Lease checklist for Philippines tenants

Hello kababayan! Renting a commercial space, such as a shop for your sari-sari store or an office for your small online business, is a significant step. Before you jump into signing that lease agreement, it’s crucial to do your homework. This checklist will help guide you through the entire process, ensuring that you’re covering all the necessary bases. Being well-prepared can spare you from potential headaches later on. Let’s dive right in and make sure you are completely informed, shall we?

Understanding the Lease Agreement

The lease agreement, often referred to as the contract of lease, serves as the backbone of your tenancy. It’s vital to comprehend every single detail contained within it. Here are some important points to look out for:

• Parties Involved: Ensure that the names and addresses of both you (the lessee or tenant) and your landlord (the lessor) are accurately listed. A common mistake is not verifying the registered business name against what is stated in the lease.
• Property Details: The address of the space you are leasing must be clear and correct. The lease contract should specify the exact area you will be using. A mix-up in this area can cause confusion, especially if, for example, your lease covers the entire unit at number 123, but it is misidentified as just “unit 123” amidst other units in a building.
• Lease Term: This indicates how long you are committing to the lease. Take note of any clauses regarding renewal, which state if the lease renews automatically or under what specific conditions. For example, many commercial leases in the Philippines are set for one year or more.
• Rent Amount and Payment Terms: The monthly rent, due date, payment method, and any grace periods should be clearly included. A common penalty for late payments is a 3% monthly charge. Pay attention to the escalation clauses that detail if, how much, and when the rent might increase in the future.
• Security Deposit: This is the amount you pay as a security deposit, often equal to one or two months’ rent. Ensure that you understand the procedures in place for refunding the deposit after the lease ends. The agreement should clarify how and why the deposit may be used, along with assuring you that normal wear and tear will not be deducted from this amount when you move out.
• Utilities: Look for a clause that specifies who is responsible for paying utilities, including electricity, water, internet, and more. Some landlords require that utility meters be registered solely in your name.
• Use of the Property: The lease will often outline how you can use the space. If you plan to operate a restaurant, for example, make sure the agreement explicitly allows for that kind of activity. If you’re considering changing the type of business you plan to run, seek a more flexible clause in your contract.
• Alterations and Improvements: If you intend to make changes to the property, this should be clearly addressed in the agreement. You might be required to obtain permission before any major alterations. For instance, if you want to add a loft or install additional electrical outlets, you’ll need to check whether this is allowed.
• Condition of Premises: Typically, the contract will contain a clause stating that you accept the premises as-is. If there are obvious repairs needed or damages present, make sure they are noted. A smart practice would be to take photographs or videos documenting the initial condition of the space.
• Default and Termination: Understand the conditions under which either party can terminate the lease. Common reasons for immediate termination include failure to pay three months’ rent or breaching any substantial component of the lease (such as using the property for illegal activities). Penalties for such actions should also be included in the agreement.

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• Subleasing Clause: Most leases will either prohibit subleasing of the commercial space or may require the landlord’s permission. Be clear about this aspect in your contract.
• Repairs and Maintenance: Identify who is accountable for repairs—whether it will be the landlord or tenant—for different areas of the building. For instance, repairing a leaking roof may fall under the landlord’s duties, while a damaged internal door may be the tenant’s responsibility.
• Applicable Laws: The lease agreement should state that Philippine laws governing contracts and property leasing will apply.

Due Diligence Before Signing

Before you make a commitment to a commercial space, it is essential to do your own research. Relying solely on the lease agreement isn’t enough.

