Renting Commercial space and business premises lease agreement

Renting commercial space is a first thing to consider after decision to start a business and open a company in Serbia.

This step can be quite challenging, as depending on the type of business and its needs, you need to find the appropriate space.

Even when you find a space that suits your business needs, it is important to pay special attention to the lease agreement. This is crucial in order to avoid any potential unpleasant situations that could even escalate into a dispute.

What is a commercial lease agreement?

A lease agreement for business premises is a legal contract in which the landlord (property owner) grants the tenant the right to use a commercial space for a specific period in exchange for rent. This type of agreement is used when a business needs a physical location to operate, whether for retail, office, or industrial purposes.

Key elements of a business lease agreement typically include:

• Identification of the parties
• Description of the property and its intended use
• Lease duration and renewal terms
• Rent and payment terms
• Security deposit and other financial obligations
• Maintenance responsibilities
• Termination conditions

The main difference between a residential lease and a business lease is the purpose of the rented space. A residential lease involves renting a space for living purposes, while a business lease pertains to renting a space for commercial activities. Business leases often include more detailed clauses regarding the use of the property, maintenance, and terms specific to the business’s operations, whereas residential leases focus more on the tenant’s rights and privacy.

Legal framework and applicable laws in Serbia on renting commercial space

The subject of the lease agreement, as well as the rights and obligations of the parties involved and the specifics of the agreement, are regulated by the Law on Contracts and Torts. Therefore, in case of any doubts regarding certain clauses of this agreement, it is necessary to consult the Law on Obligations. As with most cases, it is also essential to review judicial practice concerning disputed situations to resolve any disagreements in the most efficient manner possible.

Although many business owners enter into lease agreements and rent office space, there is a growing trend in certain industries where company owners do not rent business premises, at least not in the early stages of their business operations. This is particularly noticeable in industries where it is possible to organize work in a way that employers and employees enter into work-from-home contracts.

This approach is entirely justified and expected in order to reduce costs and optimize business operations. In such cases, you are likely wondering where to register the official address of the company’s headquarters when registering the company with the Business Registers Agency.
The answer is – using the services of a virtual office in Serbia.

Virtual Office in Belgrade

If you want to optimize business costs and if it is not necessary to have business premises during the initial phase of operations, a suitable option would be to use the services of a virtual office in Belgrade.

Essentially, when registering a company in Serbia and registering the address of the headquarters, you can use this address as the registered office address of the company. In addition, this service includes a range of administrative tasks, from receiving and managing mail, notifying you about received mail, and other important administrative procedures.

When selecting this service, it is important to ensure that the provider of the virtual office is familiar with all necessary regulations and that administrative services can be performed adequately.

Of course, it would be necessary to conclude an agreement for the provision of virtual office services, which would regulate all significant clauses.

Given the importance of this service, it is crucial to choose a provider who is familiar with the applicable regulations and has a well-developed system for providing administrative support.

Our law firm, NCR Lawyers, actively provides this service to clients, significantly facilitating business operations in Serbia.

Key elements of a commercial lease agreement

Although every contract, including a lease agreement for business premises, is tailored specifically to the contractual relationship and the needs of the parties involved, the following are key provisions commonly included in every lease agreement for business premises:

• Identification of the contracting parties
• Description and purpose of the business premises
• Duration of the lease and conditions for extension
• Amount of rent and payment method
• Deposit and security provisions
• Subleasing possibilities

Identification of the Contracting Parties

It is essential for the lease agreement to include full identification of the contracting parties, allowing for clear and unambiguous determination of who the parties are.
If one of the contracting parties is an individual, the following must be specified:

• Full name
• Personal identification number
• Residential address

On the other hand, if the contracting party is a legal entity, i.e., a company, the following details should be provided:

• Business name
• Registered address of the seat
• Company identification number
• Tax identification number (TIN or in Serbian “PIB”)
• Legal representative of the company or the person authorized to sign the lease agreement

Description and Purpose of the Business Premises

It is important to provide a detailed description of the business premises in the lease agreement, specifying what is included within the space and the intended use for the premises.

