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Essential Elements of a Valid Lease

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Last revision: July 4, 2019
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Category: Housing and Real Estate
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Housing is one of the most important element of human survival and as the world population is on the increase, the need for habitation also increases. People need houses for accommodation and businesses need location for their commercial activities. Due to the high cost of real property, a vast majority of persons and businesses opt for leases as a cheaper alternative.

In other words, leases and tenancies have become one of the most popular and essential transactions in the world. If you desire to rent a property, you must first understand the nature, types and elements of leases. This discuss will highlight the salient provisions and elements of a good lease.

Key definitions

Leases and tenancies (which will be used interchangeably) are the rights a person is given by the landlord to the exclusive use and occupation of the landlord's property for a period of time. This is the most important distinguishing factor between a lease and sale of a real property.

Landlord is a party that retains the ownership of the rental property.

Tenant is the party that is granted the possession of the landlord's property in exchange for rent payment.

The Nature of Leases

A lease is a right to the possession of a property belonging to the landlord. In a lease transaction, the title transferred to the tenant is exclusive possession and not ownership. Consequently, the landlord maintains ownership of the leased property which can not be transferred to the tenant except by way of alienation (using a contract of sale and a deed of assignment) or gift (deed of gift).

Depending on the terms of a tenancy agreement, the tenant may transfer this right of possession to another called a subtenant or sub-lessee who will be bound by the same terms and conditions of the agreement between the landlord and the tenant.

Types of Leases

For the purposes of this discuss, the following are the major types of leases:

1. Periodic Leases: This is a lease that has a specific commencement date and continues periodically until terminated by either of the parties upon the issuance of a written notice. Periodic leases can adapt the following forms: weekly, monthly, bi-annually, yearly or other forms depending on the agreement of the parties. In this type of lease, the tenant is given the right to occupy and use the landlord's property on a periodic basis until the agreement is terminated by either the landlord or the tenant.

If the landlord intends to terminate this type of lease, the landlord or his authorized agent is required to issue a Notice to Quit and if the tenant remains in the property of the landlord after the expiration of the notice to quit, the landlord is mandated by law to also issue a seven days notice of owner's intention to recover possession to the tenant.

2. Fixed-term Leases: This is the lease of the property to the tenant for a specified period, such as one year certain, 2 years certain, etc. Once this lease term expires, the tenant is required to vacate the premises except the tenant exercises the option to renew the lease as agreed by the parties. Note that under this type of lease, the landlord is not required by law to issue a notice to quit except in cases where the lease was terminated by the landlord before the expiration of the lease term. However, the landlord is only required to issue a seven days owner's intention to recover possession to the tenant.

Residential and Commercial Leases and Tenancies

1. Residential Leases and Tenancies

Residential lease is the rental property granted to a tenant to use for residential purposes. In this case, the rental property is designed for the tenant's living or accommodation and not to be used for business. Although sometimes, the agreement may allow the tenant to engage in home-based businesses provided the structure of the premises will not be altered.

2. Commercial Leases and Tenancies

Commercial leases are the rights granted to a tenant or lessee to the exclusive use and occupation of the landlord's property for commercial or businesses purposes other than residential purposes. This means that the rental property is let to the tenant for commercial or business use. Property for commercial uses are office spaces, warehouses, or any other property which will be used for such purposes other than for residential purposes.

What distinguishes a commercial lease from a residential lease is that while the former is specifically for tenants who will use the property for business or other commercial use (such as offices, warehouse, or other commercial purpose), the residential leases and tenancies are used for residential purposes.

Essential Characteristics of a Valid Lease

1. Form of Leases. Leases may be made orally or in writing. It is however considered more expedient to have a written agreement.

2. Exclusive Possession. The title to the property is not conveyed, only the right to exclusive use and occupation of the property is transferred to the tenant. During the lease term, the tenant has the right to exclude every other person from the property including the landlord and his authorized agents until the expiration or termination of the lease.

3. Certainty of Term. The lease term must be ascertainable. Hence, the duration of the lease must be certain. This may be a fixed term (for example, one year certain) or a periodically (for example, weekly, monthly, yearly, etc.).

In addition, a lease or tenancy must have a certain commencement date. This is the date the tenant will assume occupation of the property. The commencement date must be a specific date or upon the occurrence of a specific event or circumstance. A lease that has no commencement date is invalid.

4. Certainty of Property. The rental property must be identifiable and ascertainable. The lease must specifically describe the extent and location of the property.

5. Certainty of Parties. The parties to a lease must have the capacity to enter into a lease contract. The party granting the lease must actually be the owner of the property (the landlord) or the the agent of the landlord. The parties may be natural or juristic persons and they must be properly described in the agreement.

6. Payment of Rent. Rent is usually paid by the tenant as consideration for the use and occupation of the property. This may be money or other valuable consideration. The rent may be paid in arrears except the lease states otherwise. The rent must be ascertainable and clearly specified in a lease agreement for the avoidance of doubt.

It is important to note that under the Personal Income Tax Act 2011, rent collected in advance for a period of 5 years is subject to tax in Nigeria.

7. The Right to Reversion. The landlord has the right of reversion of the property after the expiration or termination of the lease. The landlord retains the ownership of the property after the lease.

About the Author

Vivian Umelue is an attorney and legal templates programmer at Wonder.Legal and is based in Nigeria.

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