when or how the rent may be increased and parties are free to determine the type and frequency of the review. However, there are certain restrictions if automatic indexation clauses are used: Generally, those may only be used if the lease has a fixed term of at least 10 years (with no early termination rights for the landlord) and if other statutory limitations for indexation are observed.

Types of rent reviews (which can also be combined) are:

  • Stepped rents, when the rent is increased at agreed intervals by agreed amounts;
  • Index linked rents, where the rent increases in accordance with an agreed index (such as the consumer prices index which must work upwards and downwards, though) at an agreed frequency (often annually);
  • Turnover rent, where the rent is an agreed percentage of the tenant's turnover subject to agreed minimum and maximum rents. These types of review are common in retail leases; and
  • Less frequently: Mark-to-market reviewed, where the rent is reviewed by reference to the rents payable in comparable properties. If the parties cannot agree what the open market rent is, it is typically determined by reference to an independent expert. Mark-to-market reviews are typically carried our every 3 or 5 years depending on the duration of the lease.

Permitted Use: The permitted use obviously depends heavily on the public law situation of the property; in addition, protection from competition with other tenants may be agreed (or waived). Leases will also usually restrict a tenant's ability to change the use of the premises. See above for VAT.

Maintenance and repair: As set out above, there are severe regulatory restrictions of what may be imposed on the tenant in terms of maintenance and repair. Typically, leases will often be evaluated as standard terms (because certain standard terms/samples are used by the landlord) where regulations are more restrictive than for individually negotiated terms.

Service charge: All operational costs listed in the so called Operational Costs Ordinance ( Betriebskostenverordnung ) can be recharged to tenants. However, as this legislation does not cover any all possible costs, many landlords will try to agree further cost recovery with tenants (including certain maintenance, special insurances and property management charges which must be capped).

Assignment: While assignment of the lease on the side of the landlord will automatically occur with change of title in the property, the tenant will usually not be allowed to assign the lease to a third party and being released from its obligations. Contrary to common law jurisdictions, assignment generally is not a heavily discussed topic in leases.

Subletting: Subletting by tenants is generally allowed by statutory law but is typically limited in the lease itself to avoid unwanted subtenants in the building and avoid the tenant becoming a competitor to the landlord on the leasing market. If subletting occurs, the tenant remains responsible for all obligations under the lease vis-a-vis the landlord (i.e. no releasing effect). Generally, there is no visibility on the terms of the sublease for the landlord.

Termination rights: Leases expire at the end of the term unless the tenant (or, less common, the landlord) has a contractual extension or early break option. Any lease can be terminated early for cause under statutory law (this cannot be excluded); however, the requirements for such termination are rather right (such as sever payment or other default; and relevant causes can also be agreed in the lease). Following an early termination for cause, it may prove to be cumbersome to actually vacate the premises; if the tenant does not leave voluntarily, courts need to be involved. Under certain circumstances the court may stop evacuation if there is an overarching need of the tenant for the premises (as may often be the case for residential tenants but may also be applicable for commercial tenants).
Renewal rights: Renewal rights may be contractually agreed, which is regularly the case. There are no limitations for the duration of an extension, and anything between six months and five years is within normal range.

Greece Small Flag Greece

Leases of business premises are regulated by Presidential Decree 34/1995 (as amended) which applies in parallel with the provisions of the Civil Code. They fall within two categories: (a) leases pertaining to certain commercial activities protected by law; and (b) leases pertaining to certain protected professions.

Also, the emergence of sharing economy has sprung regulation for the lease of a property through a digital platform for a certain period of time, less than a year. Airbnb hosts are required to enter the AADE registry, submit a short-term residence declaration for each tenant, enroll in the short-term residential property data system, inform the Deposits and Loans Fund for income attributable to unknown beneficiaries as well as provide information on tenants and duration of stay.

(a) Length of term
Under the new regime, agreements concluded after its enactment are of an at least three-year term, even if the parties have contractually agreed a shorter term.

(b) Rent - rent increases
The most common basis for rent is a fixed monthly rent. In the absence of a contractual agreement on rent increases, the landlord may claim a readjustment after the lapse of two years from the execution of the contract and this is determined as a percentage per annum not lower than 6% of the “objective” value of the premises, 4% for the open spaces of the premises, and in those areas of the country where the objective system is not applied, it is calculated on the basis of its market value. In the case of a dispute arising between the parties on the readjustment price, the special Settlement of Rent Readjustment Commissions are competent.

(c) Tenant’s right to sell or sub-lease
A tenant does not have the right to sell the property. Unless otherwise agreed by the parties, in principle, the assignment of use or sub-lease in whole or in part, of leased premises to a third party is not allowed. Moreover, under certain conditions, tenants may sublet property or grant use of a leased property to a partnership or limited liability company of which they are part (the tenant’s participation in the company being of at least 35%).

(d) Insurance
Insurance of the leased property is not obligatory. In most cases, the landlord insures his property and pays the premium.

(e)(i) Change of control of the tenant
The change of the shareholding structure of the tenant does not have any impact on the lease (either commercial or not) agreement, unless otherwise stipulated in the agreement.

(e)(ii) Transfer of lease as a result of a corporate restructuring (e.g. merger)
The merger of either the landlord or the tenant company with a third-party results in the succession (by operation of law) of the company resulting from the merger to the lease agreement; such agreement shall continue unaltered in all other respects.

(f) Repairs
Unless otherwise agreed by the parties, the landlord is obliged to maintain the leased property fit for its intended and agreed use. The landlord is therefore burdened with the costs and expenses of repairs pertaining to the property’s basic functions.

Hungary Small Flag Hungary

Under Hungarian law the lease agreements for real property shall be in written form. Hungarian language is not a requirement for such agreements, however, for practical reasons most commercial lease agreements are in in English/German-Hungarian bilingual format. The law does not prescribe any registration of commercial leases in the Land Registry. Apart from the mandatory legal regulation on the written form, the principle of freedom of contract is generally applicable to commercial leases.

The rent is usually determined as fixed rent, with the exception of the lease of retail units, in which case the combined use of a base rent and a turnover rent is general. The rent is typically determined and calculated in EUR, while its payment might be made in EUR or in HUF, depending on the parties’ agreement. The rent is universally indexed annually either based on the yearly HICP euro zone index (MUICP) or the yearly HICP EU 28 index. Indexation by a fixed rate annually, or restrictions on the level of indexations, although not unseen in the market, are rare. A rent discount is often awarded to the tenant as a commercial incentive.

Tenants are generally responsible for all costs (covering from 1-12 months, depending of the type of the leased premises and the lengths of the lease term) incurred in connection with the upkeep and operation of the leased property. This shall not be applicable, however, to proportionate costs of any vacant premises within the leased property or to any services which serve exclusively a limited number of tenants. Capital expenditure items are also excluded from the costs paid by the tenants.

Lease agreements generally require the provision of security by the tenant, ranging from a 3 to 6-month amount of rent and service charges, depending on the real property’s function and the parties’ agreement. The security is generally provided in the form of cash deposit, bank guarantee or mother company / third party guarantee undertaking.