Duration of the Lease and Conditions for Extension

A lease agreement for a fixed term automatically expires at the end of the agreed period unless the law provides otherwise. However, if the tenant continues using the leased premises after the contract expires, and the landlord does not object, it is considered that a new lease agreement has been concluded for an indefinite period, under the same terms.

A lease agreement for an indefinite period can be terminated by unilateral notice from either party, with respect to the notice period. If the lease does not specify a notice period, the statutory minimum is eight days.

Rent and Payment Method

The lease agreement must include provisions specifying the amount of rent and the payment terms. It is not uncommon for the tenant to fail to pay rent regularly, which may lead the landlord to initiate legal proceedings related to debt collection in Serbia.

Rights and obligations of the landlord

The landlord has a number of obligations toward the tenant, which include the delivery and maintenance of the property, responsibility for defects, as well as actions in case of repairs and legal obstacles. Here are the key duties of the landlord:

• Delivery of the property in good condition
• Maintenance of the property and coverage of costs
• Termination of the contract and reduction of rent due to repairs
• Changes to the leased property
• Liability for material defects
• Liability for legal defects

Delivery of the Property in Good Condition

The landlord is obliged to deliver the business premises to the tenant in a functional condition, ensuring that it can be used for the purpose for which it was rented.

Maintenance of the Property and Coverage of Costs

The landlord is responsible for maintaining the leased property and is required to make all necessary repairs to keep it in proper condition. If tenant must bear maintenance costs that are otherwise the responsibility of the landlord, the tenant has the right to seek reimbursement.

Termination of the Contract and Reduction of Rent Due to Repairs

If significant repairs are required on the leased property that hinder its use, the tenant may request a reduction in rent or even terminate the contract. This means the tenant is not required to endure prolonged disturbances without adequate compensation.

Liability for Material Defects

The landlord is responsible for any defects in the property that prevent its normal use, whether the landlord was aware of them or not. However, if the tenant was aware of the defects before the contract was signed, the landlord is not liable.

Liability for Legal Defects

If a third party claims rights to the leased property (e.g., claims ownership or usage rights), the landlord is obligated to resolve these issues. Otherwise, the tenant may terminate the contract or seek a rent reduction.

Rights and Obligations of the Tenant – What You Need to Know?

The tenant, as the user of the rented property, has a number of obligations toward the landlord. To avoid potential misunderstandings, here is an overview of the most important duties that the tenant must fulfill, which must be clearly regulated in the contract:

• Proper use of the leased property
• Timely payment of rent
• Returning the property in good condition
• Notifying the landlord of issues

Proper Use of the Leased Property

The tenant is required to use the leased property responsibly and in accordance with the contract. This means they must not change its purpose or use it in a way that could damage it. Therefore, it is important to specify the intended use of the business premises in the contract. If the tenant uses the property improperly, the landlord can issue a warning, and if misuse continues, the landlord may even terminate the contract.

Timely Payment of Rent

Paying the rent on time is one of the tenant’s fundamental obligations. Unless otherwise stated in the contract, rent is typically paid in accordance with local customs—usually semi-annually or in shorter intervals. If the tenant does not pay the rent within 15 days after receiving a warning, the landlord has the right to terminate the contract.

Returning the Property in Good Condition

At the end of the lease, the tenant must return the property undamaged, except for normal wear and tear due to regular use. Additionally, if the tenant has made any modifications to the property, they must return it to its original state unless otherwise agreed with the landlord.

Notifying the Landlord of Issues

The tenant is obligated to promptly notify the landlord of any defects or potential hazards that occur during the lease. If the tenant fails to do so, they may lose the right to compensation for any damage.

By adhering to these obligations, the tenant avoids potential problems and ensures a good business relationship with the landlord.

Security deposit and additional costs

The security deposit is usually widely prescribed in lease agreements. The obligation of payment of the security deposit is on the tenant while the amount of the deposit is mutually agreed upon. Typically, the amount of security deposit is equivalent to one month’s rent.

