Ask a lawyer:
What are the most common mistakes to avoid when drafting a Lease Option Agreement?
M-Wakili's Response
A Lease Option Agreement is a contract where a tenant has the right, but not the obligation, to purchase the property at a predetermined price within a specified period. It is a complex legal document that requires careful drafting to avoid potential pitfalls and disputes. Here are some of the most common mistakes to avoid when drafting a Lease Option Agreement in Kenya:
1. Lack of Clear and Concise Language
The most common mistake is using unclear or ambiguous language. This can lead to confusion and disputes between the parties. The agreement should be written in plain English and avoid legal jargon that may be difficult for the parties to understand.
Sources:
2. Failure to Define Key Terms
It is crucial to define all key terms used in the agreement, such as the purchase price, the option period, and the conditions for exercising the option. This will help to avoid any misunderstandings or disputes later on.
Sources:
3. Insufficient Due Diligence
Before entering into a Lease Option Agreement, both parties should conduct thorough due diligence to ensure that the property is suitable and that the terms of the agreement are fair. This includes reviewing the title deed, conducting a property inspection, and obtaining a valuation report.
Sources:
4. Unrealistic Purchase Price
The purchase price should be fair and realistic, taking into account the current market value of the property. If the price is too high, the tenant may be unlikely to exercise the option. Conversely, if the price is too low, the landlord may be losing out on a potential sale.
Sources:
5. Inadequate Option Period
The option period should be long enough to allow the tenant to secure financing and make a decision about whether to purchase the property. However, it should not be so long that the landlord is tied down for an unreasonable period.
Sources:
6. Lack of Clear Termination Provisions
The agreement should clearly outline the circumstances under which either party can terminate the agreement. This includes provisions for breach of contract, default on payments, and other unforeseen events.
Sources:
7. Failure to Address Contingencies
The agreement should address potential contingencies that could affect the purchase of the property, such as zoning changes, environmental issues, or title defects. This will help to protect both parties from unforeseen circumstances.
Sources:
8. Neglecting to Include a Right of First Refusal
The agreement should include a right of first refusal clause, which gives the tenant the right to purchase the property if the landlord decides to sell it to a third party. This will protect the tenant's investment and ensure that they have the opportunity to purchase the property.
Sources:
9. Insufficient Consideration
The agreement should clearly state the consideration for the option, which is the payment the tenant makes to the landlord for the right to purchase the property. This consideration should be fair and reasonable, taking into account the value of the option.
Sources:
10. Lack of Legal Advice
It is essential for both parties to seek legal advice from a qualified lawyer before signing a Lease Option Agreement. A lawyer can help to ensure that the agreement is drafted properly and that it protects the interests of both parties.
Sources:
Case Laws
1. Muthiora v. Njuguna & Another (2003) eKLR
This case involved a dispute over a lease agreement. The court held that a lease agreement must be in writing and must contain all the essential terms of the agreement, including the rent, the term of the lease, and the rights and obligations of the parties.
Relevance: This case highlights the importance of having a written lease agreement that clearly defines the terms of the agreement.
2. Kenya Commercial Bank Ltd v. Kiplagat & Another (2013) eKLR
This case involved a dispute over a mortgage agreement. The court held that a mortgage agreement must be in writing and must be registered with the relevant authorities.
Relevance: This case highlights the importance of having a written agreement that is properly registered.
3. Karanja v. Njuguna (2015) eKLR
This case involved a dispute over a sale agreement. The court held that a sale agreement must be in writing and must contain all the essential terms of the agreement, including the purchase price, the date of completion, and the rights and obligations of the parties.
Relevance: This case highlights the importance of having a written agreement that clearly defines the terms of the agreement.
TLDR
When drafting a Lease Option Agreement in Kenya, it is crucial to use clear and concise language, define key terms, conduct due diligence, ensure a fair purchase price, have an adequate option period, include clear termination provisions, address contingencies, include a right of first refusal, ensure sufficient consideration, and seek legal advice from a qualified lawyer.
Conclusion
A Lease Option Agreement is a complex legal document that requires careful drafting to avoid potential pitfalls and disputes. By avoiding the common mistakes outlined above, both parties can ensure that the agreement is fair, reasonable, and legally binding. It is always advisable to seek legal advice from a qualified lawyer before signing any Lease Option Agreement.
Answered by mwakili.com