Lease agreements are either concluded for a definite or an indefinite period of time. Commercial leases are typically to fixed term. Unless otherwise agreed, lease agreements with a definite term can only be terminated prior to the expiry of such term for good reason. Termination rights of the tenant are typically limited: in general, the tenant is entitled to terminate the lease if the leased premises is unfit for proper use for a longer period of time (45-60 days) and the landlord fails to remedy the defect (30-60 days from the tenant’s notification). In contrast, the landlord’s termination rights are much broader: usually the breach of a major obligation of the tenant serves as termination cause (e.g. breaching obligations concerning payment, provision / supplementation of security, taking out the prescribed insurance, or damaging the leased property), but it is generally prescribed that the landlord is obliged to provide an opportunity for the tenant to remedy the breach before terminating the lease.

Hungarian law prescribes that if the tenant keeps using the leased property after the expiration of the definite lease term and the landlord does not object to such use, then the lease continues as an indefinite lease relationship. The application of this legal regulation is often excluded in definite-term commercial lease contracts.

Lease agreements with an indefinite term can be terminated by notifying the other party in advance, in accordance with the relevant notice period specified in the given lease agreement.
Lease agreements do not terminate automatically if the ownership of the real property subject to the lease is transferred. In such case the buyer automatically becomes the landlord of the lease under the same conditions as set forth in the lease agreement, and may not terminate such agreement, except if the tenant provided false information to the buyer in respect of the existence or the material terms of the lease (please see answer to Q11).

Lease agreements can be renewed unilaterally only in case it is explicitly agreed in the lease agreement. Tenants may require such unilateral extension right, typically for 3-5 year terms. If the lease agreement is extended, the prevailing terms (at the time of the original term expiry) are applicable.

Transfer of the lease agreement or sub-letting the leased premises are typically subject to the landlord’s prior written consent. A common exception is transferring / sub-letting to a company belonging to the tenant’s company group, with a simultaneous notification to the landlord. Commercial leases show a variety of definitions of ‘company group’ and might include safeguards and controls for the landlord ensuring that within the company group, the agreement is transferred to a company which is well-funded.

India Small Flag India

Parties are free to contractually agree most terms in a lease. If they do not do so, then in the absence of a contract, the Transfer of Property Act applies and imposes certain rights and obligations on the lessor and the lessee.
Note that State Rent Control Acts may grant certain protections to a tenant if they apply. For example, in the State of Maharashtra, if premises are let or sub-let to private limited or public limited companies having a paid up share capital of less than Rupees one crore (INR 10,000,000), then the lessee becomes entitled to all the protections of the Rent Control Act including fixing of standard rent and provisions giving the tenant relief against forfeiture (narrow categories of cases in which a landlord may recover possession of tenanted premises).
Apart from commercial leases, Agreements termed as “Leave and License Agreements” are also common in transactions relating to use of property/premises by an occupant for a fixed duration.  This system has developed primarily to avoid the rigours of rent control legislation, which protected lessees/tenants from eviction, even after expiry or termination of their lease. 
Common terms in leases (as also license agreements) are:

  • Duration: Commencement date and term of lease. Stamp Duty on the lease increases depending on the duration.  Lease may have a lock-in period during which there can be no termination (except on breach). Right of premature termination and option of extending the term to either lessor or lessee or both.
  • Premises: Location and description of leased area - usually identified on a plan.
  • Rent: Amount, dates for payment (usually periodically in advance), mode of payment, any rent-free period, periodic escalations. 
  • Security Deposit: Usually interest free.
  • Taxes: Municipal taxes and increases usually borne by the lessor.  Option to lessor to terminate in case of increase in taxes beyond 100% of existing taxes.  Goods and Services Tax usually reimbursed by the lessee to the lessor.
  • Utilities: Charges borne by the lessee.
  • User: Purposes for which the premises can be used / cannot be used.
  • Repairs: Structural repairs usually by the lessor. Routine repairs and maintenance of equipment like air-conditioning usually by the lessee.
  • Lessee’s covenants: e.g. Not to carry out additions and structural alterations, not to assign or transfer or part with possession without previous written consent of the lessor.
  • Lessor’s covenants: e.g. Assurance of quiet possession to lessee during the term so long as lessee’s obligations are performed, assurance of electric supply, permission to lessee to display signage on the exterior of the premises and entrance to the premises.
  • Power of re-entry: Power of lessor to terminate the lease and take back possession in case of breach of terms of lease by the lessee, with or without requirement of the lessor having to give notice to the lessee to cure the breach.

Ireland Small Flag Ireland

The term of a lease of business premises has traditionally ranged from short-term up to 35 years, but recent legislative changes and market forces are resulting in shorter term leases, with the maximum term now being 15–20 years (typically including break options exercisable during the term). The structure of a typical medium- to long-term (10–25 years) commercial lease usually follows the same traditional format which, in addition to securing rent payments to the landlord, also passes the cost of maintaining, insuring and occupying the relevant property from the landlord to the tenant. This allows the landlord to enjoy the rent without deduction.

In most cases, tenants will seek to negotiate an option to break or terminate the term of the lease, i.e. after five or ten years of the term. Any business lease granted for a term in excess of five years would typically have a provision for the periodic review of rent to the current open market rents.

Most business leases in Ireland are of a full repairing and insuring nature, whereby the tenant will be subject to extensive repairing obligations. These will be imposed directly by a repairing covenant entered into by the tenant or, in the case of a multi-let development like an office block, shopping centre or business park, indirectly through a service charge regime which will include reimbursing the landlord for repair works carried out to the structure and common areas of the relevant development.

Usually the provisions of a business lease place restrictions on a tenant’s contractual right to assign or sub-let without the landlord’s prior written consent. Under Section 66 of the Landlord and Tenant (Amendment) Act, 1980, a landlord cannot unreasonably withhold consent which will override the contractual terms of any business lease.

Sharing a business premises with companies in the same corporate group is generally a matter for negotiation between the landlord and tenant but it is commonplace for leases to have such a provision permitting such sharing of occupation, subject usually to a requirement to notify the landlord and provided that the sharing is by way of licence only.

It is less common to see provisions in a lease relating to reorganisation or change of control of the tenant. Again, these are matters for negotiation. While landlords will generally agree on request to provisions allowing sub-letting to or sharing space with a group company without consent, it is rare that a landlord will permit assignment to a group company without consent. Normally, there are no restrictions on the change of control of a tenant company included in a lease.

Commercial business leases are freely negotiated subject only to statutory provisions.
The introduction of the Commercial Leases Register now requires the particulars and terms of all leases and related documentation to be disclosed on a public register.

In 2011, the draft Landlord and Tenant Law Reform Bill was published. While not yet enacted, the Bill is worthy of note as the objective is to consolidate and modernise much of the general law of landlord and tenant under one act going forward, including landlord and tenant obligations and their enforcement, statutory rights and termination.

Japan Small Flag Japan

The Act on Land and Building Leases is a key statute controlling leases both for land and for buildings. One of the purposes of the Act is to provide stability in the lease, and to protect tenants. The Act includes some compulsory provisions. If the terms and conditions of the lease agreed upon by the lessor and lessee are contrary to such compulsory provisions, then the lease terms would be void. The Act should be carefully reviewed when the lease contract is prepared.

  1. Contract Type of Land Lease
    The general rule of the term of the land lease is that the lease period should be equal to, or longer than, 30 years. If the lease period is agreed to be shorter than 30 years, the lease period is deemed to be 30 years, unless exemptions apply. The land lease is generally renewed upon the end of the lease period as long as a tenant holds a building on the land, unless there are justifiable grounds for the lessor’s objection to the renewal. The lessor may not freely terminate the lease, nor will the lease terminate even by the passage of the lease period.

