The Definitive Guide to Rental Space Agreements

What You Need to Know About Rental Space Agreements

An important part of leasing a commercial property is the use of rental space agreements ("RSAs") between the landlord and the tenant for particular areas of the property. An RSA is a contractual relationship between a landlord and a tenant for all uses or activities (other than as a place of residence) on a landlord’s commercial property. This generally includes areas in or around a tenant’s premises. Some common allocations of costs between the Landlord and the Tenant that are governed by RSAs, are the common area operating costs, taxes, and maintenance and repair obligations.
RSAs are beneficial to both landlords and tenants as they help apportion costs and responsibilities for special uses, such as for utilities , janitorial and other cleaning services, exclusive storage areas, heavy machinery movement areas, etc., to avoid having a blanket provision in the lease for those extra costs/uses. It is always best for the landlord to have the RSA registered on title so that any purchaser will be aware of the allocation of costs and obligations prior to purchasing the property. Once an RSA is registered, it runs with the land.
One limitation of RSAs is that tenants generally do not agree to covenant for longer than a year. Therefore, where a lease has a term greater than one year (a common occurrence), it is unlikely that a tenant will agree to a longer term for an RSA and it cannot be registered on title if it will be effective beyond a year from the date of registration.

Essential Elements of a Rental Agreement

Parties
This section includes the names of the parties to the rental space agreement. Be clear about the legal names of the individuals or companies involved.
Term
The term simply means the duration of the rental space agreement, such as "one year." The term of possession will often align directly with the term from the landlord to the tenant/lessee in the larger property lease, but that may not always be the case. If your rental space agreement is for a term longer than that of the main lease, then you need to articulate that relationship clearly. When specifying the term, mention any automatic renewal clauses, lease termination options and early termination options. Are there any clauses that allow the lessee to renegotiate the terms after a set period? Add that language here as well.
Rental Amount
This section states how much the lessee will pay the lessor for the right of possession of the space. Include details related to payment, such as when it’s due and acceptable forms of payment. Add any relevant language regarding late payments. Will you charge a late fee?
Clauses to Protect You
Like any contract, rental space agreements should contain clauses to protect the parties. For example, include an indemnification clause, which protects the lessor against any damages or loss. Is there a warranty of habitability in the main lease? You might want to allow yourself an out in case the landlord is not providing adequate service. Also, add a clause defining who is responsible for repairs and maintenance. For example, if the HVAC goes down for the entire summer during your term, who is footing the bill for necessary repairs? These types of details save you from nasty surprises later on.

The Process of Creating a Rental Space Agreement

It’s always best to consult with a lawyer on legal matters, but if you’re renting a space long-term, you could save both time and money if you write the rental space agreement yourself.
There are several things to consider when drafting a rental space agreement. First and foremost is the lease or rental laws in your area. These laws tend to be rather specific, so you may have some restrictions as to what you can and can’t include in the agreement.
Next, you’ll need to think about how you and the landlord will handle the monthly rental payments. Who will be sending the payment? Where will it be sent? Does it need to be sent by a certain date each month? Will you pay it through a money transfer service like PayPal or Venmo, or slack it into your landlord’s bank account each month?
Another thing to consider is what happens if other tenants are in the same building or complex. You may want to have a clause that mentions whether or not they will have access to your space, whether or not you will have access to theirs, how communal spaces will be divided up and when the costs for shared services (like cleaning, electricity, landscaping or maintenance) will be expected.
Finally, it’s important to have a legal professional review your space agreement. Even if you haven’t used one before, you can always hire a paralegal or ask a local law firm for assistance. There are also free and legal templates or tenant rights guides in most states that can help you be sure you and the landlord have all the legal requirements met and are covered in the case of any disputes.

Common Pitfalls to Avoid When Drafting a Rental Space Agreement

A comprehensive rental space agreement is a prerequisite for establishing a pleasant landlord-tenant relationship. Unfortunately, both parties often overlook important elements when creating and signing rental space agreements. Even the most simple of rental space agreements can lead to disputes if these issues are not explicitly addressed. For example, common mistakes that tenants should watch for include: Rent+ Due Date: "All rent is to be prepaid and paid on the first day of every month at 1234 Fun St." This type of clause is vague and ambiguous. For instance, when will the rent be considered to be paid "on the first day of every month?" Will late fees accrue immediately after 12:00 a.m., or does the tenant have until 11:59 p.m. to pay? If the tenant fails to pay by 12:01 a.m., will the landlord accept payment earlier than the due date without it being considered "past due?" No late fee could be collected for said earlier payment. A clearer clause might read, "all rent is to be prepaid and paid on or before the first day of every month at 1234 Fun St. If any rent has not been received by the first day of every month, the landlord may collect a late fee of $50 per day beginning the second day of the month." Maintenance of Furnishings: "Owner/landlord will replace all furniture with like kind within ten days of notice." Unless a tenant has a photographic memory and is able to provide a verbal description of each item of furniture, what will the tenant do? Insist upon an inventory list from the landlord before the tenant moves in, If the landlord does not provide one, prepare an inventory list in good faith before taking possession of the premises. Procedures for Notice: "Notice shall be given in accordance with the California Code of Civil Procedure." This is vague and could prove troublesome for the tenant. Before renting space, the tenant should carefully consider the procedures for serving notice. For instance if the landlord fails to provide maintenance services, the tenant has the right to cease paying rent. However, if the tenant ceases paying rent, he implicitly indicates that he is no longer residing in the premises. Therefore, the landlord may move to evict him based upon this evidence. To prevent this result, the tenant should check the specific requirements necessary to cease paying rent, including form, manner, methods of delivery, delivery timeframe, etc. Courts have upheld five-day written notice where the lease is unclear. The lessor should also evaluate the option of requiring service by process server or sheriff. Common mistakes landlords make include: Procedures for Eviction: "Should a material breach occur, Landlord shall file an unlawful detainer and move for eviction." This clause implies that the landlord is prepared to evict the tenant. Is it really worth the cost in time and money to evict an individual for unpaid rent or for breaking a minor term in the lease? Unless the breach is willful disobedience to the lease, the landlord should consider other options, such as a mediation clause or informal settlement. Additionally, this clause does not indicate which party will be responsible for actual eviction costs.

