I. Things that you need to know before signing a Tenancy Agreement or a Lease
As an overview, a Tenancy Agreement is a binding legal document which has important implications on the committed rights and obligations on the part of both landlord and tenant. The terms of a Tenancy Agreement must be carefully considered before signing.
Contrary to the common belief of many lay parties, the potential consequences of breaching a Tenancy Agreement by a tenant may not be only limited to the ‘loss’ in the amount of the deposit paid to a landlord.
The same also applies to a landlord where he may become liable or responsible to third parties for any breaches committed by the tenant.
The contents of a Tenancy Agreement will normally include the period/length of the tenancy, rent, payment period, deposit, use (e.g. residence, office, or factory etc.), renewal terms, termination terms and other usual terms that will be described in the other parts of this topic.
Depending on the period of the tenancy and the capacities of the parties entering into the agreement (whether a party to an agreement is an individual or a limited company, etc.), different formalities for execution may be required.
While the terms "Tenancy Agreement" and "Lease" are often casually used as if they are synonyms in modern times and that both are generally binding, effective and enforceable in Court, there may still be some technical differences between them in their legal meaning.
a) Period/length of the tenancy
A Lease is generally legally referred to a document that creates a fixed term tenancy for more than 3 years. It has to be executed in the form of a deed, meaning that it has to be signed, sealed and delivered by the parties. That is to say, the parties have to sign the Lease, affix a red seal (a small red wafer) next to their signatures and exchange copies of the lease. It is desirable for a Lease to become registered in the Lands Registry.
A Tenancy Agreement is generally be referred to a tenancy for a period not exceeding 3 years. A tenancy agreement may be signed oragreed verbally between the parties .
For tenancy agreements which are put into writing, the parties to a Tenancy Agreement only have to sign it, without needing to affix the red seal and exchanging the document. To protect the interests of both parties, however, it is recommended that the parties should exchange and keep copies of the Tenancy Agreement as signed.
b) Capacities of the parties
The capacities of the parties entering into the Lease/Tenancy Agreement also affect the formalities of execution.
It is preferable for an individual, sole proprietorship or a partnership entering into a Lease to affix a red seal next to the signature of the signing person(s). A limited company must affix its common seal next to the signature(s) of the person(s) authorised to sign the Lease. Furthermore, the Lease has to be executed in accordance with requirements stipulated under the company's Articles of Association accompanied by properly executed written board resolutions to authorize such execution.
If the party to a Tenancy Agreement is a sole proprietorship, a partnership or a limited company, the chop or the rubber stamp (as the case may be) of the signing party also has to be affixed onto the Tenancy Agreement together with the signature of the signatory.
You can go to Table 1 for more information regarding the execution clause (i.e. the part of a Tenancy Agreement/Lease where you sign your name).
If the property has been mortgaged to a bank/financial institution, the landlord must obtain the prior consent from that company before leasing it out. For more information regarding this matter, please go to part VII – properties with mortgages.