• Inspect the Property in Person: Don’t just rely on photos. Visit the actual space to examine any issues, such as water damage, pest problems, or structural flaws. If possible, visit at different times during the day to assess the natural lighting and noise levels.
• Verify Ownership: Request documents from the landlord proving their ownership of the property. Key documents to ask for include the Tax Declaration and Transfer Certificate of Title.
• Check Zoning Regulations: Confirm that your intended business type is permitted in the area where you are leasing the space. You wouldn’t want to rent a location only to have it shut down due to zoning issues.
• Survey the Neighborhood: Reflect on the surroundings of your potential commercial space. Is the area accessible to your customers? Is it safe? If you plan to open a physical store, consider the traffic flow and foot traffic as these factors will be crucial.
• Talk to Existing Tenants (if any): If you can, have conversations with other tenants in the same building. They provide valuable insights about the landlord and property management.
• Legal Advice: It’s wise to have a lawyer review the lease agreement before you sign it. While this might involve upfront costs, a lawyer can identify legal concerns that you may overlook.

Negotiating the Lease Terms

Don’t hesitate to negotiate terms with your landlord. Many aspects of the lease are open to discussion.

• Rent: Try to negotiate a lower rent, particularly if you are considering a longer lease duration.

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• Lease Term: You may have the ability to negotiate the term of the lease itself. If your business is just starting, a short term of six months could be beneficial. If your business is flourishing and you anticipate growth, you might prefer a longer-term lease.
• Improvements: You might negotiate an allowance for improvements, especially if you’re renting the space “as is.”
• Rent-Free Period: Depending on your plans, requesting a rent-free period may be advisable, especially as you set up your space, which could take a few weeks.

After Signing the Lease

So, you’ve signed the lease. What comes next?

• Keep Copies of Everything: Make sure to retain copies of your signed lease agreement and all other relevant documents. Additionally, keeping a record of your rent payments will be beneficial.
• Get Insurance: If your lease agreement requires it, ensure you obtain the proper insurance coverage.
• Notify Relevant Parties: Remember to inform your local Barangay, city hall, or Department of Trade and Industry (DTI) that you’ve moved in or opened your new business.
• Maintain the Property: Do your best to uphold the property’s condition. Taking care of your rented space and preventing damage is vital, as any significant issues could affect your security deposit upon moving out.

FAQ

Here are some frequently asked questions regarding commercial leasing in the Philippines:

What should I do if the landlord doesn’t maintain the property as the lease agreement states?

Start by writing to your landlord, pinpointing the issue and referencing the relevant terms in the lease agreement. If the matter is not addressed within the specified time, consulting with a lawyer might be wise since you may have grounds to terminate the contract. In some cases, you may also be able to deduct the cost of necessary repairs from your rent, provided this is allowed by law or stated in the contract and you have thorough documentation.

Can a landlord increase rent during the lease term?

Typically, the rental rate is fixed for the duration of the lease, and any increase should be explicitly mentioned in the lease agreement. If there’s no clause regarding rent increases, you shouldn’t be obliged to agree to any adjustments. Some older leases might have escalation clauses tied to inflation, which would also need to be stated clearly.

What if I need to terminate the lease before it’s up?

Generally, lease agreements include clauses for early termination along with associated penalties. Be prepared to lose your security deposit or pay for the remainder of the lease term. In some cases, you may need to find a replacement tenant to assume your lease. It’s essential to consult your lawyer to clarify your position.

Is it common to pay advanced rentals in the Philippines?

Yes, the typical arrangement is one month’s advance rent along with one month’s security deposit, or sometimes two months’ security deposit combined with one month of advance rent.

What is the usual duration for a commercial lease in the Philippines?

Commercial lease terms can range from as short as six months to five years or longer. A one-year lease is common, but the duration is ultimately a matter of agreement between the tenant and landlord.

Call to Action

Leasing a commercial space is a big decision that requires thoughtful consideration. Don’t rush into anything, and remember to carefully read every part of the contract. Do your diligent investigation, and don’t hesitate to negotiate terms with the property owner before you sign any agreements. By managing the leasing process wisely, you can significantly contribute to the success of your business. Stay smart, stay prepared, and best of luck on your business journey! Remember, preparation today translates into success tomorrow!

References

• The Civil Code of the Philippines
• Republic Act 386 (Civil Code of the Philippines)
• Lease Agreement Sample from various law firms in the Philippines