June 22, 2021
June 22, 2021
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4.9 - 17 votes
Housing is one of the most important requirement for human survival. As the world population increases, the demand for accommodation rises. People need houses for accommodation, and businesses need a location for their commercial activities. Due to the high cost of real property in Nigeria, many persons prefer to live in rental properties as a cheaper alternative.
For this reason, leases have become one of the most popular real estate transactions in the world. Consequently, if you need to rent a property in Nigeria, it is important to understand the nature and type of lease you want to take to ensure that the lease is valid. This article will highlight the salient provisions and elements of a good lease. After reading this article, you can review your Tenancy Agreement or Business Lease to confirm the validity of your lease.
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.
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 or a Commercial Lease 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.
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. Here, the tenant is given the right to occupy and use the landlord's property periodically until the agreement is terminated either by the landlord or the tenant.
2. Fixed-term Leases: This is the type of lease or tenancy that has a specific commencement date and expiration date. In other words, the tenant will be required to occupy the rental property for a specified period, for example, one year, two years certain, etc. Once this period expires, the tenant is required to vacate the premises, except it is renewed.
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.
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), residential leases are designed for people to live in them.
1. Form of Leases. Leases may be made orally or in writing. However, it is better to have a written agreement.
2. Exclusive Possession. In a lease transaction title to the property is not transferred to the tenant, only the right to exclusive use and occupation of the property. 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, two weeks, or one month. It can also be periodically (as in periodic leases), such as weekly, monthly, yearly. A lease must also have a certain commencement date. This is the date the tenant will start occupying 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. Capacity of the 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. This means that the landlord retains the ownership of the property after the lease.
Vivian Umelue is an attorney and legal templates programmer at Wonder.Legal and is based in Nigeria.