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The Lease Agreement

Once an offer for a lease is accepted, a formal written rental agreement must be signed by the parties. The rental agreement is a private contract which allows the tenant temporary use of a property in exchange for a specified amount of rent. Rent is usually paid on a monthly basis, unless specified otherwise in the contract. It is advisable to have the contract reviewed by a lawyer to ensure that its terms do not violate the Civil Code. Estate agents generally ensure that this is done.

What clauses should be Included in the Rental Agreement?

The contract must include the names of all parties involved, including the fiador or aval (Cosigner). Only the actual owner (or a person who has power of attorney on behalf of the owner) may lease a property. Co-owners of a property may only rent their share of the property – if an entire co-owned property is rented, all co-owners must be in agreement. Before signing a rental agreement, the tenant or agent (real estate agent or attorney) should verify that the property is free and clear to be leased and that the landlord’s or its proxy as sufficient and current power of attorney’s (poder) to represent and rent the property.

The location and description of the property must be included, the permitted use must be specified (residential, commercial, industrial), and any other terms and conditions to which the parties have agreed (such as subletting). The contract almost always includes the signature of a guarantor or cosigner in addition to that of the landlord and tenant.

Rental Periods

Rental agreements are mutually agreed but should not exceed those specified by the Civil Code, as will be discussed later. The law establishes tacit renewal for rental agreements – after the contract expires, the tenant may continue to occupy the property and pay rent under the same terms and conditions as agreed to in the original contract. However, tenants may be asked to sign a new contract at the end of the original agreement, which should be reviewed carefully before signing.
If no time period was specified in the rental agreement, either party may end the agreement at any time, but must provide 30 days’ notice. If the time period is specified, the tenant or landlords must provide 30 days’ notice before the contract’s expiry.

If the property is sold during the period of the rental agreement, the tenant continues to pay rent to the new owner for the duration of the contract.

A penalty for breaking a rental agreement is applicable unless there is an exit clause in the contract. This amount is usually equal to half the amount due for the remaining months. For example, if 10 months remain before the expiration date agreed, five months’ rental amount would apply.

Note: subletting is only permitted with the owner’s permission and should be discussed and included in the contract or in a subsequent addendum.

Security Deposit and Inventory

The deposit is usually paid at the time of signing. A walk through and inventory of the property is advisable in order to document any pre-existing damage. This inventory and supporting photographs should be included in the contract.

The landlord must return the security deposit within 30 days of the tenant leaving the property after the later has turned in proof of all utilities being paid for as well as maintenance fees, if applicable and after the landlord inspected the premises and expressed his satisfaction in writing, unless a different time frame has been agreed to. At the end of the contract, tenants can request a letter from the landlord confirming that the obligations of all parties under the contract are discharged.

Keep in mind that the security deposit is not the rent for the las month as you understand it in the United States.

Rights and Obligations

According to the Civil Code, the following rights and obligations apply:

A Landlord must:

- Maintain the property in good condition so that the tenant may use it.

- Pay for major repairs for example, structural repairs and maintenance of the property’s common areas.

- Pay or reimburse for improvements to the property, as the case may be.

- Guarantee the peaceful and unobstructed use of the property.

- Be responsible for hidden defects on the property.

- Return any balance owing to the tenant within 30 days after the contract expires unless specified otherwise in the contract.

- Provide first right of to tenants in good standing if the property is put up for sale.

Tenants, besides paying rent, must:

- Maintain the property in good condition, and undertake minor repairs resulting from damage caused by normal wear and tear

- Use the property only as stated in the agreement

- Notify the landlord if major repairs are necessary

- Pay any balance owed to the landlord within 30 days after the contract expires unless a different time is specified in the contract

Quotations from the Civil Code for the State of Baja California concerning lease agreements:

ARTICLE 2272. A lease consists in the agreement between two parties which reciprocally agree to, on one part, to allow the temporary use and enjoyment of something, to the other, and pay for that use and enjoyment and specific price.
A lease may not exceed ten years in properties intended for housing; Fifteen for commerce, and twenty for industry.

ARTICLE 2275. The tenant may sublease only if he has such right per the express consent by the owner of because the law allows it.

ARTICLE 2282. The lease agreement shall not be rescinded by the death of the landlord nor that of the lessee, unless otherwise agreed by the parties.

ARTICLE 2283. If during the term of the lease, for any reason there is a change of ownership of the leased property, the lease shall remain in effect as agreed in the contract. With regard to the payment of rent, the lessee will have obligation to pay the new owner the rent specified in the contract.

ARTICLE 2296. If at the expiration of the lease there is a balance remaining on behalf of the lessee, the lessor shall reimburse it immediately, unless it has some other actions against the Lessee;

ARTICLE 2297. The Lessor shall pay for the improvements made by the lessee:

I. Whether as agreed in the contract, or subsequently, authorized;

II. If such improvements were useful improvements and due as consequence of neglect by the Lessor and the Contract is rescinded;

III. When the contract is for an indefinite period of time, if the landlord authorized the Lessee to make improvements, before the end of the lease, the tenant may counterbalance the cost of such improvements based on the amount of such costs incurred in by the Lessee.

ARTICLE 2298. Improvements to the property must be reimbursed by the landlord to the tenant, even if it was agreed otherwise in the contract stipulating that the improvements would remain on behalf of the leased property.

ARTICLE 2321. In leases which have lasted over five (5) years and when the tenant has made significant improvements to the leased property and as long as the Lessee is current in the payment of rent, to be preferred over any other person interested in renting the property.

Also, the Lessee shall enjoy the right of refusal if the owner of the property plans to sell same.

Keep in mind that the Landlord cannot unilaterally terminate the agreement, a tenant has the right to extend the lease considering that he is current in the payment of rent, also, if the owner wants to sell the property, the lease agreement shall subsist, and the new owner must honor the contract under the same terms and conditions set forth in it.

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Regards,