NEGOTIATING A COMMERCIAL LEASE AGREEMENT

Given the complexity of commercial lease agreements and the myriad of articles that form part of such contracts, it is always highly advisable to seek the guidance of an experienced commercial property negotiator, to ensure the best protection and outcome for you and your business. Regardless of whether you are the prospective lessee or lessor, this is an important and necessary step to avoid costly mistakes. Here are some of the salient clauses that form part of the commercial lease:

• The Term, or the period during which the lease is effective can include both a di Fermo period as well as a di Rispetto period. During the di Fermo period the Lessor usually establishes a fixed period of time during which the Lessee is liable for the payment of the rent. On the other hand, during the di Rispetto period, the Lessee has the option to terminate the lease agreement during this period without incurring any extra charges and penalties.

• The daily Rent of commercial property differs from property to property. However different perspectives arise with regards to the annual rate of increase. The average annual rate of increase is usually between 2% and 3%, and the main reason why this clause is introduced on the contract is to compensate the Landlord for the annual increase of prices as listed on the Retail Price Index (RPI) .

• Security Deposit : This deposit is held by the Landlord and refunded in full at the end of the lease on condition that the property is returned in a fair condition allowing for normal wear and tear with no damages being done to the property.

• Permits and Licenses: An integral part of any commercial lease is a paragraph which warrants and declares any valid permits and licenses of the Leased commercial property which include: Planning Authority (PA) permits, Malta Tourism Authority (MTA) licenses as well as any Lands Authority (LA) permit.

• Maintenance and repairs: As contemplated by Maltese law, all maintenance on the leased commercial property of an ordinary nature should be carried out by the Lessee whilst any maintenance of an extraordinary nature should be carried out by the Lessor.

• Sublet : The norm is that the Lessee is not allowed to sublet or reassign the lease without the written consent of the Landlord.

• Insurance: The norm for the insurance clause is that the Lessor is responsible for insuring the building, whilst the Lessee is responsible for insuring the property relative to its use and also include a Public Liability clause.

• Termination: Termination clauses are vital to every commercial lease agreement. There are several instances where a lease can be ended such as the lease expiry, breach of contract ex. nonpayment of rent, termination due to force majeure etc. When negotiating terms at the commencement of a commercial relationship it is important to focus on how you and the other party can terminate that relationship. A party to a lease must always ensure they have contractual rights that allow them to terminate an agreement that ceases to be commercially/economically viable.

• Real Estate Agency Fees: According to long established industry norms - real estate fees are paid by both the lessor and lessee at the rate of 10% plus VAT each of one whole year’s rent. Such fees are due upon signing of the lease agreement and are nonrefundable.

Simon Rajan Bharwani MBA (UoL) Head of Commercial Sales &

at perry.com.mt

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