    However, if the lease is recognized as a fixed-term land lease, or a fixed-term land lease for business purposes, the renewal mechanism, described above, does not apply. Under these types of contracts, the parties may agree that a lessee does not have a right to demand that a lessor purchase the premises on the land, which right is provided under the Act on Land and Building Leases. A fixed-term land lease should be entered into in written form, and the lease period needs to be equal to, or more than, 50 years. A fixed-term land lease for business purposes, on the other hand, is required to be made by a notarial deed, and is only applicable to cases where the lessee’s objective in the lease is to own buildings used solely for business. The duration of the fixed-term land lease for business purposes should be at least 10 years (but no longer than 30 years) or at least 30 years (but no longer than 50 years).

  2. Contract Type of Building Lease
    As a general rule, upon the lapse of the term of a lease, a building lease will be renewed with conditions identical to those of the existing contract . The lessor may not terminate the lease unless it has justifiable grounds for giving a termination notice to the tenant.
    However, if the lease falls under a fixed-term building lease specified under the Act on Land and Building Leases, the renewal mechanism described above does not apply. Such lease will be terminated with notification given during the period from one year to six months prior to the expiration of the lease period. A fixed-term building lease needs to be executed in writing, and the lessor is required to explain in a separate form to a tenant the fact that the lease will not be renewed. One of the characteristics in a fixed-term building lease is that the lease party may agree to exclude a statutory right by which they demand to increase or decrease the amount of building rent under the circumstances where the existing rent becomes unreasonable due to economic fluctuations, etc.
  3. Common Terms
    In addition to the basic terms in the lease, such as rent, common service charges, and deposits, Japanese lease agreements typically include, among others, allocation of costs and responsibilities regarding repair of the building, the manner in which the amount of rent is amended, termination events, the manner of vacation, and other similar items.

Kenya Small Flag Kenya

The Land Act and the Land Registration Act govern leases. The former provides the substantive provisions of a lease in Part VI of the Land Act, while the latter provides for the registration of leases. Although the Land Act contains general provisions to be incorporated into the lease, parties to a lease may agree to exclude all or part of these provisions. Therefore, parties to a lease have the freedom to agree on the terms of their lease, provided that such terms are lawful.

Common terms of commercial leases in Kenya include:

  • Duration: The parties are at liberty to agree on the term of the lease. However, there is an implication if the term of a commercial lease is less than five years. Tenants of such leases are deemed controlled tenants under the Landlord and Tenants (Shops, Hotels and Catering Establishments) Act. The terms of that statute will be implied in the lease as provided in the statute.
  • Demise: This provision forms the agreement to grant the lease over the property specified in the lease document.
  • Rent: The parties may agree on the amount of rent that shall be payable between them. There is no set scale of rent.
  • Rent review: Parties are permitted to set a mechanism for review of the rent during the term of the lease.
  • Permitted use: The lease may set out the permitted use of the property by the lessee.
  • General obligations of both lessor and lessee: general do’s and don’ts of each party.
  • Service charge: The lessor is at liberty to impose a charge for services that may be provided by the lessor or by a lessee-owned or third party management company.
  • Assignment: This provision would spell out the circumstances in which assignment of the lease may be allowed or restricted, as well as any consents that may be required before any assignment or other parting with possession of the property.
  • Forfeiture: This provision sets out the instances when the lease may be forfeited prior to the expiry of the lease term.
  • Yield up: This sets out the manner and condition in which the lessee is to return the premises to the lessor.

Mexico Small Flag Mexico

Landlord/tenant law for commercial leases in Mexico provides for the following general terms:

  • Lease agreements are governed by Civil Codes; however, parties may freely discuss and set forth terms and conditions to regulate the landlord/tenant relationship, except for specific statutory rights that cannot be waived or amended to protect tenant’s interests (i.e. rent reductions for inability to use the leased premises due to force majeure or acts of God).
  • Security deposits between 1 and 3 months of rent are customary in commercial leases in order to secure tenant’s obligations under the lease agreement.
  • Landlords usually require a guaranty to secure compliance with the lease agreement’s obligations, particularly timely payment of rent. The guaranty is often provided by surety bonds or corporate guaranties from tenant’s parent companies.
  • Tenants have the right of first refusal in case landlord decides to convey the real property to any third parties. This right may be waived in the lease agreement and such waiver is customary in commercial leases.
  • Generally, rent is fixed according to a specific amount negotiated by the parties; however, some commercial leases may adopt a variable formula to compute rent based on tenant’s turnover and other variable factors, depending on the purpose of the leased premises. Rent is also usually indexed from year to year.
  • Eviction procedures generally take longer than in other jurisdictions because the landlord/tenant laws tend to protect tenant interests. In the event of default under the lease agreement, landlord has the right to initiate the eviction procedure, but tenant is entitled to raise a defence that may delay the eviction procedure.
  • In market standard terms, sub-leases and lease assignments are permitted without landlord’s prior consent only with respect to tenant’s affiliates or related parties, provided that the guaranties granted are kept under the same terms. In order to sub-lease or assign a lease agreement to unrelated third parties, it is common that landlord must grant prior written consent.
  • Tenants of commercial leases are usually responsible for costs related to the leased property, including full repairing and insuring costs. Furthermore, usually any refurbishing or conditioning of leased space must be paid by tenant, approved by landlord and will, at the end of the lease, benefit the landlord.
  • Most Civil Codes establish a maximum term for leases depending on the use to be given to the leased premises. Commercial and industrial leases, generally, cannot exceed 20 years (this term may vary according to the state the land is located).

Monaco Small Flag Monaco

Commercial leases are governed by law no. 490 which provisions are of public order and organise a protection of the tenant regarding the duration of the lease, its renewal and termination, the increase of the rent, etc.
The minimum term of a commercial lease is 3 years. Most of commercial leases are concluded for 3-6-9 years. The renewal is then automatic for the same duration as the original lease. Indeed, commercial leases guarantee the tenant a security of tenure (“propriété commerciale”) in order to ensure the continuation of their business and the retention of their clientele.

In order to benefit from the provisions of the law, the tenant must have operated commercially in the premises over the 3 years preceding the expiry date of the lease. Hence, the lease is renewed on the same terms and conditions as previously agreed.

Should the landlord wish to refuse the renewal at the end of a 3-year period and terminate the lease, he would be liable to pay to the tenant an indemnity for eviction in order to compensate the entire prejudice and loss suffered by the eviction which cannot take place before its payment (or at least before payment of a provisional advance settled by Court). The amount of the compensation could vary depending on the consequences of the non-renewal of the lease which could result in the loss of clientele and, thus, of the tenant's business.
Most of commercial leases provide an annual rent indexation and the index usually chosen for commercial leases is the INSEE index (French Index).

The review of the rent is also strictly regulated during the term of the lease. As long as 3 years since the last fixing of the rent by the parties or by the court have run, the review of the rent can be requested by either party when evidenced that the rental value, fixed according to the extent, location, comfort, and facilities of the premises, has changed due to a modification either in the general economic conditions of the Principality or in the specific conditions of the premises.

