Leasing

Leasing is a process by which a firm can obtain the use of a certain fixed assets for which it must pay a series of contractual, periodic, tax deductable payments. Rent a flat, house or apartment in London with Black Katz.

Leasing is a process by which a firm can obtain the use of a certain fixed assets for which it must pay a series of contractual, periodic, tax deductable payments. The lessee is the receiver of the services or the assets under the lease contract and the lessor is the owner of the assets. The relationship between the tenant and the landlord is called a tenancy, and can be for a fixed or an indefinite period of time (called the term of the lease). The consideration for the lease is called rent.

Under normal circumstances, an owner of property is at liberty to do what they want with their property, including destroy it or hand over possession of the property to a tenant. However, if the owner has surrendered possession to another (ie the tenant) then any interference without the agreement of the tenant in lawful possession is unlawful.

Similar principles apply to real property as well as to personal property, though the terminology would be different. Similar principles apply to sub-leasing, that is the leasing by a tenant in possession to a sub-tenant. The right to sub-lease can be expressly prohibited by the main lease.

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Formality of a lease

The formal requirements for a lease are determined by the law and custom of the jurisdiction in which real property is located. In the case of personal property, it is determined by the law and custom of the jurisdiction in which the rental agreement is made.

Term of a lease

The term of the lease may be fixed, periodic or of indefinite duration.

If it is for a specified period of time, the term ends automatically when the period expires, and no notice needs to be given, in the absence of legal requirements.

The term's duration may be conditional, in which case it lasts until some specified event occurs, such as the death of a specified individual.

A periodic tenancy is one which is renewed automatically, usually on a monthly or weekly basis.

A tenancy at will lasts only as long as the parties wish it to, and be terminated without penalty by either party.

It is common for a lease to be extended on a "holding over" basis, which normally converts the tenancy to a periodic tenancy on a month by month basis.

To find a flat or house to rent in London contact the Black Katz City office. Black Katz have flats and houses to rent across London. If you are a landlord wishing to rent out your property contact Black Katz.

Rent

Rent is a requirement of leases in common law jurisdiction, but not in civil law jurisdiction. There is no requirement for the rent to be a commercial amount. "Peppercorn" rent or rent of some nominal amount is adequate for this requirement.

Leasing of real property

There are different types of ownership for land but, in common law states, the most common form is the fee simple absolute, where the legal term fee has the old meaning of real property, i.e. real estate. An owner of the fee simple holds all the rights and privileges to that property and, subject to the laws, codes, rules and regulations of the local law, can sell or by contract or grant, permit another to have possession and control of the property through a lease or tenancy agreement. For this purpose, the owner is called the lessor or landlord, and the other person is called the lessee or tenant, and the rights to possess and control the land are exchanged for some payment (called consideration in legal English), usually a monthly rent. The acceptance of rent by the landowner from a tenant creates (or extends) most of the rights of tenancy even without a written lease (or beyond the time limit of an expiring lease). Although leases can be oral agreements that are periodic, i.e. extended indefinitely and automatically, written leases should always define the period of time covered by the lease. In the 1930s, the British government introduced infinite leases, only to remove the power to create these in the early 1990s. A lease may be:

a fixed-term agreement, in other words one of these two: for a specified period of time (the "term"), and end when the term expires; conditional, i.e. last until some specified event occurs, such as the death of a specified individual; or a periodic agreement, in other words renewed automatically usually on a monthly or weekly basis
at will, i.e. last only as long as the parties wish it to, and be terminated without penalty by either party. Because ownership is retained by the lessor, he or she always has the better right to enforce all the contractual terms and conditions affecting the use of the land. Normally, the contract will be express (i.e. set out in full and, hopefully, plain language), but where a contract is silent or ambiguous, terms can be implied by a court where this would make commercial sense of the transaction between the parties. One important right that may or may not be allowed the lessee, is the ability to create a sublease or to assign the lease, i.e. to transfer control to a third party. Hence, the builder of an office block may create a lease of the whole in favour of a management company that then finds tenants for the individual units and gives them control.

Under common law, a lease should have three essential characteristics:

A definite term (whether fixed or periodic)
At a rent
confer exclusive possession

Real leases

Whether it is better to lease or buy land will be determined by each state's legal and economic systems. In those countries where acquiring title is complicated, the state imposes high taxes on owners, transaction costs are high, and finance is difficult to obtain, leasing will be the norm. But, freely available credit at low interest rates with minimal tax disadvantages and low transaction costs will encourage land ownership. Whatever the system, most adult consumers have, at some point in their lives, been party to a real estate lease which can be as short as a week, as long as 999 years, or perpetual (only a few states permit ownership to be alienated indefinitely). For commercial property, whether there is a depreciation allowance depends on the local state taxation system. If a lease is created for a term of, say, ten years, the monthly or quarterly rent is a fixed cost during the term. The term of years may have an asset value for balance sheet purposes and, as the term expires, that value depreciates. However, the apportionment of relief as between business expense and depreciating asset is for each state to make (all that is certain is that the lessee cannot have a double allowance).

