What is a lease and how is it different from a tenancy?

Chapters of this article:

• What is a lease and what does a lease agreement look like?
• Termination of a lease agreement
• Municipal Land Lease Agreement
• Underwriting Agreement
• Usage is not always enjoyment

What is a lease and what does a lease agreement look like?

 Tenancy, tenant, rent. We are not talking about medieval tenancy relations, but about an obligation that can be used not only for the lease of agricultural land but an obligation that is commonly used in practice today for various operations.

A lease is an obligation where the lessor undertakes to give the lessee the right to use and enjoy the leased property in return for a lease payment. The word enjoy is important. Why? Because the usufructuary has the right not only to use the thing, but also to the earnings and benefits of such a thing. Thus, you may have come across situations where an agricultural lease or a pond lease is entered into. A tenancy agreement is most often concluded in agriculture or garden leases, but it can also be for a quarry, mine, or water source.

The difference between a lease and a tenancy is therefore that while in the case of a lease there is only a transfer of the thing (the possibility to use it), in the case of a tenancy there is also a transfer of the right to enjoy the proceeds or benefits of the thing. Thus, a lease will typically also be a lease of a restaurant which is furnished and is to be operated for the purpose of enjoying the profits. In contrast, we will then talk about a lease when, for example, a garage space is transferred (I am only using it, it is actually about consumption).

So the key is the potential benefits of the lease. It is some kind of return (money, wheat, radishes). But don’t be fooled, not every benefit and fruit is seen as a dowry. Imagine a situation where you rent a house and grow radishes in your garden for your own use. In this case, it is not really a benefit and it is not a rent. This is a situation where those benefits are seen as an ancillary right, it is not the purpose of your lease, but rather, the purpose is for housing. However, in a lease, it is those benefits that are key.

If you are looking for a model tenancy agreement or looking for a downloadable tenancy agreement, it is important to distinguish whether you are acting as an individual or entering into a tenancy as a corporate entity. As far as rent is concerned, similar rules apply as for lease payments.

As a rule, rent is paid monthly in arrears, or annually in arrears on October 1st in the case of agricultural leases. Rent may also consist of the fruits or benefits of the thing leased, whatever their total extent, either by payment directly in fruits or in money. In effect, it is a commission. The two parties may also agree to increase or decrease the rent, for example depending on the harvest.

Termination of the lease agreement

 There are relatively long notice periods for leases, but the lease can be terminated, for example, only once a year, to prevent the landlord from depriving the tenant of the proceeds of its long-term activities. So how to terminate a lease?

If the lease does not specify a notice period, termination may occur in the following cases:

• When the lessee subleases, i.e. leases or transfers the subject of the lease agreement to another party or changes its economic purpose, all without the prior consent of the lessor.
• When the use of the subject-matter of the lease agreement is prevented by a defect not detected in advance, which causes a significant decrease in yield. You can also agree to reduce the rent.

If you have a lease with a three-month notice period, termination may occur in the following cases:

• When the tenant is unable to farm the subject of the tenancy agreement for health reasons.
• If the tenant dies. In this case, termination by the tenant’s heir may take place within six months of the death of the tenant, even if the tenancy agreement was for a fixed term.

In the case of a fixed-term lease, it may be terminated by giving six months’ notice, even if the termination takes place at the end of the year for which the lease was concluded. An indefinite-term lease shall be terminated by giving 12 months’ notice. Of course, if you have entered into the contract in writing, the notice of termination will also be in writing.

The tenancy can also be deal on municipal land

Municipal land lease agreement

Just like a private individual, municipalities in our country can offer their property for lease. Like other leases, the city, town or borough council approves the lease agreement. While it is not very common, municipalities can offer to lease land, and the land lease agreement then follows the same rules as we have described above. We are often asked if there are any differences, so we focus on that here.

Underwriting Agreement

As there are cases where a sublease agreement is concluded in addition to a standard lease, a sublease agreement is no exception. Imagine a situation where, for example, a state-owned organization subleases real estate to a state university for its use and benefit. The university then subleases the real estate to an association or private party so that it does not lie fallow even temporarily.

Usage is not always enjoyment

In conclusion, it must be summarized that where there is not only the use of the property as in a traditional lease but also the enjoyment of benefits, there is a need for a lease agreement. The disadvantage of a lease is the long notice period, but the advantage is legal certainty.