The Legal Nature of Commercial Lease Agreements
The commercial lease agreement is one of the most practical instruments of Georgian civil legislation: through it a business obtains office, industrial or retail space for use. Under the lease contract the lessor must transfer to the lessee defined property for temporary use and, during the lease period, ensure the possibility of receiving the fruits, where they are received as income as a result of the proper management of the undertaking. The lessee must pay the lessor the agreed rent.
The rent is defined flexibly: it may be determined either in money or in kind, and the parties may agree on other means of determining the rent as well. For commercial leases this matters, because rent is often linked to turnover or income — and the law does not obstruct such constructions. In addition, the rules of the rental contract apply to the lease contract unless the special lease norms provide otherwise.
The Boundary for Terminating a Long-Term Lease
One of the most important issues in drafting a commercial lease is the term. The law sets a clear boundary here: if the lease contract is concluded for a term of more than ten years, then after the expiry of ten years each party may terminate the lease relationship within the period established by law, provided this condition is contemplated by the lease contract. In other words, agreeing on more than ten years is not fully reliable: where certain conditions exist, each party may still end it after ten years.
For investment plans contemplating a horizon beyond ten years, it is therefore right to reconsider the legal structure: for example, stipulating a renewal mechanism or using another type of contract. Knowing the ten-year boundary equips both the taker and the giver of the lease to draw up realistic plans.
Sublease and Partial Leasing-Out
In commercial practice a sublease is often needed — for example, where the lessee transfers part of the space to another business. Here the rule is clear: the lessee has no right to sublease without the consent of the lessor. When concluding a contract with a sublease in view, the lessor's consent must be fixed in writing.
The lessor may refuse to lease out individual parts of the leased property where this would cause significant damage. This means the lessee has the right to partial leasing-out, but that right has a boundary — the risk of significant damage. Moreover, the lessee is answerable to the lessor for the sublessee or the hirer using the thing differently than was permitted by the lessor, and the lessor may directly stop such use of the property by the sublessee or hirer. In other words, where use is improper, the lessor has a direct, immediate instrument.
The Rule on Returning the Leased Property
At the end of the lease the lessee is obliged to return the leased property in a condition that ensures the proper continuation of the undertaking existing before the return. This formulation is particularly significant for commercial leases: it does not require the property to be returned in unchanged physical form, but in a condition that makes it possible to continue the business activity that existed before. Where the lessee has adapted the space to its own business process, exactly this standard applies at the return.
Expiry of the Term and Continuation of the Contract
The lease relationship terminates upon the expiry of the term of the contract. At the same time, a contract concluded for more than three years may be continued for an indefinite term, where the other party does not refuse a proposal by one party to continue the lease relationship within three months. The proposal and the refusal of it must be made in writing. This rule is the natural continuation mechanism of a commercial lease, and the parties must monitor it in a timely manner.
Termination Windows for Open-Ended Contracts
Where the term of the lease is not determined, each party to the contract may, no later than ten days after the beginning of the lease year, declare the termination of the lease contract for the following lease year. The lease year is deemed to be the calendar year. In other words, in an open-ended lease a ten-day decision window opens for each party at the beginning of the year: if no declaration is made within this time, the relationship continues for the following lease year. Where the parties have agreed on a shorter period, this must be recorded in writing.
The case of earlier termination deserves particular mention: if the lease relationship may be terminated earlier than the period established by law, it is permissible only at the end of the lease year. This means that even an early termination permitted by law extends the relationship until the end of the year — a factor that needs to be recorded in the business plan.
How to Structure a Commercial Lease Agreement
A properly structured commercial lease agreement reflects the rent formula, the conditions of transfer and return, the sublease rules and the termination mechanisms. When choosing the term, the ten-year boundary is taken into account; in the continuation mechanism — the three-month refusal window; and when choosing the open-ended construction — the ten-day declaration period at the beginning of the year. Each of these elements must be conscious and documented in the contract. The specialists of Legal.ge will assist you in preparing commercial lease agreements and conducting the negotiations.