Office lease agreement. Features and details.

19 March 2014 Contract law

Office rent is a question that arises at a certain stage of running business, and almost every company faces it. The greater part of medium and large businesses faces it. In some cases, the lease can be much more money-saving than to maintain your own property.

In practice, the firms that take offices on lease or let their own office spaces, consider the terms and conditions of the lease contracts not thoroughly enough, in other words they do not take it seriously.

On the one hand, the landlord hopes for reasonableness of the lease holder and the existence of certain rules of running transactions. The lease holder thinks in a standard way: "They constantly have deal with the letting of premises and understand this business better than us, so “Can we expect that they won’t develop the terms and conditions that will not comply with the laws?", or "What conditions can they specify not complying with the laws, once they are restricted by the Civil Code?", or "Once they are the host-sir, how can we object to anything?" On the other hand, the landlord feels increased self-confidence, being the owner of the property and naively relies solely on the rules specified in the Civil Code of the Republic of Kazakhstan. The typical thoughts of the landlord are: "The two-page lease contract is quite enough for the deal, why write a bunch of other information?", or "I'm the owner, so I can dissolve the contract at any time", or "I'm the owner, why should I negotiate something with the tenant?"

To this, we can add the availability of office spaces different by quality and the means of communication and the office utilities provided in them, available in the market. International classification refers office spaces by classes: A, B and C. The difference in price per square meter can differ several times, as well as the level of communication and utilities provided in them.

Before signing the lease contract for the rental of office spaces, we recommend you to:

  • Check the legal entity of the counterparty for the availability and validity of state registration;
  • Make sure that the landlord has the right to really take these premises in the lease (sublease);
  • If it is sublease, it is important to read the terms of the basic contract, because the Civil Code of the Republic of Kazakhstan sets some restrictions on the sublease;
  • Make sure that under the constituent documents and other documents of the landlord/ tenant, the signatory is vested with the right to represent the landlord/tenant in the signing of the contract and the transfer/acceptance of premises to the desired rental period without any reservations. If there are any reservations, you should thoroughly check in what way they can affect the deal in the future both in the registration of the contract with the authorities, and in the changing of the shareholders list of the landlord/tenant;
  • In order to understand the possible risks of future relations with the landlord/tenant, it is desirable to gather additional information on the legal entity of the landlord/tenant using data from the Tax Committee (suspension of operation, liquidation etc.), courts of the Republic of Kazakhstan (the large number of disputes can serve as an argument against building relations with the company). This information is freely available from public sources (egov, EAIAS, Tax Committee’s website, etc), or by request directly from the landlord/tenant.

Let us consider some of the commercial conditions which can seem insignificant at first glance, but in practice, can result in considerable problems. Amount of operating and maintenance expenses for maintenance of the building (premises).

It must be clearly understood what is included in these costs and when their amount can change. It is recommended to specify that this list is exhaustive and does not subject to broad interpretation. Leaving the list open is not beneficial to any of the Parties, as it is a real cause for disputes in the future.

Calculating procedure is specified as a fixed amount or formula. The formula should be understandable. For this, it is necessary to attain the mutual understanding of the formula application. Otherwise, misunderstandings are likely.

If payment is collected for the premises which are for common use, the calculation should be made on the basis of data from the technical passport for the condominium facility. If there is no technical passport, the calculation provided by the landlord should be understandable and adequate, in line with the market realities and rules of running business in the given locality. The landlord may be bound in the lease agreement to make such calculations for the other tenants of the building on the same conditions, both in the signing of the contract, and amending it.

Work performed by the tenant, before moving to the office and during the lease term.

Such work may be part of routine repairs or the desire to make re-layout. For long-term lease contracts, it is a natural necessity. In large offices tenants can be forced to coordinate the office re-layout project with a specific company, which can lead to additional financial costs. Such restriction of the tenant’s right can be appealed, but in practice no one does this. If there is a condition of mandatory coordination, it should specify the fixed time limits and the procedure for approval of the project, also it shall specify the persons in charge (not necessarily the full name should be specified, but the position) who will coordinate the office repair (re-layout) project with the authorities, and so on.

We should not forget about the mandatory coordination of premises re-layout with the state architectural and building control committee. It is necessary to lay the extra time for this and the responsibility for such coordination should be entrusted to the contractor or designer.

Fire safety.

If the lease contract expressly states that ensuring fire safety is the responsibility of the tenant, the tenant should make sure that the fire safety system operates properly in the rented premises in general and operates properly at the moment of acceptance of the leased premises by the tenant.

If the contract has such reservation, the tenant is liable for further operation of the fire safety system, the availability of fire extinguishers in rented premises (if no such fire safety system available), and the compliance with the mandatory requirements of the law with regard to the appointment of relevant persons in charge, the holding of a briefing for its employees, and other. If the lease contract has no direct indication that the ensuring of fire safety (or part of it) is the tenant’s liability, the tenant will be liable for that but with some restrictions.

Utilities charges.

If records are kept, taking the reading from the individual metering devices, it is important that the metering devices are kept sealed and have been approved for the use in Kazakhstan. Also, they have to be easily accessible for visual inspection by the tenant (preferably in the leased premises).

If the metering devices are in common use, or they are absent, the calculations are made by using the relevant formula. The formula should be understandable. For this, it is necessary to achieve the mutual understanding how the formula is applied. The tenant shall have access to all the readings used in the formula.

It can happen so that the tenant is forced to pay for utilities consumed in the area which is in common use. Why it is said so that “the tenant is forced”, because in fact the utilities consumed in the area which is in common use, have not always been consumed by the tenant or its visitors. Otherwise, there must be the unbiased grounds that the location of the office premise has such particularities.

If in the area which is in common use there is no toilet, then the costs for the sewage cannot be included in the calculations. The same applies to other items of expenditure. You should thoroughly examine what the landlord has included in consumed utilities for the area in common use, and what area the landlord considers such an area.

Fines and penalties.

We recommend to set the limits, i.e. reservations, "but not more than 10%."

The landlord usually specifies in the terms and conditions of the lease contract the right to retain fines and penalties from any payments received from the tenant. In general, this is acceptable, but the right to do so arises after receipt of the acceptance from the tenant, or at worst, after receipt by the tenant of appropriate notice in advance. In other words, before retaining something, the tenant should be aware of that and understand that, also within what time limits this can happen.

In our opinion, the reference of the tenant to its own internal rules or regulations on the building, without attachment of them to the contract, is inadmissible, in matters concerning the amount of fines and the procedure for their collection. Often it happens so that the tenant sees such rules quite late, after signing the lease contract.

If the contract contains a large number of fines and penalties, you may limit the amount of fines in a month, or even for the entire term of the lease, by the maximum allowable amount.

It is important that any losses will be limited to a real damage. Otherwise, the lawyers should be aware of that, and the losses include both the actual damage and lost profits, which is quite significant.

Using different approach when calculating the lease areas.

The terms should clearly define a common approach to the calculation of the area. Otherwise, there is a risk of applying various standards. For example, in the acceptance of a premise in rental, the local standards (data from the technical passport) can be applied, and in the calculation of the lease – the American standards BOMA (in fact, the difference could be from 1% to 10%).

The legal consulting company Artyushenko and Partners has considerable experience in representing the interests of the tenants, landlords, management companies and owners of the buildings in the conclusion of the lease contracts or management of office buildings (premises). We can offer you the legal support of any matter, which in one way or another relate to the lease or management of office buildings (premises). Call us.

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