In order to fix the rent upon the renewal of the lease or during the term of the lease, when the parties fail to agree on the new rent, the most diligent party may apply to the judge who will appoint an expert with the duty to assess the rental value.

Sub-letting could be prohibited by the lease contract. Otherwise the tenant shall give notice to the landlord of his/her intents to sub-let which enable the landlord 15 days to decide if he/she wants to be part of the sub-let contract.

A clause of the lease contract that would prevent the tenant from assigning the lease to a purchaser or future owner of its business is null and void. However, subject to specific conditions, the landlord benefits from a pre-emptive right as well as the tenant in case of a sale of the premises by the landlord.

Romania Small Flag Romania

Commercial leases may be triple net, meaning that the tenant is responsible for paying the building's property taxes, the building insurance and the cost of any maintenance, although property owners usually pay the property taxes.

An incentive for tenants in the form of a cash amount for fit-out is common on the Romanian market. Lease agreements may have one or more break options in favour of the tenant; however the property owner also has the option to break the lease for reasons such as late payments and recurring minor infringements by the tenant.

Other terms of the lease agreement which are worth mentioning: (i) service charge costs are usually established according to an open-book system while marketing fees are generally fixed, (ii) commercial leases usually prohibit subletting and/or lease assignment, (iii) change of control clauses, (iv) compliance with fire safety obligations and other permits is required, etc.

Aside from a maximum duration (i.e. 49 years) and several mandatory clauses as provided by the Romanian Civil Code, there is no regulatory control on lease terms and there are no rent controls on the Romanian market.

Russia Small Flag Russia

Generally, the terms of commercial leases are not rigidly regulated and are freely negotiable between commercial entities. The most commonly used terms of commercial lease are as follows:

  • Duration. Leases can be indefinite or fixed-term. In case of indefinite lease, the agreement can always be terminated at will, generally by giving a three-month advance notice. In respect of fixed term lease, there are no restrictions on the length of lease between private parties (typical length is 3 to 5 years for major real estate objects). However, in respect of publicly owned real estate, a maximum lease term is provided by law (up to 49 years depending on the specific land plot and purposes of the lease).
  • Renewal rights. The tenant generally has a statutory pre-emption right to conclude a new lease upon the expiry of the initial lease term, provided that the tenant duly complied with its obligations. However, many landlords seek to exclude this pre-emption right through contractual means. Further, as a general rule, if the tenant continues to use the leased property after the expiry of the lease term without objections from the landlord, the lease is automatically renewed on the same conditions for an indefinite term. In this event, each party can terminate the lease for convenience, by giving at least three months’ notice.
  • Rent. Rent in commercial leases is not subject to regulatory controls. For publicly owned property, the amount of rent is established by legislation. In commercial lease, rent is usually payable on a monthly basis (rather than upfront) and usually consists of base rent (fixed monthly payment based on the leased property’s area), and variable rent (services charges and payments for utilities). Typically, the base rate is fixed in USD/EUR, but is payable in local currency (Russian Roubles) at the official exchange rate. However, considering the recent Russian currency fluctuations, many tenants seek to agree on contractual arrangements that mitigate currency risks (e.g. capped currency rate or currency adjustment clauses).
  • Rent review. There is no statutory rent review. Therefore, the parties generally agree upon a procedure for periodic increase of rent, especially in long-term lease. Usually, the rent is increased annually by a pre-agreed percentage. Other ways of reviewing rent (such as rent increase based on official inflation or certain index) are possible, but less commonly employed. For some types of commercial property (such as in shopping malls), turnover based rent is often used, where the rent level is determined by reference to the revenue generated from the business operating the leased property.
  • Security deposit. It is standard for Russian landlords to request a security deposit (up to three-month rent) to secure the proper performance of tenant’s obligations.
  • Repair, maintenance and improvements. The parties are free to agree on different responsibilities for repairs/maintenance/improvements. As a general rule, however, the landlord is responsible for major repairs, whereas the tenant ensures only current maintenance of the leased property. In case the landlord fails to carry out necessary repairs, the tenant is entitled to terminate the lease or to seek compensation of its expenses. The tenant usually has the right to perform improvements to the leased property, which can be separable and inseparable. In contrast to inseparable improvements, separable improvements can be performed without the landlord’s consent and generally remain in the tenant’s ownership after the termination of the lease.
  • Underletting (sublease). As a general rule, sublease requires the landlord’s consent.
  • Termination. As a general rule, in Russia, the parties to a fixed-term lease can only terminate the lease agreement through litigation based on material breach, and not through a unilateral declaration. However, in practice most parties agree on out-of-court termination and on the specific grounds for termination, which typically include payment default, improper use of the leased property, etc. Parties to a lease concluded for an indefinite period have the right to terminate the agreement at any time by giving three months’ advance notice unless a different period is specified in the agreement.

Slovenia Small Flag Slovenia

Rents or lease terms are, in principle, freely negotiable, with the exception of limits mentioned in the following paragraph and some specific and untypical mandatory provisions that may not be derogated from.

Therefore, it must be pointed out that Slovenian law differs between ordinary leases, residential leases, leases of commercial premises and leases of agricultural land. Ordinary lease agreements are generally governed by the framework provisions of the Code of Obligations; however, in the case of residential, commercial and agricultural leases, mandatory provisions of the Housing Act, Commercial Buildings and Commercial Premises Act and Agricultural Land Act must be observed respectively. The most notable restrictions of the above-mentioned statutes include the prohibition of subletting without the consent of the lessor, the fact that the lease agreement for commercial premises may only be terminated in a time-consuming court proceeding, and that the lease agreement for agricultural land may only be concluded for a minimum of 10 years and must be registered in the Land Registry.

Spain Small Flag Spain

Real estate activities in Spain are subject to direct taxation on profits obtained, and to indirect taxation on the possession of real estate assets and transactions related thereto.

Direct Taxes
Corporate Income Tax ("CIT")
Spanish Corporate Income Tax ("CIT") is a tax on profits earned by:

  • companies resident in Spain on all income earned from their operations whether arising inside or outside Spain, at a rate of 25%; and
  • non-Spanish tax residents acting through a Spanish permanent establishment, at a rate of 25%.

Non-Spanish tax residents acting without a Spanish permanent establishment: Non-Residents Income Tax rate of 19% which can be reduced by virtue of Double Tax Treaties / EU Directives.
Existence of “participation exemption” provisions for Spanish tax-resident companies on dividends received and gains on sales of subsidiaries (Spanish or non-Spanish), but subject to certain conditions.
Existence of a Corporate Income Tax consolidation regime (a minimum participation of 75% is required).
Tax deductibility of financial expenses: As a general rule, net financial expenses incurred by Spanish entities would be deductible for tax purposes up to an amount of 30% of their operating profit (EBITDA) for the financial year. In any event, an expense amount of EUR 1 million would always be deductible (if incurred).
In the case of entities belonging to a tax consolidated group, the 30% limit and the EUR 1 million threshold would apply to such tax group.
Please note that additional limitations exist in the case of LBO transactions (i.e. acquisition of an entity and subsequent merger or subsequent application of the CIT consolidation regime).
Furthermore the difference between the 30% limit and the net financial expenses for the tax period could be accumulated (i.e. added to the 30% limit) in the tax periods ending in the following 5 years.
It should also be noted that any net financial expenses not deducted for tax purposes may be deducted in the following tax periods, provided that the 30% limit is complied with in these years.
In addition to the above, fair market conditions and strict documentation obligations should be observed as regards any indebtedness incurred with related parties. In particular, the taxpayer would be obliged to carry out a comparability analysis in order to determine a fair market value of the remuneration agreed under the relevant transaction.
Please also note that interest derived from Profit Participating Loans granted as from 20 June 2014 by companies which belong to the same corporate group (regardless of their tax residence) are not deductible for CIT purposes.

