The land is an important asset and tenants desire a hassle-free experience just as much as landlords want when it comes to leasing. This all starts with a clear and comprehensive land lease agreement that will protect both parties from unforeseen expenditures, property damage, and legal concerns. Similar to the jargon used in purchasing the land, the world of leasing is also filled with complex terms of its own. In this blog, you will have an overview of the meaning of the land lease agreement and its format.
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What is a land lease agreement?
A land lease agreement is a written contract between two parties- lessor and lessee, in which the lessor grants the right to use a property to the lessee owned or managed by the lessor for a certain period in exchange for periodic rental payments. The lessee does not have ownership rights under the agreement. The lessor, on the other hand, may give the lessee authority to modify or adapt the property to suit his purposes. During the lease time, the lessee is responsible for the property’s condition.
Occasionally, the parties will enter into a long-term land lease arrangement, which may include the construction of a structure on that land. A perpetual lease is similar to a standard lease with the exception that the lessee, not the lessor, has the right to renew it. When compared to the land with a longer lease, any lease of fewer than 70 years might have a considerable impact on the value of the land. Even if land values in your region are growing, a land lease agreement with an excessively short duration might have a substantial impact on the land.
What clauses should be included in a land lease agreement?
You may include a variety of lease provisions for tenants and landlords in the final land lease agreement, and they may differ depending on local state laws, the kind of land, and the locality. There is, however, a list of terms that should always be included in the land lease agreement:
- Severability Clause
This clause must be included in your land lease agreement to avoid future problems. A severability provision stipulates that if a court rules that a particular section of your lease is invalid, the rest of the lease agreement will remain legal and valid. If you don’t include a severability provision in your land lease agreement, the court may decide that the entire contract is unenforceable and invalid.
- Established Permitted uses
There are common questions related to the use of a pond or agricultural farm on the land, access to any other buildings on the land, and entry to the park on the land during the term of the land lease agreement. If these inquiries are not addressed thoroughly, they might leave things up in the air and lead to future difficulties.
As a result, the permissible uses for the leased property should be explicitly stated in the land lease agreement. These spell out all the ways a tenant is permitted to utilize the property, while the landlord retains all other property rights. Landlords may avoid future conflicts by designating permitted uses, and tenants will have a clear knowledge of what they can and cannot do on the leased land.
- Clear ground rules
Make sure that your land lease agreement includes acceptable rules for vehicle access (both on and off-road) because the trucks, all-terrain vehicles, and dirt motorcycles can cause significant damage if the laws aren’t properly defined. This may result in a waste of the landlord’s time, money, and efforts in correcting the damage that could have been easily prevented. Also, set ground rules for communication between the tenant and the landlord like it should be mentioned the best approach for the tenant and the landlord to communicate with one another if they need to. Hence, it’s a good idea to provide emergency contact details in the land lease agreement for the other party.
- Maintenance requirements
This is another important piece of information to include in a land lease agreement, regardless of how long it is set for. You should make a provision for maintenance expenditures and explicitly define who is responsible for performing the maintenance. You can also seek advice from a land lease agreement professional on establishing a budget for maintenance requirements.
- Provide adequate insurance coverage
Tenants who are using the land for activities that may pose a risk, such as hunting, farming, mining, commerce, or other activities, will want to ensure that they are appropriately insured. Inadequate insurance coverage may expose parties to civil litigation. Landlords should make sure that the land lease agreement includes insurance information and how it will be maintained.
- Payment of rent and due date
You should be as specific as possible about the payment terms. You must include the rent due date, the grace period for late payments, and the “penalty” amount you will charge your tenant for late payments. If you will not include this provision, you might have to face trouble in collecting late payments, so make sure you read through everything carefully.
- Renewal and Holding over
This clause normally stipulates that if the tenant intends to extend the lease or planning to move out at a specific period, they must provide you advance written notice. Tenants should give 30-to-60 days prior notice of their intention to renew. This will give you ample time to find a new tenant within 30-60 days and if the tenant fails to provide that early notice, they will be held accountable for the additional days of rent. Remember that if you don’t mention renewal/holding over requirements, the tenant will only be responsible for paying the rent until the end of the lease, hence, relieving them from any further days they spend on your property before moving out.
- Early Termination
An early termination clause specifies the circumstances under which you may terminate the land lease agreement before the term expires. This clause severs the relationship between the two parties by discontinuing the responsibilities indicated in the agreement.
- Lease Termination Clause
In a termination clause, both the party has the right to ask for the lease to be terminated before it expires. There is a difference between the early termination clause and the lease termination clause as the latter demonstrates mutual written approval between the landlords and the renters. The early termination clause, on the other hand, specifies that if the tenants violate any lease term, the landlord has the right to terminate the agreement. Hence, the landlord absolves the tenants of any future responsibilities and the tenants relinquish possession of the property.
- Security deposit clause
One of the most significant aspects of any land lease agreement is the security deposit. Before signing any documents, all parties should agree on the deposit amount. To begin, indicate the amount of the deposit, the person who will retain it, and when the money will be returned to the tenants. Furthermore, you must state how the security deposits will be utilized to pay specific damage, necessary repairs, or unpaid rent.
What is the duration of the lease in the absence of the land lease agreement?
In the absence of an agreement, both parties can end the lease by sending a notice to vacate, according to Section 106 of the Transfer of Property Act 1882. The stipulated time limit begins when the notice to quit is received. This notice must be written and delivered to the party, and the party must comply with it.
To determine the period of a lease, this section has divided it into two categories:
When a land lease agreement is made for agricultural or manufacturing purposes and is considered to be a year lease, the lease will be terminated six months before the end of the year.
When a land lease agreement is made for another reason and is considered to be month-to-month, it will be subject to a 15-day notice of termination upon the expiration of one month.
The land lease agreement is an important aspect of life, hence everyone must understand the basics and essentials of the lease, as well as the rights and duties of the lessor and lessee, and how the lease agreement can be terminated. People opt to lease out their property rather than sell it to safeguard their investment. Simultaneously, there may be occasions when people who have migrated to a new location require a place to live or land to cultivate, in which case leasing a land may be a viable alternative. As a result, land lease agreement plays a crucial part in today’s society.