Help Guide on Commercial Lease Agreement [Best Practices]

The commercial lease agreement is the instrument whereby the owner (called the lessor) assigns the use of his property to another person (said tenant), to install his trade or service there. It is also through this contract that legal entities may rent a property for the housing of their managers or their employees.

In this document, the amount of the rent to be paid by the lessee, as well as the total duration of the lease, which may be for a fixed or indefinite period, shall be fixed. 

In addition, the contract will also set out the rights and duties of each of the parties involved, such as the liability for the payment of taxes and the compensation for works and improvements made to the property.

How to use this document?

Once fully completed, the lease must be signed by the contracting parties – and the guarantors, if this is the established guarantee mode – and then a copy of the document must be forwarded to each of the lessors and tenants.

Although not required, the instrument may be registered with the Registry of Securities and Documents. Only with public registration, the contract will be valid for people outside the lease relationship.

The rental agreement must be accompanied by originals or copies of the following documents:

• Inspection report of the rented property;
• Identification card of all signatories;
• Taxpayers’ Register of all signatories;

In the case of lessor of a legal nature, bylaws, bylaws, articles of incorporation of the legal entity or, in their absence, other documents proving that the signatories are persons entitled to represent it.

In the case of an incapable individual, a birth certificate or an act of interdiction or curatel, which proves that the signatories are persons qualified to represent it; and in the case of an individual represented by a proxy, the power of attorney.

When the parties establish collateral, document proving the type of collateral and the conditions under which it was given (value, real estate or movable property reached, guarantor’s personal documents, investment fund quotas, lease insurance policy, etc.).

Individuals and companies

In the urban non-residential property lease contract, individuals and legal entities may appear as both landlords (property owners) and tenants (property tenants). In the case of a lessee legal entity, the lease agreement shall be the present model, even when it is returned to the housing of its employees or directors.

Survey Report

One of the tenant’s primary duties is to return the property to its owner in the same state as the tenant. During the time he stays in place, he must thus cherish their conservation. To prove the conditions in which the property was, at the time the tenant began to inhabit it, is necessary to conduct a survey. At the end of this inspection, a report should be produced, which describes, in detail, the characteristics and the state of conservation of the property. This document must be attached to the rental agreement.

Warranty

According to the Tenant Law, the lessor may require the lessee to provide some form of guarantee, which will ensure compliance with the contract. Thus, in the event that the tenant does not pay the rent as agreed, the lessor may still receive the amount due to him. Four types of guarantee are foreseen: the guarantee, the guarantee, the lease guarantee insurance and the fiduciary assignment of investment fund shares.

The most common of these is bail, in which people unrelated to the lease agreement undertake to pay the debts eventually acquired by the lessee.

In the collateral, in turn, it is the tenant himself who highlights a property or movable property of his own assets, so that he can answer for any default.

The insurance lessor bail – which has become more and more everyday – is the guarantee that is provided by an insurance company; In this case, the person contracts with this institution, an insurance service and, if not pay the amounts to the owner of the property, the insurer will do so.

Finally, there is the fiduciary assignment of investment fund quotas, in which the lessee transfers to the lessor capitalization securities.

The lessor may not require from the lessee more than one type of guarantee. On the other hand, the parties may also waive the guarantee in the lease agreement. If contractors choose to establish a security, proof of this must be attached to the lease.

Rent Term

The lease can be for a fixed time (with a deadline) or indefinite (with no prior date to finish).
In the case of an indefinite contract, the parties may terminate the contract at any time, provided that they give 30 (thirty) days’ notice.

In the case of fixed term leases, the parties may not break the contract before the deadline.
In addition, in the case of fixed term lease of rental property for the establishment of commercial activity, the lessee may have a right to renew the rent.

If the property has been rented to the lessee for at least 5 (five) years and if he has been operating the same commercial activity for at least 3 (three) years, the lessor will be required to renew the contract for the same period. This is because the tenant has created an on-site clientele, which may be lost if he changes address.

Renter must apply for renewal of the contract within the last year, at least 6 (six) months in advance of the date set for its termination.

The lessor may only deny renewal of the contract in the following cases:

• Is obliged by the Government to carry out works that radically transform the property;
• Freely make modifications to the property as long as they increase the value of the business or property;

If the landlord wants to take back the property to set up a business that has been in existence for over a year, provided that the landlord, his spouse, ascendants (parents, grandparents, etc.) or descendants (children, grandchildren, etc.) have a majority of the capital of business.

Possibility of subleasing, lease assignment and loan of the property

One of the most important – as well as controversial – clauses in a rental agreement is one that prohibits or permits the tenant to sublet, assign or lend the property to a third party. Under the Tenancy Act, the lessee will only be able to do so when the landlord expressly permits it.

