Lease review guidelines in Philippines

Are you planning to rent a commercial space for your business, kababayan? That’s an exciting move! However, before you put your name on any lease agreement, it’s very important to grasp what you’re entering into. A lease agreement is a legal contract that can have serious implications for your business. Therefore, taking the time to review it thoroughly is essential. This guide will help you understand the main aspects of lease reviews in the Philippines, specifically related to commercial properties. It won’t scare you; instead, it aims to prepare you to make smart decisions that safeguard your interests.

Understanding Key Lease Terms

Let’s break down some common lease terms that often appear in agreements. Knowing these key terms will make it easier for you to work through the document.

• Premises: This term precisely indicates the space you’re leasing. It’s essential that it specifies not just the address but also the size in square footage, along with any shared areas you might have access to (like halls or parking). For instance, if you’re leasing a unit in a building, your lease should indicate the exact unit, including the floor and unit number, especially in a complex such as Megaworld’s Eastwood City.
• Lease Term: This specifies how long you’ll be leasing the space, typically listed in years. Commercial leases often last several years. Watch out for any options to renew the lease, which may be stated in the agreement. For example, a typical commercial lease might last for three years, with the option to renew for another three if you inform the landlord 90 days before the contract ends.
• Rent and Escalation: The lease must detail the monthly rent, due dates, preferred payment methods (like bank transfer), and how any rent increases will be handled through the lease term. These increments could be a fixed percentage increase or linked to the consumer price index for that year as it’s described in the agreement. An example might be a 5% increase in rent after the first year.
• Security Deposit: This is the sum you pay to the landlord as security against possible damages during the lease. A typical deposit might be equivalent to one or two months’ rent, and you should get it back at the lease’s end, minus any deductions for damages or unpaid rent.
• Permitted Use: This part defines what type of business you’re allowed to run in the space. This is a big deal because using the property for a purpose not stated can be seen as a lease violation. If you’re starting a food-related business, ensure the lease includes clauses that cover food operations and adherence to health and sanitation regulations.
• Repairs and Maintenance: This section covers who is responsible for maintaining the space. Generally, landlords handle major repairs, like structural or exterior maintenance, while tenants are tasked with interior upkeep. If you’re renting just a unit, the landlord typically takes care of these duties.

Reviewing the Lease Agreement: Step-by-Step

Now, let’s break down the review process step-by-step. Here’s what you should do:

1. Read the Entire Document: Take your time. Don’t just rush through it! Read every clause carefully, even those that sound legal or formal. This is a contract that will impact your business, so treat it seriously.
2. Clarify Any Doubts: If you come across anything you don’t understand, don’t hesitate to ask the landlord or a legal professional. It’s important not to assume you understand everything; asking questions can save you from confusion later.

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3. Check for Hidden Costs: Aside from rent, are there other costs you should be aware of, like association fees, taxes, or maintenance charges? All these should be clearly outlined.
4. Negotiate If Necessary: Remember, you can negotiate most lease terms! If there are specific clauses that you’re uncomfortable with, don’t hesitate to ask for adjustments. It’s quite common for lease terms to be open for discussion, and landlords usually expect some negotiations.
5. Insurance: Look into whether the lease requires you to have specific types of insurance and what those requirements entail.
6. Early Termination: Be clear about your options should you need to end the lease before the due date. Take note that there might be penalty clauses for ending the lease early, which typically involve a specific number of months’ rent as stated in the contract.

Specific Clauses to Scrutinize

There are certain clauses you should pay special attention to:

• Default and Remedies: Understand what would make you or the landlord in breach of the lease and what remedies can be taken if there’s a violation by either party.
• Subleasing or Assignment: Consider if the lease permits transferring to another business in case your situation changes. If there are restrictions against subleasing, ensure you’re clear on that. Often, if you decide to sell your business, the new owner might not be able to inherit the current lease.
• Alterations and Improvements: Are you allowed to make changes to the property to suit your business needs? Usually, any improvements you make become the landlord’s property when the lease ends.
• Use of Common Areas: If your rented property is located in a larger complex, find out how shared spaces like hallways, loading docks, and parking lots can be used. Each contract specifies these terms differently, so make sure to read them closely.
• Dispute Resolution: Know what steps will be taken if you and the landlord have disagreements. Will you resolve it in court or through mediation? Philippine law sometimes includes specific clauses about mediation for property-related disputes.

Important Philippine Laws Related to Commercial Leasing

Being aware of relevant laws in the Philippines that impact commercial leases is vital:

• Civil Code of the Philippines: This document lays out many aspects related to contracts and obligations, providing a foundation for understanding general legal principles that apply to most contracts.
• Rent Control Laws: Although these primarily apply to residential leases, they can still shed light on specific principles relevant to commercial leases, especially concerning unreasonable increases or rent-related concerns.

Frequently Asked Questions

Here are some frequently asked questions regarding commercial leases:

What if my landlord doesn’t return my security deposit?
You have a legal right to request the return of your security deposit as stated in the lease terms. If the landlord refuses, you can seek legal action based on the lease contract’s conditions for returning it. However, remember that if there are property damages caused during your stay, the landlord can deduct the cost of repairs from your deposit.

Can I terminate my lease agreement early?
Yes, typically you can, but you may face penalties outlined in your lease agreement. Most contracts will specify the guidelines and conditions for early termination.

Does the landlord have the right to increase rent at any time?
No. Rent increases must be clearly defined within your lease. If it specifies increases each year or upon contract renewal, the landlord must adhere to those terms. Without such stipulations, the landlord cannot raise the rent spontaneously.

What should I do if I face a dispute with my landlord?
Start by trying to have an open and honest conversation with your landlord to work things out amicably. If that doesn’t help, consult the dispute resolution clause in your agreement. Seeking legal advice can also be beneficial at this stage.

Can I sublet the property?
This depends on your specific lease. If the lease does not explicitly mention this, it’s best to ask for clarity regarding subletting.

Call to Action

Since leasing a commercial space can be a crucial step in your business journey, take the time to understand your lease thoroughly. Delve into the terms and ensure you know your rights and obligations as a tenant. Pay attention to the important clauses and don’t hesitate to negotiate if something doesn’t sit right with you. Getting your lease right means you give your business a solid base to succeed. If you still have questions or feel uncertain about any part of the lease, it may be wise to consult a legal professional. Your diligence today can lead to smoother operations and fewer issues down the road. Good luck in your venture!

References

• Civil Code of the Philippines