A LEASE can be explained as a legally binding agreement which allows one party to use another’s property in return of payment of rent for a specified period. Leases are done between a landlord, know in such contracts as the Lessor, and a tenant, also known as the Lessee in the said contracts, where specific terms and conditions are agreed upon.
Per the Lands Act, 2020 (Act 1036), A lease is defined as an interest in land for a duration which is certain or capable of being ascertained and arises when a person who holds allodial title or freehold interests of an form conveys to another person an interest in land in the manner as already described. A lease can also be created by a holder of a lease when the said leaseholder agrees to convey the property another person on a shorter term. This form of lease is known as a Sublease.
In simple terms, a lease is made between two parties, a lessor and a lessee, where the lessee obtains an interest in the property of the lessor to use and hold same for a specified period on agreed terms. The interest obtained by the lessee is subject to the Lessor’s and thus does not exhaust the lessor’s interest in the property. That explains why a leaseholder can create a sublease which would have lesser interests including shorter term than the Leaseholder’s.
A lease even though similar to tenancy, is different because while a lease can be registered at the Lands Commission and also grants the leaseholder both the right of ownership and right of occupation during the specified period, a tenancy cannot be registered at the lands commission and also grants only the right of occupation to the tenant. That is why one can use a leasehold interest as security in a financial transaction but cannot use a tenancy for same.
I always get people asking me this question “What if my lease expires, what happen?”. Well, like the word “expire” means, once the term of your lease has elapsed, it means you no longer own any interest in the property. You would have to renew your lease in order to continue to enjoy the interest you had in the property. This may be on different terms as was previously agreed. In fact, when a lease expires, the property reverts to the landlord or lessor. Just like you would renegotiate your rent with your landlord when your tenancy expires, you would have to re-negotiate your lease with your Lessor for your term to be extended.
I am sure you are asking yourself how much you would pay if your lease expires. This question is also very frequent because most people have bought the lands on lease terms, especially, in the urban and peri-urban areas in Ghana and have done massive improvements on the said land by building several kinds of properties.
The fact is that, one cannot separate the land and its improvement as was explained in our first series. Land is the land itself, the things beneath and the things affixed to it whether by nature or by man. This means that, when lease expires, the land together with the improvement reverts to the Lessor which makes the said Lessor entitled to the value of the land and its improvement as at the time of renewal. Yes, the Lessor is entitled to the full value of the property. This can however be negotiated on the grounds that the Lessee has also contributed to the betterment of the property which has created the value it attracts at the time of renewal.
Essentially, when a lease expires, it likes an expired rent. When you rent a property in incomplete state and spends on completing it, all expenses incurred on the completion of the property may be deemed as part of rent if pre-agreed between the landlord and the tenant. After the rent paid is exhausted, the new rent that would be negotiated will be on the full rent value of the property as determined by the market but may be negotiated by the parties as much as they can.
Understanding this, I want to also bring to your attention that when buying a property from someone who has a lease, you would have to be sure of the residue of the lease the person has. This is because, you can only have as much as your vendor has. It is either you get a lower term than the vendor, in this case a Sublease, or you get the remaining term of the lease, in this case called an Assignment. Knowing the remaining term will help you to negotiate better especially where the unexpired lease term is very short and would require renewal within a short period after purchase, say in 1 to 20 years.
Features of a Lease:
Let me share with you some basic features of a lease that you would need to look out for to ensure that it is valid and appropriate.
- Parties: A lease must have a lessor who has a higher interest in the property and a lessee who has been conveyed or being conveyed unto a lesser interest and term relative to the lessor’s. Their names, addresses and their capacities must be stated in the agreement.
- Term: A lease must have a specified start date and a termination date.
- Consideration: A lease must be done for a valuable consideration which may include the payment of a lump sum, known as premium, and rent.
- Covenants: These are the terms, conditions, stipulations or whatsoever that have been agreed by the parties in the lease agreement. Note that a breach of a lease covenant may be grounds for the termination of a lease. Non-payment of rent is a typically example of grounds that would cause a lease to be terminated.
- Signatures: A lease agreement must be in writing and signed by the parties making the agreements and their witnesses. The Lessor’s witness must also sign at the Oath of Proof section of a lease agreement as a Deponent of the oath that he or she was present and saw the Lessor sign the agreement.
Difference between a Lease Agreement and an Agreement for a Lease:
As much as they appear to be the same, a lease agreement is made to confirm that the parties have agreed on all terms and conditions for the lease to be made and that all conditions precedent have been fulfilled by both parties. An agreement for a leasehold on the hand specifies all conditions required to be met by both parties in lease transaction. An agreement for a lease is however as good as a lease until some of the terms and conditions agreed by the parties is/ are breached by either party.
Knowing how confusing this can be, make sure you have read and understood your agreement to be just as you have agreed when you have made or in the process of making a lease.