What is a land lease contract?
A Land Lease Contract is an agreement that is made between a landlord and a tenant for the use of land. These contracts are typically used by landowners to generate income from their land by allowing the tenant to use it for a specified period of time, in exchange for rent. The purpose of a land lease contract is to establish the terms and conditions under which the tenant may use the land, as well as the responsibilities of both parties.
This type of contract is commonly used for properties such as farmland, maritime vessels, and oil wells. For example, a farmer may lease land from a landowner, granting them the right to cultivate crops or raise livestock, while the landowner receives income from the lease . Similarly, a crewmaster may lease a maritime vessel from a ship owner, allowing the crewmaster to operate the vessel for a specified period of time, in exchange for a fee.
The significance of a land lease contract is that it allows landowners to monetize their land by granting the right to use a property for a specific purpose. It also provides tenants with the opportunity to use land that they do not own, without the need to purchase it outright.
It is important to note that a land lease contract is not the same as a lease for a residential or commercial property. A residential or commercial lease is an agreement between a landlord and a tenant for the use of a building or structure, whereas a land lease contract is for the use of the land itself.
Major elements of a land lease agreement
Several key pieces of information are typically found in a land lease contract agreement. The exact terms and conditions can vary depending on the complexities of the lease and the goals of the parties involved, but most land lease contracts include the following items:
Term
The term is the length of the land lease contract agreement. The term can be short-term or long-term and is usually presented both in months and years. Often leases have a stated beginning date and termination date.
Rent Payment Terms
The lease contract agreement will specify the amount of rent due, when it is paid, and acceptable methods of payment. It’s important to abide by the terms set forth in the contract as many of these contracts are legally binding and strictly enforced through the courts.
Renewal Options
A commercial land lease will usually have one of two types of renewal options: option to extend and right of first refusal. An option to extend gives the tenant the option to extend the agreement at the end of the term if the property is still available. A right of first refusal requires the landlord to first offer the land for sale to the tenant before advertising the property to the general public. Failure to renew at the end of the term or failure to express interest through the right of first refusal may result in the loss of the right to the property.
Termination
Termination of the land lease contract agreement will likely be discussed in terms of what actions would automatically terminate the lease, as well as the requirements for normal termination of the contract. Most agreements include the right to terminate the contract due to violation of contract terms. In the event of a default on the part of the tenant, the landlord may have the option to terminate the contract early.
Sample land lease agreement template
A standard land lease contract agreement often follows a typical structure and is a good starting point for individuals looking to lease land. There are, however, generally unique parts to every lease agreement. Individuals can often find samples of land lease contracts, online, for purchase or free download. These samples can be beneficial as individuals can customize them based on their own needs. Some of the most common clauses included in these samples would be parties, lease term, rental payment, and property description.
Legal aspects of a land lease contract
Legal Considerations in a Land Lease Contract Agreement
When it comes to land lease contracts, making sure all the legal prerequisites and considerations are present is important to a contract’s enforcement. One example that is likely to be mandatory in any land lease contract is a disclosure statement. This is something that must be provided by the landlord and that is acknowledged by the tenant up front. For example, if you were leasing a piece of land for agricultural purposes, the disclosure statement may explain the possible health risks of pesticide use and requirements for warning signage.
A lot of this is to ensure the tenant is fully aware of what the conditions of the land may be for their purpose for using it and what rules and regulations are in effect regarding its use. This is especially important in protecting the owner of the property in the event a claim is made and may also encourage the tenant to follow the proper protocols regarding use of the land for the specified reason it’s meant to be used for.
Something else that’s important is the insurance requirements for any structures on the property, as well as details about the land itself. Any damages during the lease should be reported and all requirements for the types of coverage necessary should be stated in the contract. This will help to protect against major fixtures on the land and permit the owner to seek payment from the leaseholder for any damage outside the scope of what would result from normal wear and tear.
It’s also important for the leaseholder to fully understand the purpose of the lease agreement and how the property is going to be used once the lease is signed. For someone leasing land for a farm, or to build a mass housing project, it’s going to be important to know there are strong legal clauses preventing them from selling or shifting that property so that they could not again lease it. The owner should include any restrictions they desire, but in addition the leaseholder should also understand if there are obvious restrictions in place, such as zoning laws.
