Renting non-residential premises for commercial activity is widely practiced in the business community. When concluding an agreement, parties usually pay attention to such issues as floor space, lease terms, and cost, while many issues related to the premises and their rent are overlooked. Consequently, various uncertainties and disputes often arise. In order to adhere to the agreement and reduce possibilities of disputes, it is worthwhile negotiating other provisions typical of rental agreements. Here we provide an overview of some basic "rental essentials" important to the lessor and lessee in many instances.
Purpose and adaptation of premises rented. In many cases a lessor commits to adapt the premises for a specific activity of a lessee, particularly in those cases when the lessor is also the builder of the premises in question. For example, when the premises are rented for production activities, a lessor should clearly ascertain the conditions of the lessee's activity and the possibilities to develop it on the premises. In order to avoid disputes, the range of the lessee's activity and technical requirements concerning the premises must be properly defined. If only a short description of the activity is provided in the agreement (e.g., for production purposes) and some kind of damage is caused to the lessor or to a third party, the lessor might have to assume liability.
When negotiating a rental agreement the parties should agree upon what work must be carried out by the lessor in order to adapt the premises for the lessee's activity. Also, questions as to who will pay for this, and who will take care of eliminating or compensating it if the lease is terminated early, should be discussed. Case law shows that, if such provisions are not included in the agreement, it is common to adjudge costs for such adaptation work to the lessor.
Registration of rental agreements. Registration of rental agreements is not mandatory according to law. However, it is advisable to register such agreements with the Public Register in order to safeguard the interests of a lessee. In this way the fact of entering into agreement is made public, and the number of any possible disputable situations on this fact is reduced. Registration is also important when the owner of the premises changes, as the new owner must comply with the same lease conditions.
Implementing priority rights for renewal. According to Lithuanian law, a lessee possesses a priority right to renew an agreement. Violation of this right provides for transferring the rights of the new lessee to the former lessee or to claim damages. It is important to clearly define the rules for implementing the priority right, terms of notice, and procedures of notice delivery, so that both parties could plan further activities.
Overhaul and running repairs. If the lessor is also a builder, it is advisable to consider construction guarantees when negotiating future repairs. It might be agreed that during the guarantee period the lessor carry out not only any overhauls but also day-to-day repairs and maintenance. Before signing the rental agreement (especially for a longer period) it is recommended to discuss ways of compensation to the lessee's for interrupted business, terms of notice delivery, range of interference in the premises. This is the best way parties can reduce the probability of disputes.
Termination of rental agreement. Unilateral termination of the agreement is only lawful if done in cases, and following the procedures, prescribed by the agreement or law. If the parties have not agreed upon the terms of a unilateral termination of the agreement it can then be terminated only as established by the law 's i.e., settled in court. This, however, will not guarantee that the situation will be resolved quickly and does not comply with the dynamics of business relations. Therefore, we advise including an agreement in the rental agreement, provisions for its lawful termination out of court and to specify the terms of termination in accordance with the needs of the parties.
One should also take into consideration that a lessee is entitled by law to terminate a rental agreement if the premises' owner changes. If a lessor is planning to sell the premises it would be worthwhile including a clause in the agreement that this will not be a reasonable basis for terminating the rental agreement.
A number of other additional conditions of renting premises and liabilities of the parties must be evaluated in advance depending upon the function of the premises (sales, production, warehousing, etc.), their peculiarities, purpose and terms of rent.
Rimvydas Rakauskas is an associated advocate at Jurevicius, Balciunas & Bartkus, a member of Baltic Legal Solutions, a pan-Baltic integrated legal network of law firms including Glikman & Partnerid in Estonia and Kronbergs & Cukste in Latvia, dedicated to providing a quality "one-stop shop" approach to clients' needs in the Baltics.