In the present model, you can choose to include this permission or keep the fence.

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Help Guide

What to do if the renter delays the payment of the rent?

In the event of late payment, the lessor may charge the lessee the amounts due (which may be done extrajudicially or judicially) and / or require the lessee to vacate the rented property due to the breach of what was agreed previously.

How to charge late amounts

The charge may be made extrajudicially or judicially. In any case, however, collection will only be possible after the lessee has effectively failed to honor its commitments.

How to get back the rented property

In addition to charging the amounts due, if the lessor wishes the lessee to vacate the property, he must file a lawsuit against him for this purpose. Although it is possible to ask the tenant out of court to vacate the property, action will always be necessary in cases where he refuses to leave.

In the case of urban leases (residential, commercial or seasonal leases governed by Federal Law), the appropriate action is the eviction action. It is noteworthy at this point that the same eviction action may deal with both the request for termination of the contract and the request for recovery of the amounts due.

Lessor or lessee: who should pay for the works or renovations done on the property?

What is an improvement?

Improvements are works or renovations or other changes made to a particular good in order to conserve, improve or make it more beautiful. The concept of “improvement” includes activities such as changing a floor, painting a wall, changing a pipe, repairing the power grid, changing a door, changing a light, among others.

Improvements can, according to the law, be of three types: voluptuous, useful, or necessary.
The necessary improvements are those intended for the conservation of the good, that is, those whose realization is essential for the good to be maintained in good condition or to prevent it from deteriorating. If a necessary improvement is not performed, then the asset may be put at risk or lose value.

Examples of necessary improvements are: renovations made to contain leaks or infiltrations that may affect the property structure in any way; the exchange of damaged electrical cables, creating a risk of short circuit; the execution of works to reinforce a particular pillar that is in danger of collapse.
Improvements to be compensated by the landlord.

To say that a leasehold should be compensated by the lessor is to say that he should reimburse the lessee for the losses and costs that the lessee had incurred in carrying out the reform.

The Urban Rental Law states that, as a rule, improvements made by the lessee must be compensated by the lessor in the following cases:

When improvement is required;

When the improvement is useful and has been previously authorized by the lessor.
It is said “as a rule” because the lease can state that the lessee will not be entitled to any compensation. However, in order not to be entitled to compensation in such cases, the contract must expressly establish this rule, so that if the contract contains no mention of it, the tenant will be guaranteed his right.

Thus, the lessor will not have the duty to indemnify only in the following situations:
if the tenant’s improvement is of the voluptuous type, that is, intended merely to beautify the property;
if the lessee’s improvement is of a useful type but has not been previously authorized by the lessor;
if the lease provides that useful or necessary improvements should not be compensated.

Although there is no legal obligation to indemnify in the case of voluptuous or useful improvements made without prior permission of the lessor, nothing prevents the lease from establishing this obligation, and where this happens, the lessor shall indemnify the lessee, not by virtue of the law, but as provided for in the lease itself.

Retention right

If the landlord fails to indemnify the lessee for any of the indemnifiable improvements, the lessee may exercise his right of retention, that is, he may refuse to return the property until it is properly indemnified.
It is noteworthy, however, that the lease may provide for the tenant’s waiver of the right to withhold, as well as the right to compensation for useful and necessary improvements.

How to readjust the rent

Rental pricing

One of the main elements of the real estate lease agreement, in which one person rents one property to another, is the rent. The rent is precisely the price of the lease, i.e. the amount that the lessee pays the lessor to use the rented property.

In a lease, the landlord is the person who rents one property to another. It can be said that the most common situation is where the landlord is the property owner himself (i.e. the property owner). However, it is also possible that the landlord is someone else, depending on the case.

The lessee, in turn, is the person who rents someone else’s property, paying the lessor the rent. In the case of urban residential property leasing, the tenant is also called the tenant.

It turns out that lease agreements can usually have very long terms, so that the lessee uses the rented property for several months or years. In these cases, it is possible that the rent value needs to be updated (due to inflation) or revised (due to an increase or decrease in market rent prices). These two possibilities (update and revision) will be dealt with below.

Before you follow, however, it should be noted that this guide is applicable to urban property rentals in general except in the following cases:

• if the rented property is public;
• if the rented property is a rented parking space on its own (i.e., not linked to another property, such as a commercial room or an apartment);
• if the lease is for advertising space;
• if the rented property is in apart hotels or hotels;
• if the lease deals with a lease.
• This guide is intended for rentals that are subject to the Urban Rentals Act. That is why it does not apply to the cases mentioned above, since that law expressly provides that such cases are not covered by it.

Thus, this guide will apply, for example, to apartment rentals, office space, shops, houses, sheds, urban lots, in short, to the rental of any urban property to which the Urban Rental Law applies.

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