How to Negotiate Terms in a Rental Space Agreement

The term sheet of a rental space agreement will typically provide that the rent for the space will increase each year of the lease, usually either by a fixed amount or according to an index such as the Consumer Price Index. Terms relating to renewal can also be negotiated in these term sheets and are more likely to be included for spaces that are smaller in square footage. Extra considerations may be required to secure a renewal option for larger spaces such as buildings. Once an agreement has been reached, your lawyer will review the final version of the agreement to ensure that it reflects your instructions properly and contains all of the negotiated terms.
Your lawyer will take particular care to review the sections of the rental space agreement relating to rent and other obligations. Your landlord may take the position that certain costs are "recoverable", meaning within the landlord’s discretion to charge. On the other hand, you may want the landlord to be required to absorb some of these costs. Specifically , landlords often try to require tenants to pay costs such as the cost of improvements to the common areas of the real estate. This is usually disputed by tenants. In addition, it is common for landlords to attempt to pass onto tenants the costs of improving the environmental impact of the real estate (for example, to the roof and heating and cooling systems). Again, this is usually opposed by tenants.
A further consideration in tenant negotiations involves exclusivity. Tenants will generally want the benefit of being the only tenant of their type in the real estate, while landlords will look to keep their options as open as possible. In shopping centre agreements, it is possible for the tenant to have "exclusive trading" rights, prohibiting the landlord from leasing space to anyone selling competing products. Exclusivity is usually more difficult to negotiate than other terms because it is always possible for landlords to come up with alternative trading uses for space they own.

The Consequences of Disregarding Provisions in a Rental Space Agreement

When a tenant or landlord breaches the terms set in a rental space agreement in South Africa, they may face various legal consequences. The other party is entitled to claim that damage from the breaching party. A tenant who moves out of the premises before the end of the rental space period without the landlord’s consent will still be responsible for paying the rent for the remainder of the rental period; unless the landlord has held back their agreement to both parties terminating the rental space agreement by paying them a set amount. A landlord who goes back on their word will be held liable. The same applies to a landlord who evicts a tenant before the period stated in the rental space agreement is finished, unless the evictions were lawful under the law, such as where a tenant refuses to pay the rent or has damaged the property (their rented space). If a rental space dispute occurs, both the landlord and tenant can seek the assistance of the Rental Housing Tribunal. This body deals with complaints from landlords and tenants and mediates disputes between them. If the parties are not able to reach an agreement, the Tribunal can then make a ruling for them.

The Process of Renewal and Termination in Rental Agreements

Subject to applicable law and the terms of the agreement, tenants are typically given the opportunity to renew or terminate rental space agreements by providing a notice of renewal or termination. The form of appropriate notice and notice periods vary by municipality. Applicable law may also limit the number of consecutive renewals that a tenant may enter into.
As a general rule, lessors of rental space are required to provide tenants with a minimum of two (2) consecutive thirty (30) day notices of their intention to refuse the renewal of a rental space agreement and must provide a reason for the refusal. There is an exception under which, if the tenant has filed a complaint with the municipality about a violation of any applicable law or regulation relating to health, safety, welfare or public interest, the lessor is only required to provide one (1) thirty (30) day notice of its intention to refuse renewal.
In the case of renewal, rental space agreements are typically extended for the same term as the original agreement. The terms of the original agreement continue in full force unless modified in writing. It is important to review existing rental space agreements to determine if the original agreement limits the number of consecutive renewals. In some cases, the parties may agree to modify the terms of the original agreement in the renewal .
Similarly to renewal, to terminate a rental space agreement, lessors must provide two (2) minimum consecutive thirty (30) day notices. Depending on the municipality, some lessors must provide a reason for the termination of the rental space agreement. Factors such as a sale, rental space or unit closure, vacation of rental space by tenant, building condemnation or other conditions may be justifiable grounds for termination. The lessor should review existing rental space agreements before providing any notices of termination to ensure that the notice period is appropriate and that existing rental space agreements do not limit the number of consecutive terminations. An exception to the minimum notice requirements only applies to tenants who have filed complaints with the municipality about rental space violations. If such a complaint exists, as long as reasonable notice is provided, a lessor is not required to give a tenant minimum notice.
If a rental space unit has become unfit for occupancy, a municipality can replace a tenant in a rental space unit with another tenant without providing any rental space agreement notices. A landlord is required by law to provide a tenant reasonable notice if the rental space agreement is terminated or renewed.