Leases

 

First of all, no don’t go down low, some people say I leased my property while others say I rented my property. Both are right, but as a legal somebody, you ought to know that leases are above 3 years while tenancies are 3 years and below.

Now that that is out of the way.

We must discuss what it means to lease, is it a lease because you called it that, that aboki in front of your house, is he really your tenant: Well, you be the judge:

  • Is there EXCLUSIVE POSSESSION: as in, can you barge into the space you gave him without being considered an intruder.
  • Is the TERM certain: Are you just keeping him there until he misbehaves?
  • Are the TERMS certain: Did you discuss what he can and cannot use?
  • Did you lease the property out properly, with the right Documentation? Can he bring anyone there anytime, does he know exactly what point his kiosk stops.

I’m sure you can see that the aboki just aint no tenant. Even if you say yes to some questions above I’m sure your answer to number 1 will be in the negative. The aboki is at best a licensee. Also, the above are the essentials of a lease.

Computation of time: ON/FROM. These words look harmless enough but in property law, particularly in leases they mean different things. When we speak of a date commencing ON a particular day, that day is included in counting the period, when we say it commences FROM a particular day, we are NOT including that day in counting period.

What all this grammar means is when we say ON, the period will end on the eve of the anniversary

A lease of 3 years commencing ON June 19, 2013 would end June 18, 2016

When we say FROM, the period ends on the anniversary

A lease of 3 years commencing FROM June 19, 2013 would end June 19, 2016

FROM = ANNIVERSARY

ON = EVE OF THE ANNIVERSARY

Covenants: These are what give the lease an identity. There are 3 types and they determine what one has to include in the lease and the implication of excluding some things.

Usual Covenants: These covenants are included by reason of common usage, custom etc. Sometimes they do not need to be included before the courts will infer them into the lease agreement. But, of course, their application to each situation must be proven as a fact in court.

Implied Covenants: These one don’t even need to be included at all, they are worked into leases automatically by common law or statute. They apply unless they are excluded. They include: Covenant to allow the landlord into the property to effect repairs etc.

Express Covenants: These ones must be included in the contract as there is no assuming their presence in the contract. They are either there (physically) or not.

Covenant to pay rent

Rent: This is the consideration for the lease, and it is based on agreement. If you noticed when we were talking about our aboki licensee I didn’t say anything about rent being part of the essentials. That’s because rent need not be demanded/paid before we can say there is a lease.

It could be paid all at once or the lessee may be require to pay at the end of each year/month/week. Note that by default the law implies that you want the person to pay in ARREARS i.e. he will enjoy the fruit of his money before actually giving you the money. But if you want it the other way around, by all means state so in the contract. There are 3 types of rent:

Ground Rent: This one is levied on the bare ground, minus the developments. It is what the Governor of each state receives as per ownership of all the lands in the state as conferred by the LUA.

Rack Rent: The most common one, paid by most tenants and calculated based on developments on the land, economic realities, etc.

Premium Rent: This is when Oga landlord receives all the rent at once. It is not advisable for 3 reasons

  1. It will be subject to heavy taxation
  2. It doesn’t take inflation into consideration
  3. It amounts to a fine which is prohibited by law Section 3(3) Personal Income Tax Act

YIELDING/PAYING (please use only one of the two words they mean the same thing) annually in advance the sum of N2,000,000.00 (Two Million Naira) only, clear of all deductions; a sum of N4,000,000.00 (Four Million Naira) only covering the first two years having been paid by the sub-lessee to the sub-lessor (the receipt of which the sub-lessor acknowledges). This bit is for if the scenario says the sub-lessee has paid some part of the money which is common practice in Nigeria.

Covenant on use (user covenant side note: isn’t this just wrong English, law is so funny at times): Is there a need to clearly map out what the tenant should use the land for? Definitely, because any legitimate thing the tenant does with the land that is not expressly prohibited is not a problem. So you must state clearly. When drafting, use limiting words like only, alone. Don’t just say this land is used for commercial purposes…what if I use it for residential purposes will you beat me? You should have said commercial purposes only. 😋

The sub-lessee covenan use the demised premises for lawful commercial purposes only

Covenant to pay rates and charges: There are 2 kinds – Recurring rates are those ones that are to be paid regularly e.g. monthly, weekly etc. But the non-recurring are the ones to be paid once. The recurring ones are usually the responsibility of the tenants while the non-recurring are for the landlord to take care of. It is implied by default to mean that each party will take care of his own biz i.e. landlord will take care of the bills landlords are known to take care of while tenants will take care of theirs.. But you can decide that one person will be responsible for all forms of rates and charges. The controversy arises where there is such a clause and there is a new rate/charge after the agreement was entered into. In such a case, it is not the tenant’s business except the law clearly says the rate is the responsibility of the tenant OR if the new rate is just an old one with a new name e.g. NEPA bills are now PHCN bills or is it DISCO now?

