Land Lease: What Should Be Included in the Contract, and How Do You Terminate It?

Quick Overview

• Specify the property precisely in the contract and agree on what you’re allowed to use it for.
• Before signing, verify the owner, any restrictions on use, and legally guaranteed access.
• Explicitly specify the security deposit amount, the division of maintenance responsibilities, and the rules for investments in the contract.
• For a fixed-term lease, agree in advance on the terms for early termination.
• If the land is to be used for farming and harvesting crops or other yields, check whether you need a lease agreement.

Do you want to be clear on who will pay for fence repairs and under what conditions you can terminate the lease? We’ll draft or review a land lease agreement based on how the land will be used.

Why It Pays to Lease Land

Are you considering whether to buy or rent land? Both options have their pros and cons. In certain cases, however, renting is a better deal. Here are the main reasons why:

• Short-term commitment: If you only need the land for a short time or are unsure about the future, renting is a safer and more flexible option. A land lease agreement is typically signed for only a few years, with the option to terminate early. In contrast, a mortgage, for example, can strain your budget for up to several decades. Even if you were to pay with your own funds, a potential future sale could take a long time to complete. You would then have a substantial amount of money tied up elsewhere for the long term.
• Financial aspect: Renting requires no initial capital, and if it does, it’s only a refundable security deposit of up to three months’ rent. On the other hand, if you plan to buy the land, you’ll need either the full purchase price or, at a minimum, a down payment on a mortgage. This down payment typically amounts to 10–20% of the total loan.
• Maintenance and Repairs: If you lease land, the landlord is responsible for major repairs costing more than 1,000 crowns. This can protect you from having to make large investments in the land.
• Market Uncertainty: The real estate market is unpredictable, and investing in land now could result in a loss in the future. On the other hand, it could also lead to an increase in value. However, you don’t have to worry about this factor at all when renting.
• Taxes: Property owners, including those of land, are required to pay annual taxes on their properties. In addition, it’s important not to forget about the real estate acquisition tax. Although this tax is currently suspended, that doesn’t mean it can’t be reinstated in the future. When renting out land, however, you don’t have to worry about taxes at all. The landlord is responsible for them.

Rental or Lease?

If you’re planning to rent, say, a garden outside the city for recreational purposes, it would be a lease. However, if it were a garden with fruit trees intended for harvesting fruit, it could be a leasehold. The difference lies in the fact that in the first case, the purpose is to use the land, while in the second case, it is possible to use the land (or rather, its produce in the form of fruit). It is therefore important to clarify whether your situation actually involves a land lease or a land tenancy. In the latter case, a different contract with different rules is signed. In this article, we will focus solely on land leases.

How to Draft a Land Lease Agreement: What to Include in the Contract

Land leases are governed by the Civil Code. For a standard lease of a separate parcel of land, the law generally does not require a written contract; however, we strongly recommend one to document the agreement. In addition to identifying the parties and the parcel, the contract should also specify the purpose of use, payments, maintenance, and termination of the lease.

1. Identification of Both Parties: First and foremost, both parties—the lessee and the lessor—must be specified. Their first and last names, date of birth, permanent address, and birth number or ID card number should be included here.
2. Identification of the Property: Furthermore, the exact identification of the property must be included. Therefore, you must specify the parcel number, cadastral area, land area, etc.
3. Rent: The lease agreement must specify the amount of rent and the method of payment. In addition to the amount itself, it should also include a list of items covered by the rent (e.g., whether any sewage fees are included in the rent or paid separately).
4. Term: The lease agreement may or may not specify the term of the lease. If no date is specified, it is automatically assumed that the lease is for an indefinite term. However, the contract must include the terms for terminating the contract, such as the notice period, etc.
5. Additional Rights and Obligations: In addition to the basic requirements, the contract may also include other rights and obligations for both parties, as well as penalties for failure to comply with the rules set forth in the contract.

Land Transfer Protocol

A property handover report should also be signed along with the lease agreement. This document should accurately describe—and ideally include photographs of— the condition of the property and all equipment located on it that is included in the lease (e.g., a garden shed, a swimming pool, etc.).