Individuals' Income Tax
Generally tax-resident individuals are taxed on worldwide income and gains.
Non-Spanish tax residents are taxed on activities of Spanish permanent establishments or Spanish-source income.
Spanish tax-resident individual investors: Dividends and capital gains tax rates range between 19% (up to EUR 6,000), 21% (EUR 6,000 to EUR 50,000) and 23% (above EUR 50,000) in year 2019.

Indirect Taxes
Value Added Tax ("VAT")
Transfer of Properties
Any transfer of real estate assets is always subject to either Value Added Tax ("VAT") or Real Estate Transfer Tax ("RETT"), the application of one excluding the other. The basic difference lies in the fact that, whereas the VAT borne by a company in a transaction may be deducted from the VAT incurred or to be incurred by such company in its other business activities, the RETT is not directly tax-deductible, although in accordance with the increase in price of the asset acquired, it may be considered an expense via the amortisation of the aforementioned asset.
The following real estate transactions are subject to VAT:

  • sale of new constructions;
  • sale of plots suitable for construction; and
  • sale of properties to be refurbished or demolished. In the former case, the purchaser must invest in the refurbishment an amount exceeding 25% of the purchase price of the building.

In the remaining cases, the purchase is always subject to RETT instead of VAT; in this way, the second and subsequent handovers of any property are in principle exempt from VAT and, therefore, subject to RETT. However, this exemption may be waived, the transaction thus being subject to VAT (hence excluding the RETT) when the purchaser is a taxpayer performing a business or professional activity and is entitled to the total deduction of the VAT borne in the transaction.
The general VAT rate is 21%.
It is worth pointing out that when a transaction is subject to VAT, it will also be subject to Stamp Duty ("SD"), provided the transaction is formalised through a public deed and may be registered at the Land Registry, as is usually the case. The general SD rate is between 0.5% and 2%, depending on the Autonomous Community where the asset is located. Finally, it should be mentioned that if the VAT exemption mentioned above is waived, a higher rate of SD is applicable which, depending on the corresponding Autonomous Community, may vary between 0.5% and 3%.

Lease of Properties
In general, the lease of properties is subject to Value Added Tax at the rate of 21%.
However, leases whose object consists of buildings or parts thereof exclusively used for housing, including accessory garages and annexes and furnishings leased jointly with such buildings, are exempt from Value Added Tax.
In both cases, such exemption is not applicable to leases with a purchase option, provided that the transfer of the asset would have been subject to VAT.

Real Estate Transfer Tax ("RETT")
General Rules
RETT is applied to real estate transactions other than those mentioned in the foregoing section, and in particular to (i) second and subsequent transfers of properties once their construction has concluded (unless there is a waiver of the VAT exemption, as mentioned above), (ii) the sale of land not classified as plots for construction pursuant to urban development regulations and (iii) the transfer of real estate assets within the framework of the transfer of a going concern ("unidad económica autónoma") for VAT purposes.
The RETT general rate is 7% but it may range between 6% and 11% depending on the Autonomous Community where the real estate asset is located.
Transfer of Shares
On a general basis, the sale of shares will be exempt from RETT / VAT if the asset is used for an economic activity.

Local Taxes
Property Tax ("PT")
PT ("Impuesto sobre Bienes Inmuebles") encumbers the ownership of properties of a rustic or urban nature, the ownership of an in rem usufruct or ground lease over such properties or the ownership of an administrative concession over such assets or over the public services to which they are subject. The taxpayer is the owner of the property or the holder of such rights or administrative concessions. The taxable basis of the PT, which is due on an annual basis, is determined by the cadastral value, which includes the land value plus that of the constructions thereon. Applied to such a basis are the taxation rates of 0.4% for urban land and 0.3% for rustic land, although these rates may be increased by each City Council depending on the population and other specific circumstances of the municipality.

Tax on the Increase in the Value of Land of an Urban Nature
This tax is collected as the result of the transfer of the ownership of urban land by any title and the granting or transfer of any in rem right of enjoyment, restricting ownership, over such land. The party obliged to pay such tax is the transferor of the land or the person granting and transferring the in rem right of enjoyment, when the transfer is for value.
In fact, this tax does not encumber the capital gains earned by the vendor, but rather is calculated on the increase of the cadastral value, adding thereto, at the time the tax falls due, a certain percentage established by the City Council depending on the number of years elapsed since the previous transfer (which cannot be more than 20 or less than 1).
This local tax is currently subject to significant dispute within the Spanish tax system, as the Spanish Constitutional Court (Tribunal Constitucional) has recently declared unconstitutional part of the regulation of this local tax referring to the determination of the tax base (based on the land's cadastral value during the year of sale and the holding period), irrespective of the fact that there is no real gain (or even a loss) on the assets. This decision may have an impact on future proceedings in which the non-application of the tax or a refund based on the lack of increase in value of the transferred land is requested.

Other local taxes
City Councils may also subject acts regarding the use and exploitation of the property to taxation, amongst which it is worth mentioning the Tax on Constructions, Installations and Works ("Impuesto sobre Construcciones, Instalaciones y Obras"), which encumbers the performance of any construction, installation or works for which urban development or works licences are required. Moreover, the granting of other licences might constitute a further taxable item, such as, for instance, the obtaining of the so-called opening licence.
Business Activity Tax ("Impuesto sobre Actividades Económicas") is another local tax on the mere performance of economic activities. As a general rule, the company may be obliged to register for the purposes of this Business Activity Tax and pay the relevant tax due, which would be determined according to the item corresponding to the relevant activity (i.e. item 833 if the company performs development works on the real estate assets and item 861 in the case of leasing activities). The local regulations of the City Council corresponding to the real estate assets' location will always have to be observed.

Sweden Small Flag Sweden

Swedish lease law prevents property owners from enforcing in certain regards contract terms that are less favourable to the tenant compared to the mandatory minimum requirements set forth under statutory law. Such terms are non-enforceable, meaning the legally stipulated terms will apply where contract provisions fail to comply with the minimum requirements. Swedish lease law prescribes such minimum requirements on e.g. rent calculation formulas and service charges, form and service of termination, termination notice periods, lease prolongation periods etc.

Swedish law imposes no restrictions on the form of a lease contract, it may be concluded orally or in writing. The vast majority of leases are however agreed in written form. For commercial premises, a rather simple standard contract template form, based on what is generally considered to be market standard provisions, is often used for the main part of the contract, adapted to individual commercial terms where necessary. Specific regulations are normally included in separate appendices.

For office and industrial premises a fixed annual rent is most commonly applied. For retail premises and restaurants, turnover rent is often used, especially in the larger cities. The parties may freely agree on the rent level for commercial premises. If the lease term is less than three years, the rent must however be a fixed amount. For leases exceeding three years, a variable rent may be agreed upon but it must be calculable on basis of the lease contract in order to be valid. Normally, the annual rent is also linked to changes in the consumer price index.

