Commercial leasing and breach of contract punishments

In legal terms, a lease agreement can be defined as ‘a contract by which one party conveys land, property, services, etc. to another for a specified time, usually in return for a periodic payment’. A ‘commercial lease agreement’ constitutes a written lease agreement whereby a landlord agrees to lease his commercial property to another person or entity for a given business purpose and specified time period.

In commercial leases, there often occurs instances wherein a business starts to incur losses and the business owner finds himself in a position to be not able to pay the rent for the commercial lease. We will discuss in this article the circumstance that can be construed as a breach of a commercial lease and how best to deal with such issues.

It is critical to bear in mind that a commercial lease agreement entered into between the parties constitutes a binding and enforceable agreement between the parties. Thereby, if any of the parties does not honor the terms of the executed commercial lease agreement, it would be termed as a contractual breach. A contract binds the parties to perform the contractual obligations, and any failure to adhere to those obligations is considered a breach of contract in UAE. Article 125 of the UAE Civil Transactions law defines a contract as a ‘ meeting of offer and acceptance, “ A contract is the meeting of an offer issued by one of the contracting parties with the acceptance made by the other party and their concordance in such a manner as to produce their effect on the object of the contract and results in a binding obligation on each party in consideration of the obligation of the other party. A meeting of more than two minds may agree to produce a legal effect.”

Terminating a commercial lease:

Before terminating the commercial lease, it is critical to be sure of the terms that are already pre-agreed in the commercial lease in order to ensure that the terminating party is compliant with the said terms.

For instance, the terms may include a “penalty term” for early termination of the lease. In some instances, early termination of the lease may be legit under the agreed terms, provided that the terminating party is serving the notice period requirements. Even in instances wherein a lessee is merely not renewing the lease terms, it is important to serve proper notice to the lessor indicating the non-renewal. As pursuant to Article 14 of the Law no. 26 of 2007 on ‘Regulating relationship between landlords and tenants in the emirate of Dubai’, ‘If either party opts not to renew the tenancy contract or wishes to amend any of its conditions, then he must notify the same to the other party not less than 90 days prior to expiry date, unless both parties agreed otherwise’.

It is crucial that the terms are followed by both parties so that the they can avoid the instance of a potential breach and its consequences. You may also seek legal advice prior to entering into a commercial lease agreement for any particular time period to ensure that the agreement meets your goals and also includes possible exit clauses.

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