Private property rental

Rental, tenancy, and lease agreements are formal and informal contracts between an identified landlord and tenant giving rights to both parties, e.g. the tenant's right to occupy the accommodation for an agreed term and the landlord’s right to receive an agreed rent. If one of these elements is missing, only a tenancy at will or bare licence comes into being. In some legal systems, this has unfortunate consequences. When a formal tenancy is created, the law usually implies obligations for the lessor, e.g. that the property meets certain minimum standards of habitability. With a bare licence, some states do not imply any significant lessee protections

A tenancy agreement can be made up of:

express terms. These include what is in the written agreement (if there is one), in the rent book, and/or what was agreed orally (if there is clear evidence of what was said).
implied terms. These are the standard terms established by custom and practice or the minimum rights and duties formally implied by law.

Commercial leasehold

Generally speaking in the modern US legal framework, commercial real property leases fall into one of just a few categories: Office, Retail, Warehouse, Ground, and a catch-all hybrid often referred to as "Mixed Use". Each has certain typical characteristics, although Ground leases may differ somewhat, taking on some characteristics of Retail leasing when associated with a retail project, like a shopping center; and although Mixed Use projects can vary greatly depending upon the various inclusions and the size of the overall project, among other things. It is widely appreciated by those who specialize in commercial leasing, including the business side and the legal side, that, other than hybrids such as Mixed Use project leasing, Retail leasing can have the most complexity.

Mixed Use projects often have elements of most or all of the other categories, not infrequently including a hotel, office building, ground floor retail with residential condominium above and a parking garage. The interplay of all these different components with each other and the underlying property documents which describe, define, and control their interactions, operation and management, as well as the division of costs for the operation of the site, are typically very complex.

Retail leasing often requires the parties to address issues typically not addressed at all in other types of commercial leasing which have no retail component. These additional challenges include such topics as exclusives and restrictive covenants, radius restrictions on near-by self-competition, co-tenancy, no-build areas and visibility corridors, parking ratio assurances, signage concerns (including pylons, monuments, and criteria), CAM and CAM caps and controls (including the "cumulative" and "non-cumulative" concepts), continuous operating covenants, and much more.

Advantages of commercial leasing

For businesses, leasing property may have significant financial benefits:

Leasing is less capital-intensive than purchasing, so if a business has constraints on its capital, it can grow more rapidly by leasing property than it could by purchasing the property outright.
Capital assets may fluctuate in value. Leasing shifts risks to the lessor, but if the property market has shown steady growth over time, a business that depends on leased property is sacrificing capital gains.
Because of investments which are done with leasing, new businesses are formed. Furthermore, unemployment in that country is decreased.
Leasing may provide more flexibility to a business which expects to grow or move in the relatively short term, because a lessee is not usually obliged to renew a lease at the end of its term.
In some cases a lease may be the only practical option; such as for a small business that wishes to locate in a large office building within tight locational parameters.
Depreciation of capital assets has different tax and financial reporting treatment from ordinary business expenses. Lease payments are considered expenses, which can be set off against revenue when calculating taxable profit at the end of the relevant tax accounting period.

Disadvantages of commercial leasing

For businesses, leasing property may have significant drawbacks:

A net lease may shift some or all of the maintenance costs onto the tenant.
If circumstances dictate that a business must change its operations significantly, it may be expensive or otherwise difficult to terminate a lease before the end of the term. In some cases, a business may be able to sublet property no longer required, but this may not recoup the costs of the original lease, and, in any event, usually requires the consent of the original lessor. Tactical legal considerations usually make it expedient for lessees to default on their leases. The loss of book value is small and any litigation can usually be settled on advantageous terms. This is an improvement on the position for those companies owning their own property. Although it can be easier for a business to sell property if it has the time, forced sales frequently realise lower prices and can seriously affect book value.
If the business is successful, lessors may demand higher rental payments when leases come up for renewal. If the value of the business is tied to the use of that particular property, the lessor has a significant advantage over the lessee in negotiations.

Leasing Internationally

The practice of leasing is well established in most countries of the world.

However the benefits (in particular the tax benefits) to the lessee and lessor will vary widely depending on national accounting standards and tax regulations. These largely divide into countries observing:

Legal Form: the lessors legal ownership of the property. or
Substance: the lessee legal right to use the property.

National accounting standards vary in the tests that decide if the lease is a:

Capital or Finance Lease, which is considered a financing transaction - as the lessor has less of the risks of ownership, such as the value of the equipment in future years.
Operating Lease, whose term is short compared to the useful life of the asset, where the lessee does not have to show the lease on their balance sheet.