A tenant is not entitled to sublet the premises without the landlord’s consent. In certain cases, approval may instead be sought and obtained from the Regional Rent and Tenancy Tribunal (Sw. Hyres- och arrendenämnden), when the landlord’s consent is denied. In principle, a tenant is not entitled to transfer a lease without the landlord’s approval. An assignment may however be effected irrespective of the landlord’s disapproval if the assignment is made as part of a transfer of the business operation conducted within the leased premises. Approval by the Regional Rent and Tenancy Tribunal is required.

The term of the lease may be fixed or indefinite. If the lease period is indefinite, the party wishing to terminate the lease must give written notice at least nine months in advance. If the lease term is fixed, it may be terminated upon the expiration of the lease term with nine months prior notice (shorter notice periods are allowed if the fixed term is less than nine months). The parties are however free to agree on a longer notice period. Irrespective of the above, the parties are free to agree on an immediate expiration of the lease at any time. As a general rule, the parties agree on an automatic prolongation term in the lease contract. A prolongation clause will apply at the end of the lease period if the lease is not terminated by either of the parties.

If a lease is terminated, the tenant has a principle right to compensation. Thus, if the landlord refuses to prolong the lease on market terms, the tenant has a principle right to indemnification from the landlord, unless the landlord can present certain legally prescribed grounds for not prolonging the lease. Damages to be paid by a landlord under these provisions may reach substantial amounts. The tenant’s right to compensation can under certain circumstances be voluntarily surrendered, which is not uncommon for parties to agree upon at the start of the lease period. Approval by the Regional Rent and Tenancy Tribunal is generally required for such an arrangement to be valid.

The parties are in principle free to agree on the allocation of liability for maintenance, repairs and insurance etc. Commercial tenants are typically liable for most of the operating expenses pertaining to the leased premises. Such costs may also include expenses related to maintenance of common areas/facilities, real estate tax and unforeseen costs, often allocated between the tenants on the property. The landlord typically bears the responsibility for structural maintenance/repairs.

Thailand Small Flag Thailand

Common terms the parties agree on in the lease agreement:

Duration

  • The law provides that registration with the competent land office is required when the lease term of real estate exceeds three years.
  • The law also states that the lease term may not exceed 30 years, however, the law allows a 30-year extension

Rental

  • It is a common practice for the parties to agree on who is responsible for the registration fees (if applicable) and relevant expenses.
  • Fixed rate or fluctuating rate
  • Revisit and agreement on the rental for if the term is extended
  • Late-payment / non-payment interest rate

Sub-lease/ Assignment of Rights

  • Whether the lessor consents to a sub-lease / assignment of rights.

Lessee’s Obligations
These provisions usually require the lessee to carry out maintenance and allow the lessor’s personnel to conduct an inspection upon termination of the lease

  • Whether termination for convenience is allowed
  • How much prior notice is required for the case of termination for convenience and breach of agreement
  • Termination due to the breach of agreement

Dispute Resolution / governing law

  • Stipulating means and ways for the parties to resolve a dispute.

Turkey Small Flag Turkey

In Turkey, freedom of contract applies to the real property lease relationships provided imperative provisions are reserved which aim to protect the tenant. No matter the leasing is commercial or not, there is no formal requirements for execution of a lease agreement; the parties can come an agreement even verbally. On the other hand, in commercial lease agreement parties usually make the agreement in writing to avoid any misunderstanding and to have evidence.

If the real estate to be leased is a store in a shopping mall, turnover rent (and also a minimum fixed rent is paid in case the turnover rent is below it.) is more common. Otherwise parties almost always agree on a fixed rent.
The parties can freely determine the rent type and the amount, however the regulation set a limit for the increase rate. Under Code of Obligations, rent indexation clauses will be valid if the indexation does not exceed the increase in the previous year’s producer price index.

Unless the parties have agreed otherwise, the tenant cannot, partially or as a whole, transfer or provide the leased property, or assign the lease agreement to third parties without the consent of the landlord.
In general, there is no restriction on the length of lease terms. Leases can be made for definite or indefinite periods. However, the duration of the term affects the stamp duty to be paid by parties, the right to evict the tenant and unilateral termination of the lease. Lease contracts for a definite term are automatically renewed based on the same terms, unless the tenant notifies the landlord 15 days before the lease termination date that it will move out the premises. The landlord has a limited number of grounds to evict a tenant, unless the tenant violates the lease agreement. However, in the case of a lease contract whose initial lease period has expired and been renewed for ten continuous years, the landlord can decline to renew the lease agreement with a three-month notice to the tenant before the expiry date of the renewed lease term.

Landlords are required to pay any taxes relating to the real estate, and in case of a residency, provide the obligatory insurance (Earthquake Insurance), to bear any ancillary costs relating to the leased property (repair etc.). On the other hand, the tenant is required to pay lease amount, the monthly common expenses and environment tax.

In terms of explanations made above, please note that application of some articles (such as restriction on rent increase rate) related to the commercial leases are suspended until 01.07.2020.

Another issue needs to be mentioned is that with a Presidential Decree dated September 12, 2018, on the Amendment of Decree No. 32 on the Protection of the Value of the Turkish Lira, having real estate sale or lease agreements (besides some other types of agreements) in any foreign currency or indexed to any foreign currency has been prohibited for 2 years. Furthermore, existing lease agreements had to be converted to TRY until October 13, 2018. The relevant communique issued based on the Presidential Decree states that if parties of an existing lease agreement cannot mutually agree on the lease amount in TRY, the Turkish Central Bank's effective foreign currency exchange rates on January 2, 2018 ($ 1 = TRY 3.7776 TL and € 1 EUR = TRY 4.5525) shall apply and the TRY amount calculated based on these rates shall be updated by application of the monthly consumer price index rate (as determined by the Turkish Statistical Institute) from January 2, 2018, until the date of determining the new lease amount in TRY.

United Kingdom Small Flag United Kingdom

The common terms of commercial occupational leases are set out below. This summary is focused on occupational leases, rather than "long leases" which are granted for an upfront sum and have substantially different terms.

Normal market practice in England and Wales is for occupational leases to be granted on a "full repairing and insuring" or "FRI" basis under which the costs of insuring and repairing the premises are passed down to the tenant (ignoring void costs etc.), although there are certain areas (such as damage through risks which are uninsurable) where this principle does not always hold true.

  • Duration
  • Rent
  • Rent review
  • User
  • Repair
  • Service charge
  • Assignment
  • Underletting
  • Renewal rights

For each of the above terms we have summarised below the key features and what, if any, regulatory controls apply.

Duration: leases must be granted for a fixed period (i.e. they cannot be indefinite). There is no legal maximum or minimum duration. In the market, retail leases are often between 5-15 years. The duration of offices and industrial leases can be up to 25 years or more, particularly if the lease is of a whole building, although the typical duration ebbs and flows in accordance with market sentiment – currently there is a trend for shorter leases giving tenants more flexibility. Tenant break rights are common in longer leases (see below).

Rent: there are no regulatory controls as to the amount of rent. Rent is usually payable in advance often every quarter; however, monthly rents are becoming common for retail leases. On the grant of a new lease, landlords will generally give tenants rent free periods (or capital sums in lieu of such periods) to cover fit out works and, in poor market conditions, as an incentive to take the lease.

