What should be included in a lease contract?

Lease is a contractual relation through which the owner of a certain property called the “lessor” agrees to grant the right to use and benefit from the leased property to the other party called the “lessee” who agrees to pay money to the lessor as consideration. The object of lease can be movable or immovable property. According to the principle of freedom of contract, the content of the lease contract is decided by the lessor and lessee. This article will discuss what should be written in the lease contract based on my experience in Cambodia.

1. Parties

The contract should include the identity and information of the lessor and lessee as earlier as possible. The lessor and lessee can be individual persons or legal entities. For individual, parties may state minimum basic information of each party’s identity such as name, sex, age or date of birth, identity card or passport number and date of issuance, place of residence, and specific role in the contract, for example, lessor or lessee.

In case of legal entity, parties my find it necessary to provide information such as name, form of the legality (for example, partnership, limited liability company, association, union, non-governmental organization, etc.), number and date of registration with competent authorities, registered address, identity and information of the representative of legal entities, duty or relationship to such legal entity.

If the leased property is owned or leased by several persons and if it is important to bind obligations on them, they should be included as parties to the contract. If the owners of the leased property are husband and wife, the contract should be signed by both of them as the lessors.

2. Description of the leased property

The contract should detail the unique identity and information of the leased property. For example, if it is a lease of immovable property such as land, building, house or room, parties generally specify the size, floor, unit, name of building, location or address, ownership titles or documents. If leased property is movable one such as car, motorbike or tractor, the parties mention the quantity, quality of the leased property, such as mark, brand, color, engine number, frame number, registered number, ownership titles or documents or any information which identify the leased car.

3. Purpose of the lease

The purpose of lease needs to be described in the contract to ensure that leased property is used according to its nature, function or agreement of the parties. For example, the parties may agree to lease the house for living or carrying out business or both. The purpose of lease may affect the lease fee. If the house is leased for living, the rental fee might be less than the one which is leased for carrying out business activities. Furthermore, the type of business may also affect the rental fee. Anyway, the rental fee is up the agreement of the parties. There are also cases where the parties, in particular at the initiative of the lessor, agree to state in their contract that the lessee must not use the leased property in the way which is illegal or immoral.

4. Period of lease

The lease contract should have a fixed period. The contract should mention the starting date and the expiry date of the lease. There are also cases where parties agree to renew the contract after the expiry date. The parties can include the renewal clause in their contract under which either party is required to provide prior notice of renewal or non-renewal of the contract. If the parties fail to provide such notice, the contract is renewed for the same period or for an undetermined period. The lease contract for undetermined period can be terminated at the initiative of either party provided that prior notice is served by the party who intends to terminate the contract to the other party.

5. Rental fee and payment

Lease contract is used for economic activities, especially in the lease business. The parties often state the rental fee in their contract. The parties can agree to fixed fee for the whole period of the lease contract or fee revised according to increasing rate for a certain period until the termination of the contract. The parties may decide the rental fee in consideration to tax which is applicable to the payment of rental fee.

The parties need to agree in their contract whether the payment of rental fee should be made on the weekly, monthly, quarterly or yearly basis. Furthermore, it is also important to clarify whether the payment should be made at the beginning, middle or end of each period as agreed by the parties.  The contract should specify whether the payment of lease fee can be in cash or through bank transfer or in any means as agreed by the parties. There are also cases where the parties include clause on penalty for late payment of rental fee according to the rate as decided by the parties in the contract.

6. Security deposit

Most of the lease contracts require security deposit. The lessee is required to deposit a fixed amount of money with the lessor to guarantee the performance of obligations of lessee in the lease contract. The deposit is kept by the lessor without interest and will be returned to the lessee at the expiry or termination of the contract. In the lease contract, the parties can agree that the lessor is entitled to set off the obligation of lessee against this security deposit. There are also cases where the security deposit is agreed by the parties for the purpose of compensation for the termination of the contract before the expiry date. Anyway, the function or purpose of deposit is decided and agreed by the parties in the contract.

7. Maintenance

The parties may state the terms and conditions for due care, maintenance and repair of the leased property in their contract. There is tendency in the lease contract under which the lessee is responsible for the above-mentioned obligations. For example, the lessee must repair or replacement of the damaged lamp, air conditioner, equipment or tools attached to or inside the house. The parties can agree to require lessee paint the wall, decorate or renovate the house or building at the expiry or termination of the lease contract.

8. Insurance

There are cases where the lessee is required to buy insurance such as fire insurance or other insurances as agreed by the parties. In Cambodia, there is no practice where the lessor request the lesser have a guarantor when entering into contract for lease of immovable property. In the lease contract, the lessee may be required to bear responsibility for any accident, damage, injuries or death of any person, which is caused by the lease property during the lessee’s occupation of leased property or during the lease period.

9. Sub-lease

The parties may agree for the sub-lease so that the lessee can lease the property to another person. If there is no clause about the sub-lease, the lessee cannot do so.

10. Water, electric, rubbish collection service bill

While living or carrying out business on the premise of the leased immovable property, the lessee may use electricity, water, rubbish collecting services. Most of the lease contracts require that lessee be responsible for all costs and expenses arising from these utilities and services.

11. Termination

The contract with fixed period normally ends at the expiry date. However, the parties may reserve the right to terminate the contract before the expiry date. The party who intends to terminate the contract is required to give prior notice to the other party. Furthermore, the parties may agree that either party can terminate the contract before the expiry date if the other party committed the material breach of the contract. For example, the lessee fails to pay the lease fee for 30 days after the due date. Furthermore, it is also a case of the material breach if a defaulting party fails to correct the default within a certain period as specified in notice of the non-defaulting party.

Regarding the termination sections in the contract, the parties may also include the conditions for the return of the deposit and return of the leased properties, management or ownership over construction built on the land, equipment attached to or renovation made to the leased building, clearance of unpaid obligations in relations to taxes, utilities charges and rubbish collection services.

This text is not legal advice or opinion.

Categories Contract Laws

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