Ask a lawyer:
What are the most common mistakes to avoid when drafting a Commercial Sublease Agreement?

Table of Contents

1. Introduction

2. Common Mistakes to Avoid When Drafting a Commercial Sublease Agreement 2.1. Lack of Clear and Specific Terms 2.2. Failure to Address Assignment and Subletting Rights 2.3. Inadequate Consideration and Rent Provisions 2.4. Insufficient Insurance Coverage 2.5. Neglecting to Include a Default Clause 2.6. Omission of Dispute Resolution Mechanisms 2.7. Lack of Proper Legal Counsel

3. Conclusion

Introduction

This response will address the question of common mistakes to avoid when drafting a Commercial Sublease Agreement in Kenya. It will delve into the legal framework governing such agreements, drawing upon relevant provisions from the Kenyan Constitution and other applicable legislation. The analysis will provide insights into the essential elements of a well-drafted sublease agreement, highlighting potential pitfalls and offering practical advice to mitigate legal risks.

Common Mistakes to Avoid When Drafting a Commercial Sublease Agreement

A Commercial Sublease Agreement is a legally binding contract that outlines the terms and conditions under which a tenant (sublessor) grants a portion of their leased premises to another party (sublessee). It is crucial to ensure that the agreement is comprehensive and addresses all relevant aspects to avoid potential disputes and legal complications.

2.1. Lack of Clear and Specific Terms

One of the most common mistakes in drafting a sublease agreement is the lack of clear and specific terms. This can lead to ambiguity and disputes over the interpretation of the agreement.

• Ambiguous Language: The agreement should avoid vague or ambiguous language that could be subject to multiple interpretations. For example, terms like "reasonable" or "satisfactory" should be defined with specific criteria.

• Incomplete Information: The agreement should include all essential details, such as the premises being subleased, the duration of the sublease, the rent amount, and the responsibilities of both parties.

• Unclear Obligations: The agreement should clearly define the obligations of both the sublessor and sublessee, including maintenance responsibilities, utilities, and access rights.

Sources:

• The Law of Contract Act, Cap 23 of the Laws of Kenya: This Act governs the formation, interpretation, and enforcement of contracts in Kenya. It emphasizes the importance of clear and unambiguous terms in contracts.

• The Interpretation and General Provisions Act, Cap 2 of the Laws of Kenya: This Act provides guidelines for interpreting legal documents, including contracts. It emphasizes the need for clarity and precision in language.

2.2. Failure to Address Assignment and Subletting Rights

Another common mistake is failing to address the rights of the sublessor and sublessee regarding assignment and subletting.

• Assignment Rights: The agreement should clearly state whether the sublessee has the right to assign their interest in the sublease to another party. If assignment is permitted, the agreement should specify the conditions and procedures for assignment.

• Subletting Rights: The agreement should also address the sublessee's right to sublet the premises to a third party. If subletting is allowed, the agreement should outline the conditions and restrictions.

Sources:

• The Landlord and Tenant (Shops, Hotels and Other Premises) Act, Cap 301 of the Laws of Kenya: This Act regulates the relationship between landlords and tenants in Kenya. It includes provisions on assignment and subletting, which are relevant to commercial sublease agreements.

2.3. Inadequate Consideration and Rent Provisions

The agreement should clearly define the consideration for the sublease, which is typically the rent paid by the sublessee.

• Rent Amount: The agreement should specify the rent amount, the payment schedule, and any applicable late payment penalties.

• Rent Review Clause: The agreement should include a rent review clause that outlines the process for adjusting the rent amount over the term of the sublease.

• Security Deposit: The agreement should specify the amount of the security deposit, the purpose of the deposit, and the conditions for its refund.

Sources:

• The Law of Contract Act, Cap 23 of the Laws of Kenya: This Act requires that all contracts, including sublease agreements, have valid consideration.

• The Landlord and Tenant (Shops, Hotels and Other Premises) Act, Cap 301 of the Laws of Kenya: This Act provides guidance on rent provisions in commercial leases, which are relevant to sublease agreements.

2.4. Insufficient Insurance Coverage

The agreement should address insurance coverage for the subleased premises.

• Liability Insurance: The sublessee should have adequate liability insurance to cover potential claims arising from their use of the premises.

• Property Insurance: The sublessee should also have property insurance to cover damage to the premises or their belongings.

• Indemnification Clause: The agreement should include an indemnification clause that protects the sublessor from liability for any claims arising from the sublessee's use of the premises.

Sources:

• The Insurance Act, Cap 401 of the Laws of Kenya: This Act regulates the insurance industry in Kenya and provides guidance on insurance requirements for commercial properties.

2.5. Neglecting to Include a Default Clause

A default clause outlines the consequences of a breach of the sublease agreement.

• Breach of Agreement: The agreement should define what constitutes a breach of the agreement, such as non-payment of rent or violation of the terms of the sublease.

• Remedies for Breach: The agreement should specify the remedies available to the sublessor in the event of a breach, such as termination of the sublease, payment of damages, or eviction.

Sources:

• The Law of Contract Act, Cap 23 of the Laws of Kenya: This Act provides a framework for addressing breaches of contract, including the remedies available to the aggrieved party.

2.6. Omission of Dispute Resolution Mechanisms

The agreement should include a dispute resolution mechanism to address any disagreements that may arise between the parties.

• Arbitration Clause: The agreement should include an arbitration clause that specifies the process for resolving disputes through arbitration.

• Mediation Clause: The agreement may also include a mediation clause that encourages the parties to attempt to resolve disputes through mediation before resorting to arbitration or litigation.

Sources:

• The Arbitration Act, Cap 4 of the Laws of Kenya: This Act provides a legal framework for arbitration in Kenya.

• The Alternative Dispute Resolution Act, 2015: This Act promotes the use of alternative dispute resolution mechanisms, such as mediation, in Kenya.

2.7. Lack of Proper Legal Counsel

It is essential to seek legal advice from a qualified lawyer when drafting a commercial sublease agreement.

• Legal Expertise: A lawyer can ensure that the agreement is legally sound, comprehensive, and protects the interests of both parties.

• Negotiation and Drafting: A lawyer can assist in negotiating the terms of the agreement and drafting a clear and unambiguous document.

Sources:

• The Advocates Act, Cap 16 of the Laws of Kenya: This Act regulates the legal profession in Kenya and provides for the licensing and regulation of advocates.

Conclusion

Drafting a comprehensive and legally sound Commercial Sublease Agreement is crucial for protecting the interests of both the sublessor and sublessee. By avoiding the common mistakes outlined above, parties can minimize the risk of disputes and ensure a smooth and successful sublease arrangement. It is always advisable to seek legal advice from a qualified lawyer to ensure that the agreement meets all legal requirements and protects the interests of all parties involved.