Rent review: there are no regulatory controls as to when or how the rent may be increased and parties are free to determine the type and frequency of the review. There are four main types of review (see below), although they are sometimes used in combination for certain situations  (e.g. the rent might comprise a base rent which increases on a stepped or index linked basis, with a turnover rent also payable). As a general principle, it is very rare for a landlord to agree a rent review mechanism which could ever result in the rent being decreased. Reviews are therefore "upwards only".

Types of rent review:

  • open market, where the rent is reviewed by reference to the rents payable in comparable properties. If the parties cannot agree what the open market rent is, it is typically determined by reference to an independent expert. Open market reviews are every 3 or 5 years depending on the duration of the lease;
  • stepped, when the rent is increased at agreed intervals by agreed amounts;
  • index linked, where the rent increases in accordance with an agreed index (such as the consumer prices index) at an agreed frequency (often every year); and
  • turnover, where the rent is an agreed percentage of the tenant's turnover subject to agreed minimum and maximum rents. These types of review are common in retail leases.

User: there are regulatory controls. Leases will also usually restrict a tenant's ability to change the use of the premises.

Repair: there are few regulatory controls regarding either party's obligations. Parties are therefore free to agree who is responsible for each type of repair. As mentioned above, the practice of FRI leases means landlords will try to ensure that the tenants are liable for all repairs, which may include those arising from inherent defects in the building. There are regulatory controls in respect of the landlord's remedies where a tenant has failed to repair; the landlord may not enter the premises to carry out repairs unless it has an express right to do so (and consequently it is normal to see such a right in a lease). The amount a landlord may recover from the tenant may also not exceed the amount by which the landlord's interest in the property has been diminished due to the disrepair unless the express right provides otherwise (again, this is therefore typically expressly addressed).

Service charge: there are no regulatory controls in the commercial context (compared to the residential context where this is heavily regulated). Parties are free to agree what items are to be covered by the charge. The practice of FRI leases means landlords will, however, try to recover all their repairing costs from their tenants. Where the lease is of part of a building the tenant will be required to pay the costs of repairing, maintaining and insuring the structure of the building in addition to cost of lighting, heating etc. the common shared areas (e.g. reception, stairwells). Where the let premises are on an estate, the landlord will also charge the tenant for similar costs in respect of the estate roads and service areas. Leases of part on an estate therefore frequently contain more than one service charge, one for the building and one for the estate. Each tenant's share of the charge is usually calculated on a pro-rata floor area basis. Tenants will seek to resist the landlord's ability to charge the tenant for the initial construction or the improvement of premises.

Assignment: this is an area of greater regulation. Landlords will generally only allow tenants to assign the whole of the let premises (and even then only with the landlord's consent, such consent not to be unreasonably withheld or delayed). If the landlord wishes to impose a condition for giving its consent (e.g. the new tenant must meet a profit test), legislation provides that the condition must be set out in the lease. If the condition is not set out in the lease, the landlord may only impose such a condition if it is reasonable to do so. A common express condition is that the tenant enters into an authorised guarantee agreement ("AGA").

Under the AGA, the tenant guarantees the new tenant's obligations. The AGA ceases if the new tenant assigns the lease. Guarantors of the tenant will also be required to enter into the AGA. The form of the AGA is prescribed by legislation.

Underletting: there are few regulatory controls. Though the parties are free to negotiate terms, landlord will often insist that tenants may not underlet if their leases are for less than 10 years. Where the lease permits underletting, it will typically set out the conditions on which the underletting must take place. For example, the underlease must be on the same terms, same rent and not give the undertenant any right to a new lease.

Termination rights: leases expire at the end of the term unless the tenant has a statutory right (see below) and/or a contractual right to a new lease. Leases also usually provide that landlords can terminate ("forfeit") the lease if the tenant breaches its obligations. Technically no court process is required but is often followed as criminal liability can result if the landlord's self-help process is followed incorrectly. The tenant may apply to the court to stop the termination. The court will usually give the tenant relief from forfeiture on condition that the breach is remedied unless the breach cannot be rectified (e.g. the tenant is insolvent) or there have been breaches in the past. Parties commonly agree contractual termination rights. In a 15 year lease, tenants will often insist on a break right in the 5th and 10th year of the lease term. Landlord break rights are less common.

Renewal rights: subject to certain regulatory conditions, tenants have statutory rights to a new lease at the market rent for a maximum term of 15 years unless this right has been excluded by agreement. A key condition is that the tenant has complied with its obligations. Landlords can ask the court not to grant the new lease on certain grounds e.g. the landlord wishes to redevelop the property. If the landlord is successful in opposing the tenant's request, the landlord will have to pay the tenant compensation. Not surprisingly, most landlords often try to exclude this statutory right, but this is a factor for the overall commercial arrangement (with tenants potentially willing to pay a higher rent for a lease with the benefit of statutory renewal rights). Tenants often also have a contractual right to a new lease. Due to changes in how  stamp duty tax is calculated (see Q14.) and a growing requirement for flexibility by tenants, lease terms have become shorter (from 20-25 years to 10-15) in order to minimise the tax payable at day one and to avoid tenants being committed to space for long periods of time. As  a result, tenants often require contractual renewal rights.

United States Small Flag United States

Taxes imposed on ownership of commercial real estate are:

Income taxes: U.S. federal income taxes, as well as state and local income taxes in certain states and localities, apply to income arising from the ownership of commercial real estate by both U.S. and non-U.S. tax residents. The rates will vary depending on a number of factors, including the structure through which the real estate is owned (e.g., whether the real estate is owned through a flow-through entity, a "C" corporation or a REIT), whether the direct and indirect owners of the commercial real estate are U.S. tax residents and, if not, the applicability of an income tax treaty with the U.S.

Property taxes (or real estate taxes): In the U.S., the real property tax scheme varies by state and sometimes by local jurisdiction, but generally, local governmental entities are required to comply with the state's tax laws to assess and collect an annual tax (with the rate varying by locality) on the value of land, structures, and improvements. Usually, the tax imposed is calculated by reference to a stated percentage of the fair market value of the real estate. Certain types of property are exempt from real property tax, including properties owned by a not-for-profit organization and properties in specified economic development zones. In addition to real property tax, most state tax schemes provide for the taxation of tangible personal property owned by business entities.

Other taxes: Certain jurisdictions impose a commercial rent tax on tenants of commercial real estate.

Taxes commonly imposed on the transfer of commercial real estate located in the U.S. are:

Income Tax: U.S. and non-U.S. tax residents are generally subject to U.S. federal income tax, as well as state and local income tax in certain states and localities, on capital gains recognized on the disposition of U.S. real estate. The rates vary depending on a number of factors, including the structure through which the real estate is owned. In addition, non-U.S. tax residents disposing of U.S. commercial real estate are generally subject to a withholding tax equal to 15% of the purchase price (including any debt assumed or treated as assumed in connection with the disposition).

Real Estate Transfer Tax: Many U.S. states (and a number of counties and cities) impose a transfer tax on the sale of a property (or the granting of a long term lease) based on the purchase price of the property. In addition to direct transfers of property, some states impose a tax on transfers of a controlling interest in an entity that owns property located within the state. Each state and local government sets its own rate of tax and the basis to which that rate is applied.