The sub-lessee covenants to pay all rates, taxes, and outgoings in respect of the demised premises, payable now or as may be imposed subsequently, whether payable by the owner or by the occupier

Covenant to repair: Normally, the landlord is responsible for the more permanent aspects of repair i.e. roof, gates while the tenant will take care of the other parts of the house that are more regularly used. But if parties want to agree that the tenant should build a museum and turn the house into a skyscraper, please go ahead, the law is behind you.

Covenant on assignment and sub-letting: A lease gives you a form of property and even though it is not a forever-situation, the fact remains that for the subsistence of your lease, the land is yours in a sense. If I give you my care to ride for 6 months it is not too far-fetched if you gave your sibling to ride it on your behalf or to run errands for you. So if I don’t want anyone but you touching the car I have to make it clear. The covenant on assignment and subletting must be drafted in such way that every possible way of parting with possession of the property is covered before the lessee finds one loophole and misbehaves. In Ishola Williams v. Hammond the courts said an equitable interest does not violate this covenant. You see how sneaky people can be? To be fair, it is okay to subject all such activities to the consent of the lessor, I mean Oga tenant may be minded to reduce the brunt of the rent sum – this is not a bad thing. The consent ought to be written so as not to cast ambiguity. Then the landlord when withholding the consent has only 3 considerations: The character of the sub-lessee and the use to which the property will be put. Things like – the rent that one will be paying – is none of his bloody business, no offence. ALAKIJA V. JOHN HOLT

The lessee covenants not to assign, sublet, charge or otherwise part with possession of the demised premises or any part of it without the prior written consent of the sub-lessor, consent not be unreasonably withheld or delayed in the case of a responsible and respectable person.

Covenant to insure: The insurance is ideally the duty of the landlord, it’s his land at the end of the day. However for practicality’s sake the parties may deem it the duty of the tenant, whose use of the property is what will likely incur risk. The idea is to state extensively as possible everything about the insurance so that there is no confusion as to who, what, where and how much is being insured. When trying to determine who will insure we consider:

  • Nature of the property
  • Use of the property
  • Other covenants in the lease

What if the disaster that strikes is one that is not covered by the insurance policy? The most obvious thing that will happen is that the person would be exonerated. It is better to take out a comprehensive insurance cover though. The question also arises as to whether the person who takes out the policy can do whatever he wishes with the insurance money. At common law, the only time a tenant can compel the use of the insurance money for refurbishing the house is if he contributed to the payment. Leeds v. Cheetham. This rule has somewhat been mitigated by the provision of Section 67 of the Insurance Act which allows a tenant (as an interested party) to place a demand on the premium even though his name is not mentioned on the policy. However the provision is only limited to fire disasters. All these legal drama can be avoided by couching your covenant to insure properly.

The sub-lessee covenants to keep the demised premises insured at all times throughout the subsistence of the lease, in the names of both parties, against risks usually covered under a comprehensive insurance policy at a reputable insurance company to be approved by the sub-lessor, for the amount equal to the full cost of complete reinstatement; and to ensure all premium and other payments necessary to maintain the policy are paid when due; and to apply all money received by virtue of the policy to rebuilding and reinstating the Demised Premises or any part of it in respect of which such money shall have become payable. 

Covenant against altering the property: Going back to the borrowed car analogy, you might decide to pimp my ride while you are with it. I ought to state clearly that I don’t want any make overs, same with the lease agreement. It ought to state this clearly.

Other clauses

Rent abatement clause: The contractual doctrine of frustration hardly applies to a lease unless there’s a rent abatement clause. What this means is if a supervening event takes place (such as a fire, war or anything else beyond everyone’s control of course) and the lessee cannot enjoy the lease again, he does not automatically get a relief from paying rent. But you can put a clause that abates or eases the lessee off rent when he obviously is not enjoying the property.

Option to renew: This is simply put, a sort of lifeline for the lease. It allows the lessee upon giving proper notice to the lessor to continue enjoying the property on the same terms. So instead of renegotiating the lessee will just tell the landlord, hey I still like this house and I’m not ready to move out, are you game? Landlord will reply and life will continue. The clause is usually drafted to exclude the rent clause (so you can renegotiate) and option to renew clause itself so it won’t look like you have made the rent go on into infinity. It should state time for giving notice, the mode of giving notice, condition precedent (most landlords can’t wait for a troublesome tenant’s agreement to expire so they won’t likely be taking up this clause), and terms for the new lease.

