Real Estate Law

What Is a Lease Agreement? – Overview And Explained In 2022

27 September, 2021


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If you want to rent a property for commercial purposes, you have to sign a lease agreement. Now, you may sign the deal, but you can face some adverse legal consequences if you don’t know what it holds inside. So, you must understand what a legal agreement encompasses before you sign your name on it.

When one party agrees to the terms and conditions provided by another party at the time of renting a property, that is called a lease agreement. A lease agreement has to be legally enforceable, and both parties here will be bound by the contractual terms. In addition, it outlines the responsibilities of the lessee and the lessor so that none of them can breach the contract.

What Is A Lease Agreement?

There are two parties involved in a lease agreement, the lessor and the lessee. The lessor enables the lessee to use a property for a limited amount of time with the lease agreement. Now, the lessor indeed gets some money in return, but whatever transaction takes place here is legally bound.

The lease agreement, under no considerations, provides any kind of ownership rights to the lessee. The lessee may permit the lessee to modify the property as deemed fit to him, but the lessee has to take the lessor’s permission for that. On top of that, for how many years the lessee rents the property, it depends upon him to upkeep its maintenance for that period.

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What Are The Components & Terms Of A Lease Agreement?

 A lease agreement includes the lessor’s name and the lessee, property description, rent amount, due date, grace period, payment mode, security deposit, etc. Let’s take a look now at its essential terminologies.

1) Firstly, the lease agreement mentions the duration in it. So it will clarify for how long the lease agreement will be in effect.

2) It also mentions the rent amount. Finally, it says how much the lessee has to pay the lessor and the payment mode by which the transaction will happen.

3) The lease agreement will mention the deposit amount in it. In addition, it will say the purpose for each of the deposits made in the entire lease period, and it will also mention the condition for adjustments of the stakes.

4) Next, on the lease agreement, for how long and for what purpose will the property be used will be mentioned. The terms of use will also highlight the conditions to use the property. 

5) A lease agreement also mentions some of the utilities that are included in the rent. It says which utilities the tenant is responsible for.

6) When someone rents a property, they may want to insure it to save it from unforeseen events. But, the commercial lease agreement will mention the insurance requirements so that the lessee can decide.

7) Either the lessor or the lessee will be responsible for maintaining the property. Now, the lease agreement will mention the responsible personnel for the maintenance works

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What Are Some Common Types Of Leases?

If you want to sign a lease agreement with a property owner, you must identify standard lease types. There are some types of lease, where the lessor takes the most of the burden, while there are some other types of lease, where the lessee assumes the most responsibility.

1: Absolute Net Lease

The tenant takes care of the entire lease burden here. It includes maintenance costs, tax charges, insurance premiums, etc. If a single tenant is involved in a property, the absolute net lease is the most common form to get a hold of. Usually, tenants who own a large business take the burdens of total net leases

2: Triple Net Lease

In a triple net lease agreement, there are insurance costs, maintenance costs, real property costs. These kinds of deals will be suitable for single tenants, multi-tenants, and rental units. Although this kind of agreement gives the property owner total control, it cannot change the overall appearance of the building.

3: Modified Gross Lease

In this kind of lease agreement, the entire burden falls upon the property owner. It is the opposite of absolute net lease because the owner here pays all the insurance, taxes, and maintenance costs. So, this kind of lease agreement is advantageous to the lessee because the lessors also take care of the operating costs here.

4: Full-Service Lease

If you opt for a full-service lease agreement, most of the costs will be covered within it. So, the monthly payment rate stays a bit higher here. But, these kinds of contracts are pretty common when there are multiple tenants involved in a property.

Frequently Asked Question (FAQ)

Do you think we have answered all your queries regarding lease agreements? In that case, you can skip this part. But, we have often found people asking us some other questions too, and that’s why we have handpicked a few of them here.

1: How Do You Explain A Lease Agreement?

Ans: In simple terms, a lease agreement is a legal contract under which a lessor legally rents a property, and the lessee accepts it. Under no circumstance, the lessee will be responsible for taking ownership control of the property. The lessee will make regular or monthly payments to the lessor for a certain period.

2: What Should Be Included In A Lease Summary?

Ans:  In the summary of the lease agreement, the name of the lessor and the lessee must be mentioned. The summary will mention the limit of the occupancy, contact information, property description, rent amount, tenancy terms, deposit amount, etc.

3: Is A Lease Agreement A Legal Document?

Ans: A lease agreement is a legal document because the lessor makes the contract legally enforceable to protect it from unnecessary legal violations. The legality of the deal will make the lessor and the lessee abide by its conditions.

Putting It All Together

There are different types of leases, and based on your needs, you can apply for a specific type of lease agreement. It is best to include both the property owners and the tenants while making such agreements so that both parties can understand its considerations. If you want to make such an agreement, you must talk to a real estate expert to get the best guidance. For more information, tell us your thoughts in the comment section.

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