Advantages of a land lease agreement
The benefits of using a land lease agreement are numerous. These agreements have been in use for a long time and their terms have been well worn by many who have used them. This means that the experience of others informs the crafting of a given lease agreement, making it more likely that all issues will be addressed before it is signed.
A rent agreement has many benefits for the lessor and lessee. The biggest benefit to the lessor is security. They can move forward with confidence that the lessee is under contract to pay the specified amount on a regular basis. If the lessee falls behind, the lessor can take legal action to get the overdue rent. If the lessee refuses to pay the rent, the lessor can evict them. No matter how you divide it up, this gives lessors peace of mind that their property will not be taken from them for lack of payment.
Lessees also benefit from a formal agreement. Having the terms in writing prevents any miscommunication or manipulation of the terms . It also gives them the peace of mind knowing that they have a place to live and that their landlord must follow the rules of the contract. There is no risk of moving in and discovering that the landlord is no longer abiding by the rules. These rules, after all, are in the contract. The lessee can then stay in the property as long as the lessor abides by the contract.
Land lease agreements are also legally binding. It’s important to ensure that it contains no illegal clauses and that it does not conflict with local law, but it gives both parties protection under the law. A formal land lease agreement is more robust than a verbal agreement, and can stand up to scrutiny at the hands of a lawyer.
Having a formal agreement is also a great way to make sure both parties understand what is expected of them. The person who would normally be expected to explain the terms to the lessee, in this case, is the landlord. That means they have all the power. In a written lease agreement, however, both people have a copy and must abide by its terms.
Common issues relating to a land lease agreement
When it comes to getting into a lease agreement, whether you are the landlord or the tenant, a dull and boring document may be the least of your current affairs. However, being so familiar with the process can lead to complacency and a land lease contract agreement that you did not intend.
Mistakes to avoid:
Failing to define terms. Both sides often seem to think that what they consider a "land lease" is obvious, but the realities of such a lease are often much more complicated than thought. The old adage goes, "a lawyer who acts as his own counsel has a fool for a client", so just because you think you know what the language should say, you cannot avoid getting the right help.
Failing to have a lawyer review the contract. There are many nuanced clauses that need to be included to protect both you and the other party’s interests in the contract. A lease is a contract so it is also important to have a lawyer review before signing.
Not having an effective dispute resolution clause. Without a proper clause in your contract detailing how disputes will be resolved, your hand may be forced to go through a lengthy and costly litigation process. By having a properly tailored clause, you can avoid this and go to arbitration instead.
Questions people ask about a land lease contract
What happens if I want to modify the lease agreement?
If both you and the lessor agree to modify the existing land lease agreement, a new agreement will have to be created. Both parties must sign the modified agreement and keep it as an addendum to the original. As a best practice, you should always put the modifications in writing, whether or not state law requires a written lease.
Can I terminate the lease before it ends?
Yes. Generally, you can terminate the land lease before the term expires without cause, although it may be necessary to give advance notice to the lessor to end the lease early. Some leases will have a cancellation clause that outlines the process and any associated fines. In most cases , the lessor has to agree to the cancellation terms in order for it to take effect.
What if I need to sell the property before the land lease ends?
The rights of the lessor will have to be upheld. Owners of property built on land subject to a lease must first provide the lessor with an offer to buy the land from them at a fair market value. If either the lessor or the owner of the property refuses the purchase offer, the second party is then allowed to forgo their lease terms and keep the property under their ownership.
What if the lessor terminates the lease before the end of the lease term?
Unless the lease allows it, the lessor cannot terminate the lease before it is due to expire. If the lessor does so arbitrarily, it may be responsible for covering any damages or losses that you incur as a result of early termination. You will likely not have any legal recourse for incidental damages such as relocation expenses or loss of site improvement (unless otherwise guaranteed by local laws or regulations), but you can sue the lessor for specific performance and seek monetary relief.