Many municipalities own at least a few properties, although they’re often underutilized. However, leasing a property to a tenant has always remained an effective way to monetize their assets and raise additional revenues. A municipality must factor in specific necessary considerations and thoroughly examine several legal concerns like any other commercial lease to complete it. Below are some essential things to consider for leasing a municipal property.
Written lease agreement
It’s always advisable to put everything in writing. When entering into a lease agreement, it’s essential to clearly state the rights and responsibilities of every party in the agreement. Although a written lease agreement is not necessary for the contract to be enforceable in court, a well-documented deal effectively prevents potential legal actions. Like every business agreement, misunderstandings are common, and you’ll likely make mistakes. Yet having a detailed document that covers crucial factors like the amount involved, lease duration, individual rights, and obligations, among others, will promote fruitful and harmonious tenancy relationships.
As the municipality turns into a landowner, it must guarantee in the lease agreement that its occupant has the required business insurance. When they permit another party to work on its property, it should consider tenants’ activities that may pose health and property risk to people. Damages are split between the landowner and tenants for fixes, support, and property damage in a regular rent agreement. If the municipality doesn’t require insurance coverage, it might have to bear the entire repair cost. On the off chance that an occupant doesn’t have adequate business insurance, the municipality might decide to utilize its next lease installment for a fee, for example, an accident or damage that insurance would have covered.
Start and completion dates
The lease agreement should state in clear terms the lease duration, indicating the start and completion dates. Depending upon the conditions of a rent negotiated between the municipal and tenant, a rent arrangement may have several commencement dates, including when an occupant can enter the premises to set up, when they should get insurance and when business may begin. Likewise, the lease agreement must identify the conditions necessary for tenancy termination and the rights or obligations of either party upon lease termination. On occasions of default, the lease agreement must include setting off a lease party’s privileges and opportunities to rectify them.
Although a municipal-owned property for “public use” is exempted from taxes, unless the said property is leased for a commercial business for profit-making purposes, the exemption will not apply. In such instances, the lease agreement must clearly state that the tenant must pay all taxes and enlist as a taxpayer.
Apply a clause
If the municipality is concerned about how a tenant might use the leased property, it may well have to include a “use clause” to regulate the extent to which one can use the property. The scope of limitations should be tailored based on associated business liability risks or if the municipality doesn’t allow certain business activities.
In conclusion, municipalities that will seek to lease out their properties should avoid relying on template lease agreements when negotiating terms with potential tenants. Every lease term must be given careful thought and kept in written form. Fortunately, experienced legal firms like Silver & Wright LLP can help municipalities with any municipal law and enforcement issues and avoid any traps which might end in costly and long-winded litigation.