The handover report serves primarily to prevent disputes between the tenant and the landlord after the lease ends, for example, in the event of damage to or loss of property. The handover report serves as clear evidence of the condition of the property and its fixtures and fittings at the time of lease commencement. The handover report should include:

1. Identification details of both parties: Same as in the lease agreement.
2. Property description: Again, the same as in the lease agreement.
3. Declarations: A declaration by the landlord stating that they are handing over the property to the tenant for use, and a declaration by the tenant stating that they are accepting the property for use.
4. Description of the property and its fixtures: Preferably supplemented with photographs or a video recording.
5. List and number of keys: If there are lockable structures on the property (e.g., the aforementioned garden shed), the handover protocol should also include a list of keys for each lockable structure and their respective quantities.

If you are unsure what a property handover protocol should look like, this sample document can serve as a useful guide.

What to Watch Out For

Before signing a lease agreement, you should find out several important details about the property :

• Zoning restrictions: Check how the property is defined in the land registry and the zoning plan. If you’d like to make minor changes to the property—such as building a fence—it may not be permitted. Similarly, on certain types of land, you may not even be allowed to plant a tree or grow vegetables.
• Lease terms: Carefully review the lease agreement so that you are clear on all the terms, including the lease term, rent payments, and any potential penalties.
• Access to the Land: Unless you own an off-road vehicle, it’s definitely not a good idea to choose a plot several kilometers from a paved road (unless you’re a big fan of walking). This is also related to any easements that may apply. These can significantly affect how you’re able to use the property. For example, if you rent a garden to relax but later discover that a path leading to ten neighboring gardens runs through it, that certainly won’t help you unwind.
• Future Development Plans: Find out what the municipality’s future construction plans are. It could happen that a highway is built right next to the plot you’ve rented in just a few months.
• Natural hazards: If you’re planning to rent a plot by a river, be sure to find out about the flood risk in that area. But this doesn’t just apply to plots located by a river—water-related problems can also arise in completely unexpected places.
• Neighborly Relations: Last but not least, it’s worth thoroughly vetting your potential neighbors. After all, a neighbor who likes to play loud music could ruin your relaxation in your newly leased garden.

Terminating a Land Lease: When You Can End the Contract

First, check the term of your lease and how the contract addresses its termination. The following rules apply to standard land leases:

• Indefinite-term lease: Unless the contract specifies otherwise, it can be terminated with a three-month notice period. You do not need to provide a reason for a standard termination.
• Fixed-term lease: As a rule, it ends upon the expiration of the agreed-upon term. For a standard early termination, specify the grounds and notice period in the contract. The law also allows for termination in extraordinary circumstances.
• Termination Without Notice: This may be considered, for example, in the event of a particularly serious breach of obligations that causes significant harm to the other party. The tenant may also invoke this option if the property becomes unusable for the agreed-upon purpose for reasons beyond their control.

In the notice of termination, identify the contracting parties, the property, and the contract you are terminating. If a specific reason is required for this type of termination, describe it in detail. We recommend drafting the notice in writing and delivering it in a verifiable manner. Simply sending it may not be sufficient.

Upon termination of the lease, draw up a handover report for the property and settle all payments, the security deposit, and any modifications.

Not sure if you can terminate the lease early? Have your lease and the termination conditions reviewed before sending the notice to the other party.

Summary

Leasing land allows you to use a parcel without investing in its purchase, but the scope of your rights and obligations depends primarily on the lease agreement. Before signing, verify the owner, access, and permitted uses. In the contract, precisely identify the land, agree on the rent, security deposit, maintenance, rules for modifications, and termination conditions. Document the condition of the parcel and its fixtures in a handover report. For a standard lease of indefinite duration, the statutory notice period is three months, unless the parties agree otherwise; for a fixed-term lease, do not underestimate the possibility of early termination. If the land is intended primarily for farming and generating income, it may be classified as a leasehold. Land tax is usually paid by the owner, but the law provides for exceptions.