Mortgage Recording Tax: A number of states and municipalities impose a mortgage recording tax, calculated as a percentage of the face amount of the mortgage (and occasionally varying with the length of the term of the mortgage loan). The tax is typically due at the time the mortgage is recorded and paid by the borrower although the process for the payment of mortgage recording tax and the party responsible for the payment of the same can vary depending on the custom of the applicable state and/or municipality. Some states permit a borrower seeking to refinance a mortgage loan to have the mortgage encumbering its property assigned to its new lender and thus avoid paying mortgage recording tax on the principal then outstanding.

Indonesia Small Flag Indonesia

Generally, the terms and conditions of a lease agreement under Indonesian law can be freely negotiated between the parties. The typical provisions of leases for a commercial premise are as follows:

a) Period of lease. Parties typically regulate the lease commencement, expiry and any extension terms of the lease agreement.

b) Rent payment and adjustment. The formula for the rent is typically determined in accordance with the area and size. Rent adjustments may be determined on a periodic basis.

c) Service or maintenance charge. Agreements typically set out the coverage of the service and maintenance to be carried out by the lessor and the rate of the service and maintenance fee to be paid by the lessee.

d) Insurance. Insurance over the building is typically borne by the lessor, although some lease agreements may require that items within the leased premises are insured. The agreement may also prohibit the lessee from conducting activities that may increase the insurance premiums of the lessor.

e) Alteration to property. The lease agreement commonly regulates the type of alterations or modifications that can be carried out by the lessee on the property.

f) Defects. The lease agreement often regulates what constitute defects that are assumed by the lessor, the lessor’s liability period, and the amount the lessee may claim.

g) Assignment and Sub-Lease. Clauses typically provide that any assignment or subletting of the lease requires approval from the lessor or at least notification to the lessor by the lessee.

h) Naming rights. Anchor tenants will typically request naming or signage rights over the relevant building.

i) Non-competition. Anchor tenants will typically request clauses that restrict or require the building owner to obtain the tenant’s consent if the building owner wishes to lease space within the same building to a competitor of the tenant.

j) Rights for Expansion. In some cases, the tenant may have a right to be offered to expand its premises by the building owner if a certain area becomes available. Alternatively, the tenant may also have a right to be offered if a certain area is to be leased to a new tenant by the building owner.

k) Novation. Lease agreements in Indonesia typically contain provisions on novation for newly established companies. We have seen instances where the lease was initially entered into between the property owner/developer and a tenant that is a foreign offshore entity. Once the foreign offshore entity has established a new company in Indonesia, the lease will then be novated to the newly established company.

l) Surrender of property/yield-up. Clauses are almost always included to govern the surrender or yield-up of the leased property upon termination of the lease. Lease agreements often also contain provisions allowing the property owner to pay for the initial fit-out of the tenant. In these cases, upon termination of the lease the building owner would have the option to either purchase the content of the property at no additional price or ask the tenant to yield up the premises at the tenant’s cost.

Morocco Small Flag Morocco

Commercial lease is regulated under Morocco by the Law No 49-16, which sets out a complete list of situations in which it applies. Therefore, the landlord must grant a commercial lease for:

  • premises or buildings in which a business (fonds de commerce) is operated ;
  • premises or buildings considered as an accessory to the main premises in which the business is operated;
  • premises that consist of undeveloped land that will be developed and used to operate a business;
  • premises or buildings used for commercial, industrial and handicraft purposes and as part of a private State domain; and
  • premises and buildings used as private schools, clinics, or pharmaceutical laboratories.

However, the applicable law for commercial leases expressly excludes specific cases for which it shall not apply:

  • premises or buildings that are part of the public state domain;
  • premises or buildings that form part of the private state domain but are used for public interest;
  • premises of buildings located in a shopping mall; and
  • premises or buildings located in a dedicated zone gathering companies operating information, technology, industrial or offshoring activities.

One of the main characteristics of a commercial lease is the right for the tenant to renew the lease. This right implies that in case of non-renewal the tenant is entitled to compensation (indemnité d'éviction) based on the value of its business, among other things.
The eligibility for such right of renewal is subject to the following conditions:

  • effective occupation of the premises by the tenant for two consecutive years; or
  • payment by the tenant of 'key money' (pas-de-porte).

Duration:
The term of the lease is not regulated under Moroccan law, therefore the landlord and the tenant may enter into a lease for the duration they wish. However it is recommended not enter into a lease exceeding 10 years, to avoid the risk of being qualified by the tax administration as a long-term lease and to trigger a registration duties amounting to 6% of the annual rent multiplied by 20.
Works and repairs:
The parties are free to allocate the different type of works and repairs. However usually:

  • the tenant is in charge of ordinary repairs and maintenance, and
  • the landlord bears the costs of structural and major repairs and repairs resulting from wear and tear, force majeure events and construction defect.

Rent revision:
According to the applicable regulation, the tenant and the landlord may freely agree on setting the rent amount, the conditions for its revision and the rate of its increase or decrease.
However the law regulates the rent revision mechanism by prohibiting the increase of the rent amount for a period shorter than three years from the date of concluding the lease contract, or from the date of the last judicial or contractual review, and/or to agree on an increase in excess of the rates set out by the applicable law (i.e., 8% for residential leases and 10% for others, including commercial leases).
In addition, the tenant may request a rent reduction when the premises are partially destroyed or damaged in such a way that they are not fit for the purpose for which they were leased, or when the features of the premises required by the destination of the premises are lacking.
Subletting:
Unless otherwise agreed by the parties, sub-letting is prohibited.
Assignment:
Exclusion of the right to assign a lease is not permitted under the applicable law. However, the lease may provide that the right of the tenant to assign the lease, and/or its going concern, is subject to prior approval of the landlord.
Use of the premises:
The permitted use of the premises is generally narrowly defined and any changes require the landlord's consent. The law provides that the tenant may only use the premises for and activity other than the one agreed under the lease provided that such request was subject to written consent from the landlord.
If such prior consent is not granted and the tenant unilaterally changes the use of his premises, the landlord is entitled to refuse the renewal of the lease and the payment of the eviction allowance.
Securities to protect against failure of the tenant:
The parties can agree on the following forms of security:

  • cash security deposit for an agreed amount but limited to two months rent for professional and residential leases;
  • bank guarantees substituting a cash security deposit;
  • prepaid rent.

For significant lease agreements, the landlord may also request that the chosen guarantee shall also cover the payment of service charges.
Right to terminate the lease:
The tenant may request the termination of the lease, unless otherwise provided for, at any time subject to prior notice.
In theory, the landlord is not entitled to terminate the lease without paying and eviction allowance to the tenant. However, if the tenant has failed to pay his rent for a period of more than three months, tenant despite a 15 days' formal prior notice from the landlord, the latter may request a judicial termination of the lease if the lease provides for a termination clause (clause résolutoire).
In addition, the landlord may also terminate the lease without paying an eviction allowance if:

  • the tenant proceeds to unauthorised alterations of the premises that could jeopardise the safety of the building;
  • the tenant uses the premises for an activity other than the originally agreed use;
  • the premises as facing collapse;
  • the tenant is subletting the premises contrary to the terms of the lease; and
  • if the tenant loses its clientele after the premises are closed for a minimum of two years.

Updated: December 17, 2019