 From inaccurate lease documents to poorly routed Internet cables, renting an office can be a minefield. But there are safety steps.
Given the tricky issues involved in leasing office space, what details should a diligent tenant pay attention to?
Tenants have become more exacting about the terms and conditions of the premises that they want to lease, and they don’t hesitate to go the extra mile to verify a landlord’s title to the property in question. Nonetheless, there are still some areas that a tenant could inspect more closely.
It is in a tenant’s best interests, clearly, to establish his rights and remedies when dealing with a landlord during discussions of lease agreement terms. But other situations can crop up: How can a tenant indemnify himself from the risk of unreasonable rental payments? What if the actual area of the leased premises is less than indicated in the lease? In what circumstances can a tenant unilaterally terminate a lease? What is the basis for reducing rental payments?
To answer those questions, it helps to examine cases that require a tenant’s attention. In our first sample case, a tenant has entered into a lease agreement, duly registered it and occupied the premises. During use of this real estate, he discovers that the computer equipment and cables that are supposed to serve his premises are located in an area leased to a third party. Needless to say, in a case such as this one, the tenant needs permission from the third party to use the equipment, and this is obviously an inconvenience. What’s more, the third party is within his legal rights to deny access to this area. Therefore we recommend bringing in technical specialists to inspect the premises and equipment necessary for use of the leased area prior to concluding the lease agreement.
Another sticky situation is when a tenant alters, or “replans,” the leased premises. Everything is fine if the owner has entered the changes in the technical documents after the replanning and updated the records related to the replanned premises in the Public Register (such an update needs to be registered). But what if the premises are replanned and the relevant changes are put into the technical documents of the premises, but the changes are not registered by the owner or landlord? Then there is a risk that a tenant who is considering entering into a long-term sublease agreement with a perspective subtenant could find himself unable to do so. Problems could arise with registering the long-term sublease if the replanning is not entered in the Public Register.
The best way to avoid confusion and risks related to this type of situation is to confirm that the actual area of the leased premises conforms with the technical passport (the BTI documents) and records of the Public Register. If they don’t, the owner or landlord should be required to procure the relevant registration.
There is one more case that should be reviewed here: What if the tenant discovers that the actual area of the leased premises is smaller than indicated in the lease agreement? How can a tenant avoid paying for more space than provided? And what ow does this situation look like from a tenant’s perspective?
In fact, it isn’t rare for the area of premises rented under the lease agreement to differ from that defined in the ownership certificate.
In what cases do such inconsistencies arise? A tenant could face a situation like this when the owner has replanned the building and has not entered this fact in the Public Register and BTI documentation.
According to Russian law, the leased property should be clearly defined in the lease agreement. The courts take the position that if the site is inconsistent with the description in the Public Register and BTI documents, the lease agreement can be recognized as unfinalized for the reason of noncompliance of the site. One possible course of action for the tenant is to notify the landlord and vacate the premises, then file a claim in court to recognize the lease agreement as unfinalized. An unfinalized agreement does not create any legal effects, meaning that a tenant is not obliged to lease the landlord’s premises. In fact, having a lease agreement recognized as not formalized and unilaterally notifying the landlord and consequently leaving the leased premises is not the best scenario for a tenant. If the court does not rule in favor of the tenant, he will have to pay rent under the lease agreement until the lease expires while leasing an alternative location. The chance of a court decision in the tenant’s favor is difficult to predict, and a court case can be a time-consuming process.
In our experience, this type of inconsistency between leased space and leasing documents does not mean that, in all cases, there was an inappropriate agreement in relation to the site. The courts have another view: They could not recognize a lease agreement as being unfinalized and cite an inappropriate agreement in relation to the site as their reason. This position is based on the parties’ relations prior to the dispute. Did the tenant accept the legal and actual status of the premises? Were there any disputes in relation to the leased site after the conclusion of the lease agreement? If the landlord has no other equivalent property located at that building address, the courts also could take that fact into account.
What is the basis for the dispute if the parties duly executed the agreement and did not act as if they had any disagreement? According to our experience, then the lessee should negotiate with the landlord and use the inconsistencies between lease and site as an argument for decreasing the rental payments, or for early termination upon mutual agreement of the parties. In any event, we recommend involving technical specialists to inspect the premises to be leased to ensure compliance with the Public Register and BTI documentation.
We suggest that prospective tenants be more diligent and, in particular, attentive to these details to procure “quiet enjoyment” of the premises.
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