Are you considering signing an institutional lease agreement and wondering if it’s a good decision? Before you make that decision, learn what an institutional lease agreement is, how it differs from an occasional lease, and what provisions you should pay attention to.
What is an institutional lease agreement?
To rent an apartment, you can sign one of 3 types of agreements:
- An ordinary (classic) lease agreement, which is regulated by the Civil Code.
- An occasional lease agreement, introduced in 2010 by the Act on the Protection of Tenants’ Rights, Municipal Housing Resources, and Amendments to the Civil Code.
- Institutional Lease Agreement, introduced in 2017 under the Act on the National Property Stock.
Who can enter into an institutional lease agreement?
The main difference between an institutional lease and an occasional lease concerns the parties to the agreement. An occasional lease agreement regulates renting from a person who does not deal commercially with renting apartments. On the other hand, an institutional lease agreement involves:
- A physical person (tenant),
- An economic entity that professionally deals with apartment rentals. This can be either a physical person who conducts a sole proprietorship in this field or a company.
Simply put, in an institutional lease agreement, you are renting an apartment from a company.
What type of premises can an institutional lease agreement cover?
An institutional lease agreement can only concern premises that are rented for residential purposes. Therefore, you cannot rent a commercial space under this type of lease, in which you would conduct a store, appliance repair shop, or food service.
How to enter into an institutional lease agreement
An institutional lease agreement must be made in written form—otherwise, it is invalid. The same applies to all attachments to the agreement and additional declarations.
How long can an institutional lease agreement last?
You must enter into an institutional lease agreement for a specified period without any limits. Landlords usually offer an annual duration of the agreement with the possibility of extension. However, nothing prevents you from signing such an agreement immediately for 10, 20, or even 30 years.
What attachments does an institutional lease agreement include?
You must compulsorily attach a declaration of submission to execution and an obligation to vacate and surrender the premises used under the institutional lease agreement.
What does that mean?
If the tenant does not pay rent or does not fulfill other obligations, the landlord can send them a demand to vacate the premises (within no less than 14 days). If the tenant does not comply, the landlord does not need to file a court lawsuit. The court merely needs to grant an enforceability clause to the declaration, and the landlord can immediately commence enforcement proceedings.
An institutional lease agreement does not require (unlike an occasional lease) the tenant to specify in which premises they will reside after eviction. On the contrary, it declares that no social or replacement premises are entitled after the execution.
The declaration attached to the institutional lease agreement must be in the form of a notarial deed.
What fees are associated with signing an institutional lease agreement?
If you want to sign an institutional lease agreement, the landlord will probably ask you to pay a security deposit. You will get this deposit back within a month from the day the premises are vacated. The landlord may deduct from it:
- Overdue rent,
- Execution costs,
- Costs of repairing damages incurred during the use of the premises.
According to the regulations, the deposit cannot exceed six times the rent at the time of signing the agreement. However, the property owner may set a lower deposit, taking into account, for example, the good credit history of the tenant.
What provisions regulate rental charges?
In an institutional lease agreement, you must specify the amount of rent and how other owner-independent charges (such as utilities or garbage disposal fees) will be billed.
Also pay attention to how the agreement regulates any changes in the amount of rent—when the landlord can do this and what formalities are associated with it.
When does the institutional lease agreement end?
The institutional lease agreement ends when the specified time in the agreement expires.
Important! After the specified time, the institutional lease agreement does not automatically convert into an indefinite lease agreement (as with an occasional lease) but expires.
What does the termination of an institutional lease agreement look like?
Both the landlord and the tenant have the right to terminate the lease agreement during its term, but it must be clearly specified when they can do this.
The landlord can terminate institutional leasing with one month’s notice if the tenant:
- Uses the premises in a manner contrary to the agreement or not according to its purpose.
- Neglects their duties—damages the premises, disturbs the peace of other residents.
- Does not pay rent and other fees set out in the agreement.
- Rents or sublets the premises to another person without the landlord’s consent.
Meanwhile, the tenant has the right to terminate the lease agreement if, for example, the landlord does not fulfill their obligations or the apartment has defects that the landlord concealed from the tenant.
More information about terminating an institutional lease agreement
What else should an institutional lease agreement contain?
In addition to all the information discussed above, the lease agreement must also compulsorily contain:
- Identification of the property owner (landlord) and the tenant,
- Specification that the agreement pertains to institutional leasing,
- Identification of the contract object along with a detailed description of the premises,
- Declaration by the landlord of having legal title to the property,
- Specification of how the tenant may use the premises,
- Information about the handover of the contract object.