The sub-lessor shall on the written request of the sub-lessee made not later than THREE MONTHS before the expiration of the current term, provided the sub-lessee shall have reasonably performed and observed all his covenants  and the provisions of this sub-lease, grant to the sub-lessee a lease of the demised premises for another term of five years from the expiration of the current sublease, on the same terms and conditions as in this present sublease, with the exception of the Rent Clause and this Option to Renew clause.

Rent review: For some reason, we used to confuse this one with the option to renew back in law school. The difference is really and truly clear. The rent review allows the landlord a chance to review the rent. Imagine all this change and recession wahala and somehow a landlord is not able to increase the rent for a property that has appreciated in value. The clause states the method of initiating review (writing or a good old knock at the door for discussion) the frequency of the review the rate at which the new rent will be calculated and how to settle fight (dispute resolution).

The rent reserved in this sub-lease shall be reviewed at the end of the first two years of this sub-lease, and subsequently at the end of every two years during the subsistence of the sub-lease. The parties to this sub-lease may agree on the revised rent before the review date: Provided that if agreement has not been reached by the review date, the rent shall be determined by an independent qualified Estate Valuer, who shall be appointed and act as an Arbitrator under the Arbitration and Conciliation Act, LFN, 2004 (this is just a sample, parties may decide that it is the local government councillor that will resolve their disputes, whatever)

Forfeiture upon breach: This one just allows the lease to be quickly determined where the tenant is misbehaving. It is usually included as a proviso to the rent clause or you might decide to let it stand alone as a clause, depends on your drafting style baby.

If the rent hereby reserved for any part of it remains unpaid for 21 days after becoming payable (whether formally demanded or not) or if any one or more of the covenants on the tenant’s part shall be lawful for the landlord to enter into the premises and the lease is thereby terminated

Worthy of note at this point the Tenancy Law of Lagos state. It made life easy by turning some of these express covenants to implied covenants. That is, it implies:

  • The tenant will pay rent in the manner stated
  • Tenant will pay existing rates and rents unless payable by the landlord by law
  • Keep the premises in good and tenantable condition
  • Landlord will be allowed in the premises for repair
  • No alteration without written permission
  • Covenant not to assign
  • The landlord himself will pay any rates and charges he is required to pay according to the law
  • The landlord will effect external repairs.

In its sections 7 & 8. This means parties in the areas where it applies (all of Lagos except Victoria Island, Apapa, Ikeja GRA, and Ikoyi) will be bound by these covenants, whether they put it in the lease or not unless they expressly state otherwise

Miscellany

  1. I lease to you, you lease to your friend. The hierarchy is simple: LEASE > SUB-LEASE > UNDERLEASE so it depends on which relationship you are trying to describe. For example your friend is my under-lessee while she is your sub-lessee got it?
  2. When you are drafting you say this deed of… it could be either Lease or sub-lease or under-lease. This decision is informed by the concept of Right of Occupancy, remember the difference between freehold and leasehold, and how after the land use act the only form of land ownership that exists is leasehold. So everyone that owns land in a state is a tenant of the governor. If a tenant wants to create a lease what will it be? You garrit, a sub-lease. Therefore, when drafting quickly check your scenario if the land is held under a right of occupancy and when drafting say deed of sub-lease. It doesn’t affect anything else in the lease.

The form of a lease is what the document must contain and they are below:

INTRODUCTORY PART: Commencement, Date, Parties

OPERATIVE PART: Testatum, Consideration, Receipt clause, Parcel clause, Habendum (To hold), Reddendum (rent clause),

MISCELLANEOUS PART: This is where all the covenants and orisirisi go.

CONCLUDING PART: Signatures and co, Testimonium, attestation

The reason why you need to know these terms is because in exams they can just ask you to draft a Reddendum without a hint of what it is. I believe with the definitions and the important features of each clause and the cautious help of practice drafts, you should be able to draft them.

Do you need to cram? Well to be honest it’s up to you, maybe you want to sound very precise and lawyerly. But I believe you should understand each topic enough that if you are asked to draft, you can make sure everything that needs to said is said and of course with the use of good, formal grammar. Remember archaic words like hereunto, wherefore are not even cool anymore.

Thank you for reading!! All the best

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s