Dear Attorney,

I represent a corporation looking to lease a property for office use. We would like to know the proper steps and key considerations when drafting a lease contract, specifically tailored to corporate tenants. What are the essential terms that must be included in such an agreement, and are there any specific legal requirements in the Philippines for corporate leases?

Sincerely,
Concerned Corporate Representative

Insights

Creating a lease contract for a corporation in the Philippines requires a detailed understanding of both general lease laws and specific provisions applicable to corporate tenants. The lease must address not only the typical provisions found in residential or commercial leases but also accommodate the unique needs and legal status of corporations.

1. Corporate Identity and Authority One of the most critical elements in a lease for a corporation is the correct identification of the corporate tenant. The lease contract must include:

The full legal name of the corporation as registered with the Securities and Exchange Commission (SEC).
The corporation’s SEC registration number.
The name and position of the authorized signatory, supported by a board resolution or secretary’s certificate granting this individual the authority to enter into the lease on behalf of the corporation.

This ensures that the contract is legally binding on the corporation, preventing disputes related to unauthorized representation.

2. Duration of Lease Corporations often prefer long-term leases, especially when setting up an office. Under Philippine law, leases may be entered into for up to 99 years (Article 1643 of the Civil Code), although common practice for commercial leases usually ranges between three to five years with renewal options. The lease should clearly state:

The start and end dates of the lease term.
Any conditions or procedures for renewing or extending the lease.

It is advisable to include provisions for adjustments in rental rates upon renewal to protect both parties from unforeseen market changes.

3. Rent and Payment Terms The rent amount, payment schedule, and mode of payment must be explicitly stated. Corporate tenants typically prefer bank deposits or online transfers for transparency and accounting purposes. The contract should specify:

The exact amount of monthly or quarterly rent.
Due dates and any penalties for late payments.
Any rent escalation clauses, which allow the landlord to increase rent periodically, usually based on a pre-agreed formula such as inflation rates or a percentage increase every year.

4. Security Deposit and Advance Rent It is common for landlords to require advance rent and security deposits. For corporations, this amount may be significant due to the size of the leased space. The lease should outline:

The number of months’ worth of rent required as a security deposit.
The conditions under which the deposit can be applied or refunded at the end of the lease.
Any advance rent required, often covering the first one to three months of the lease.

The security deposit typically serves to cover damages to the property, unpaid rent, or other obligations that the corporation may fail to meet.

5. Use of Premises A corporation’s use of the leased premises must align with the property’s zoning regulations and the purposes allowed under the lease contract. The contract should detail:

The specific use allowed (e.g., office, retail, etc.).
Any restrictions on subleasing, alterations, or improvements to the property. Corporations may require modifications to suit their operations, and these changes should either be subject to landlord approval or outlined in the contract.

6. Maintenance and Repairs The responsibilities of the landlord and tenant regarding the maintenance and repair of the property must be clearly stated. Typically, the landlord is responsible for structural repairs, while the tenant handles day-to-day maintenance. The lease should specify:

Who is responsible for routine repairs and upkeep.
How repair costs will be allocated for larger issues.
Procedures for reporting and addressing repairs.

7. Termination and Breach Clauses Corporate leases should include detailed termination provisions to protect both parties. The lease should outline:

Grounds for early termination, such as default on rent payments, violation of contract terms, or insolvency of the corporation.
The notice period required to terminate the lease.
Remedies for breach, including penalties or legal action. Landlords may retain the security deposit or charge additional fees if the tenant fails to comply with termination procedures.

8. Compliance with Local Laws The lease contract must comply with relevant Philippine laws, including:

The Civil Code of the Philippines (Articles 1654 to 1688), which governs general lease provisions.
Local ordinances, such as zoning laws and building codes, which may affect the use and construction of leased premises.
The Corporation Code, ensuring the signatory’s authority and the corporation’s legal compliance.

Both parties should ensure that they are aware of any tax liabilities, including withholding taxes on rent payments, as well as the necessity for a notarized contract to enhance its enforceability.

9. Dispute Resolution The contract should include provisions for dispute resolution, especially since corporations often have substantial interests at stake. Options may include:

Arbitration or mediation clauses.
Jurisdiction of courts (typically, disputes are resolved in courts where the property is located).

By including these essential elements, a lease contract for a corporation can be structured to protect the interests of both the landlord and the corporate tenant. However, it is highly recommended that the contract be drafted or reviewed by a lawyer to ensure full legal compliance and to address any specific concerns of the parties involved.