Overview of a commercial lease
A commercial lease is a legally binding contract between a business tenant and a landlord, governing the rental of commercial real estate, such as office spaces, retail properties, warehouses or industrial buildings. This agreement grants the tenant the right to use the property for business activities over a specified period. In exchange for these privileges, the tenant is required to pay rent. The lease thoroughly outlines the rights and obligations of both the landlord and the tenant. A clear understanding of these responsibilities is critical for maintaining a smooth relationship and avoiding potential disputes.
The parties to a commercial lease are referred to as the lessor (the landlord) and the lessee (the tenant). In some cases, the landlord may require a guarantor or surety, a person who agrees to cover any losses incurred by the landlord if the tenant defaults on the rent or breaches other terms of the agreement.
Commercial property lease under Slovenian law
On June 19, 2021, the amendment SZ-1E came into effect, which, in its Article 52, repeals the Act on Business Buildings and Business Premises (ZPSPP) from 1974, which specifically regulated lease relationships. There is currently no new law governing this area, therefore, the provisions of the Obligations Code (OZ) concerning lease agreements, specifically Articles 587 to 618, now apply to all lease relationships regarding business premises established from June 19, 2021, onwards.
The ZPSPP specifically governed lease relationships, outlining general concepts and the formation and termination of such agreements. In contrast, the OZ provides more detailed regulations on the obligations of lessors and lessees, including the handling of subleasing, material defects, and maintenance responsibilities. With the repeal of the Act on Business Buildings and Business Premises (ZPSPP), the mandatory minimum notice period of 12 months is no longer applicable, nor is the requirement for judicial termination of the lease agreement, the demands for vacating the premises and the requirement for the written form of the contract.
Key provisions in a commercial property lease include:
• The type of property
• The terms and renewal conditions of the tenancy
• The base rent, which may depend on the type of lease
• The type of business permitted on the premises
• Security deposits and damage deposits
• Rules regarding subletting the property
• Conditions for terminating the tenancy, which may include a fixed or periodic end date or a break clause
• Responsibilities for landlord and tenant improvements
• The tenant's ability to assign or sublet the premises
• Insurance requirements
Distinction between commercial and residential leases
Although both commercial and residential leases are governed by the same principle—the exchange of property use for monetary payment—significant differences exist between the two. A commercial lease is designed for a tenant leasing space for business purposes, while a residential lease is used for living accommodations.
In commercial leases, both parties are presumed to have a higher level of business knowledge than in residential leasing situations. Consequently, there is less governmental protection for commercial tenants, offering greater scope for negotiation. Moreover, commercial leases tend to include more complex terms and provide enhanced legal protections for the involved parties.
Key landlord's rights and obligations
Right to rent: The landlord is entitled to receive rent as stipulated in the lease agreement. Details such as rent amounts, payment schedules, and provisions for rent increases (e.g., annual escalations) are outlined within the lease.
Right to inspect and maintain: The landlord usually retains the right to access the property for inspections, repairs, and maintenance. However, this right must be balanced with the tenant’s right to quiet enjoyment, which prevents unreasonable interference.
Obligation to provide a safe and usable property: The landlord must ensure that the property is suitable for the tenant’s business operations and complies with relevant health, safety and building regulations. This obligation includes undertaking necessary repairs and maintenance unless otherwise specified in the lease.
Obligation to respect quiet enjoyment: While landlords retain certain rights, they are required to ensure that the tenant can conduct business without unnecessary disturbances.
Obligation to address major repairs: Generally, the landlord is responsible for significant structural repairs, including those concerning the roof, foundation and common areas, unless the lease states otherwise.
Key tenant's rights and obligations
Right to quiet enjoyment: Tenants are entitled to use the leased premises without undue interference from the landlord, provided they comply with the lease terms.
Right to make improvements: Depending on the lease, tenants may have the right to make alterations or improvements to the property, subject to the landlord's approval. At the lease’s end, the tenant may be required to restore the premises to its original condition.
Obligation to pay rent: Tenants must pay rent punctually in accordance with the lease. Failure to do so may result in penalties, legal action or eviction.
Obligation to use the property according to the lease: The tenant must use the premises for the agreed-upon purpose. For instance, if the property is leased for retail operations, the tenant cannot alter the nature of the business without the landlord’s approval.
Obligation to maintain the interior: Tenants are typically responsible for maintaining the interior of the leased premises, including minor repairs and the upkeep of equipment and furnishings.
Obligation to adhere to lease terms: Tenants are required to comply with all other lease conditions, such as paying utilities, adhering to zoning laws and securing necessary insurance coverage.
The role of commercial law in property agreements
Commercial law governs property leases, contracts and disputes, playing a crucial role in the landlord-tenant relationship. Key areas include:
• Contract law: The lease agreement constitutes a binding contract, and both parties must adhere to its terms.
• Zoning laws: Commercial properties are subject to zoning regulations, which dictate the type of business activities permitted in a given area.
• Dispute resolution: Commercial law outlines the processes for resolving disputes, including mediation, arbitration, or litigation.
Both landlords and tenants are encouraged to consult a commercial lawyer to navigate these complexities and ensure that their rights are upheld.
How can commercial lawyers assist?
Commercial lawyers specialize in the legal aspects of business operations, including property leases and tenant rights. They provide critical legal advice and representation, offering assistance with:
• Lease negotiations: Ensuring lease terms are equitable and protective of the client’s interests.
• Dispute resolution: Mediating disputes or representing clients in legal proceedings.
• Legal compliance: Advising on compliance with laws governing commercial properties.
Hiring a commercial lawyer at the outset of the leasing process can help prevent costly disputes and safeguard the interests of both parties.
Conclusion
Understanding commercial property landlord-tenant rights is essential for both landlords and tenants to ensure smooth and legally compliant relationships.
From drafting strong lease agreements to resolving disputes, both parties must have a clear understanding of their rights and responsibilities.
Engaging an experienced commercial lawyer can make the difference in protecting your interests, whether you're negotiating lease terms or seeking legal recourse in a dispute.
For landlords and tenants alike, a proactive approach to understanding and enforcing commercial rights can prevent conflicts and support successful, long-term business operations.
