Leases

COMMERCIAL LEASES

A lease entered into for a period exceeding one year must generally be in writing to be enforceable (Civil Code §1624(a)(3). A lease must include a description of the property such that the parcel can be identified, the amount of rent to be paid, the time and manner of payment of rent, and the duration of the lease.

A carefully drafted commercial lease defines the rights and duties of the parties, and by doing so often avoids disputes and misunderstandings later. Carefully drafted provisions of commercial leases can address issues such as:

  • The term (duration) of the lease and any options for renewal.
  • Periodic rent-increase provisions and increases based on the landlord’s cost of maintenance, property taxes, and insurance.
  • The payment of a portion of the common area maintenance (CAM) expenses, if there are multiple occupants of a property.
  • The use of common areas.
  • The days and hours of required or prohibited business operation.
  • The nature of the business allowed to be conducted on the premises.
  • Provisions concerning non-competition by the landlord or other tenants.
  • The rights to assign the lease or sublet the premises.
  • The responsibility for repairs and maintenance of components of the improvements on the property, such as HVAC systems, roofs, electrical and plumbing systems, painting, and exterior maintenance.

Provisions concerning the calculation of damages in the event of breach of the lease are critical.

AGRICULTURAL LEASES

Leases of agricultural property for farm or ranch purposes present specific issues that should be addressed in a formal written lease agreement, such as the responsibility for the maintenance and repairs of improvements on the land, i.e. wells, pipes, out buildings, and fences; the manner in which the land will be used; provisions for automatic renewal of the lease term; the cleanup of the land when the lease term is completed; the sources of water; the issues concerning shared infrastructure and roads; the storage and use of chemicals and fuels; whether vehicle repair facilities will be permitted on the premises; and the adjustments in rent for increase in property taxes, assessments, insurance or other expenses.

If a relationship in an agricultural venture is characterized as a partnership agreement, rather than as a lease agreement, then there may be undesirable consequences, including joint liability for partnership losses (Corporations Code §16401(b)), joint and several liability to third parties (Corporations Code §16301), and the right of one general partner to bind other partners to agreements concerning partnership affairs (Corporations Code §16301). Generally, a lease of farm or ranch land will include a denial of any partnership relationship between the parties.

The landlord should consider the financial condition of the tenant. For example, a tenant might become insolvent and allow crops to waste, resulting in substantial expense to the landlord to evict the tenant, clean the land of debris, and prepare the property for lease to a subsequent tenant. The provisions of a lease pertaining to damages in the event of breach are important and may determine whether the landlord can only recover the rental value while the tenant was in possession, or whether the landlord can recover damages based upon the unpaid rent for the contractual term of the lease.

Agricultural leases may not exceed a term of 51 years (Civil Code §717).

RESIDENTIAL LEASES

Often, lease arrangements for residential properties are handled in an informal manner. However, a carefully drafted and complete lease agreement defines the rights and duties of the parties, and by doing so often avoids disputes and misunderstandings later.  Carefully drafted provisions of residential leases can address issues such as:

  • The term of the lease.
  • The persons permitted to occupy the dwelling and length of stay by guests.
  • Security deposits.
  • The use of common areas and outbuildings.
  • Late fees.
  • Prohibitions on conduct, such as repair of automobiles and possession of illegal drugs.

Residential leases are often copied from general use forms. However, even residential leases should be crafted to the specific property being leased. Residential tenancies include requirements as to habitability, and are far more regulated than commercial tenancies.

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