One of the most common agreements made in Lao PDR are lease agreements, whether they are for residential accommodation, office or shop space, factory or farm land or any other personal or commercial purposes. However, from time to time, disputes or disagreements may arise from the lease agreement, many of which could have been avoidable through clearly stated terms in a lease contract or a legal review for compliance under Lao PDR law.
The three most common tenancy disputes in Lao PDR we have encountered from our clients include:
- the misrepresentation of the signatory of the lease agreement being the ‘landlord’ or owner of the premises when the signatory in fact does not have such authority;
- the premises being used by the landlord as collateral for a loan without the knowledge of the tenant (and in the worst-case scenario, default of the loan and repossession of the property by the creditor without proper compensation to the tenant); and
- the premises being used by the tenant for a purpose other than for the permitted purpose (e.g. a residential lease being used by the tenant as an office to run commercial operations).
In light of the above, how can parties to a lease agreement protect their interest, anticipate issues that may arise and agree on an amicable resolution to their problems?
Irrespective of whether you are the tenant or landlord, it is in the interest of both parties to enter into a clear and detailed lease agreement which identifies the terms and conditions under which the arrangement for the lease of premises will be made to avoid any misunderstandings or disputes which may arise from the agreement.
At a minimum, a lease agreement should contain the following details:
- Name and contact details of the tenant and landlord: including contactable phone numbers, physical addresses and email addresses (retaining a copy of the ID of the parties is useful);
- Details of the lease premises: including the exact location and description of the lease area (attaching a map or land title of the lease premises to the lease agreement is particularly useful to indicate whether the entire plot of land and/or the building is being leased and whether there are any existing easements or encumbrances);
- Rent: stating the agreed amount to be paid by the tenant to the landlord for the lease of premises and the payment schedule according to which rent will be paid;
- Security deposit: if required by the landlord and if so, the permitted uses or deductions which may be made from the security deposit and terms upon which the return of the security deposit will be made to the tenant at the end of the lease;
- Term and extension of term: stating the exact duration of the lease of premises to the tenant, including any option for an extension or renewal of term.
- Permitted uses of the premises: stating clearly the permitted uses of the premises ensures the landlord may terminate the lease agreement if the premises was used for another purpose.
- Representations and Warranties:
- The parties should obtain a representation and warranty from the other party that it has the power and authority to sign the lease agreement. For the tenant, this is reassurance that the landlord is the true owner of the lease premises or has a power of attorney to sign on behalf of the true owner. For the landlord, this is reassurance that a tenant signing on behalf of a company has the authority to sign for and on behalf of that company.
- The tenant should also seek a representation and warranty from the landlord that as of the effective commencement date of the lease, the premises is not subject to any third-party encumbrance and will not be encumbered unless the tenant consents and the third party agrees to enter into a deed of assignment agreeing to be bound by the terms of the existing lease agreement.
- Obligations of the Parties: typically, this should include provisions to the effect that:
- the landlord must ensure quiet enjoyment of the premises;
- the landlord may inspect the premises upon reasonable advanced notice to the tenant;
- the tenant must use the premises without disturbances to its neighbours;
- there should be a clear delineation of responsibility for either the landlord or tenant to be responsible for damages or repairs on the premises and costs for such repairs;
- the parties should agree on whether installation of fixtures or improvements is permitted (and what type); and
- whether the premises must be returned in its original condition with installations removed or kept by the landlord.
- Termination: the parties should agree on the circumstances in which the lease agreement may be terminated with notice and whether advance payments will be returned in the event of early termination of the lease agreement.
- Dispute Resolution Mechanism: as a low-cost option, parties should agree to first use their best efforts to resolve any dispute amicably, failing which, they bring the matter to the village chief for mediation. Submission of the dispute to the Arbitration of the Centre for Economic Dispute Resolution of Lao PDR or People’s Court of Lao PDR should be a measure of last resort.
Pursuant to the Lao PDR Law on Contracts, lease agreements must be executed by the tenant and the landlord and signed by two witnesses for each party and the village chief of the location of the lease premises in order to be effective. To ensure legal validity and authenticity of the contract, the executed lease agreement should subsequently be submitted to the Notary Office of the Ministry of Justice for certification.
As with any contractual document, there is room for negotiation or further contractual clauses to be inserted or amended in the interest of either or both parties. To avoid being caught up in a potential dispute arising from the lease agreement, we strongly recommend that prospective tenants and landlords enter into clear and concise lease agreements which are compliant with Lao PDR laws.
This article has been provided by Arion Legal. Operating in Lao PDR since 2008, Arion Legal’s experienced team of lawyers provides focused, results orientated and cost effective legal and tax services to foreign and Lao investors.