30 November 2016

After having found the perfect location for your business you might think that all you need to do is to move in and start. However, before moving in the leased property, there is an important part of the process: negotiating the conditions of the lease. In this short article we share five tips with you in order to sign a favourable lease as tenant in Hungary.

The basics

Check if you need any permit in relation with the leased premises. Most business can be started with a simple notification to the local authorities, while in other cases (manufacturing, etc.) a permit is required from public bodies to start the activity.

Before going into too much detail with the landlord, try to fix the most important conditions: the term of the lease and the payment obligations.

Landlords are interested in renting their property for a long term period. If you are just starting your business, try for a one or two year lease with an option to renew.

Before signing check out carefully your payment obligations. Landlords often require tenants to pay not only the rent and the cost of utilities, but also additional, or sometimes hidden costs, like management fee or service charge.

Doing so you can avoid the undesirable situation that you have negotiated a favourable net rent but you will pay extra money as a service charge.

Building out the leased property

If you need to make alterations to the leased property, make sure that it is clearly outlined in the lease what alterations have to be made, who will carry out the works and who will be paying for them.

It is simpler if the landlord makes the construction works and in case of longer terms it is not uncommon that also the cost of building out the leased property will be covered by landlord.

Also keep in mind that if you are not able to use the property until it is built out, negotiate a clause which will allow you not to accept the property until all the construction works are done and not to pay rent until the handover of the property.

Maintenance and repair

Upon Hungarian law, the tenant is responsible for ordinary repair and the landlord shall do extraordinary repair and maintenance works.

However some landlords require tenants to be responsible for all maintenance and repair works in relation to the leased property.

At first, negotiate with the landlord and exclude responsibility for any extraordinary repairs.

In addition, there must be a balance between the rent and the maintenance obligations of the parties. In case you have to pay management or services charges, try to make the landlord responsible for the vast majority of repair and maintenance obligations.

Sublease and exit clauses

Most commercial lease contracts exclude subleasing and assignability, so it is a good idea to negotiate that you can sublet the property if your business has to relocate or close. If you sell your business then you are going to need to assign the lease to the new owner. If the sale is probable in the near future, do not sign a lease which excludes assignability.

Nobody wants to plan for bad things but as a businessman you also need to think over what happens if something goes wrong with the business. Whenever possible try to negotiate favourable early termination fees, like a two or three month penalty.

Default and termination clauses

Default and termination clauses must be borne in mind, even if you think that you would never be in a situation when you must use them.

It is a common practice that landlords build in very strict termination clause with high penalties for tenant’s default, but there is not a word about the termination possibility of tenant if the landlord fails to comply with his obligations

If you cannot pursue your normal business activity in the leased premises due to any reason falling into the landlord’s competence, your landlord should have very tight deadlines to cure the situation. In case the defects persist, you have to be able to put an end to the lease, so that minimise your loss.

On the other hand, before signing the lease, try to negotiate a clause that allows you to cure your default prior to eviction. Before terminating the lease, the landlord should send you a notice letter giving you reasonable deadline to comply with your obligations as a tenant.

Some landlords want tenants to sign a declaration of eviction in front of a notary public, in order to be able to put out tenant from the premises without litigation. Before signing such a declaration, always consult with a lawyer.