The main purpose of security deposit is to secure the coverage of potential damage that can be caused to landlord. Upon termination of the lease, the deposit is returned to the tenant unless there is damage to the premises or unpaid costs caused by the tenant. This must be clearly and unequivocally outlined in the lease agreement.

Also, there are additional costs related to usage of rented property, such as electricity costs, taxes, maintenance costs, etc. All these costs should be clearly stated in lease agreement and it should be indicated in precise manner who is obliged to cover these costs – that is the tenant.

Use of premises and changes during the lease

As mentioned, it is important to indicate in lease agreement the purpose for which the commercial space is going to be used by tenant. In that sense, the tenant should be able to use business premises for the purpose defined in the agreement.

Having that in mind, the landlord cannot make alterations to the leased property during the term of the agreement unless the tenant agrees. If such changes would reduce the ability to use the property, the tenant is entitled to a rent reduction.

This limitation has the purpose of protecting the tenant’s right to use the premises for the purpose for which he rented the commercial space.

Subletting and transfer of lease rights

A very common question in practice is whether the tenant may sublease the rented property. The tenant is entitled to sublease the rented property or transfer its use to someone else, unless the lease agreement specifies otherwise. It is important that subletting does not harm the landlord, and the tenant guarantees that the subtenant will comply with the terms of the contract.

If the landlord’s consent is required for subleasing, the landlord can only refuse it for justified reasons. If tenant subleases the property without the necessary approval, it may result in terminating the lease agreement by landlord.

Additionally, if the tenant owes a certain amount to the landlord, the tenant may directly seek payment from the subtenant. Finally, the sublease automatically terminates as soon as the main lease agreement expires.

Common mistakes to avoid when signing a commercial lease

Entering into a lease agreement for business premises may seem like a simple legal task, but in practice, mistakes often occur that can later lead to serious issues for both tenants and landlord. Here are the three most common mistakes to avoid:

• Insufficient legal checks of the property and the owner
• Imprecisely defined lease termination conditions
• Neglecting additional costs (utilities, taxes)

Insufficient Legal Checks of the Property and the Owner

Before signing the lease, it is crucial to conduct a thorough legal check of the property and the owner. Verify the cadastral data and ensure that the person renting the property is indeed the owner or has the authorization to lease it. Additionally, it is important to confirm whether there are any encumbrances or ongoing legal disputes that could affect the use of the property.

Imprecisely Defined Lease Termination Conditions

One of the most common mistakes is failing to clearly define the conditions under which the lease can be terminated. To avoid problems in the future, the lease should explicitly regulate the notice periods, termination conditions, and the obligations of both parties in case of early termination. Clear provisions can help prevent lengthy and costly legal disputes.

Neglecting Additional Costs (Utilities, Taxes)

In addition to rent, business premises come with additional costs such as utilities, taxes, and maintenance fees. If the lease does not specify who is responsible for these costs, disagreements may arise between the tenant and the landlord. Therefore, it is important to clearly stipulate who will cover which costs and how they will be calculated.

In conclusion, a well-drafted lease agreement for business premises should be precise and clearly regulate all key issues.

Do you need a notary or a lawyer when renting commercial space?

The law does not require notarization of a lease agreement for it to have legal effect. In practice, it is common for both the landlord and the tenant to want to have their signatures notarized on the lease agreement, but such notarization does not provide any greater legal security than simply signing the agreement.

When the parties wish to further ensure the fulfillment of obligations stipulated in the lease agreement, the appropriate option is to have the lease notarized in the correct form with a public notary. By doing so, the lease agreement becomes an enforceable document, which results in more efficient and quicker enforcement of rights before the courts. Specifically, if the lease agreement is notarized as a public notary record, making it an enforceable document, the landlord could immediately initiate enforcement proceedings and collect any claim they have against the tenant.

Therefore, although notarization of a lease agreement is not a requirement for its validity (unlike in the case of a real estate purchase agreement), this procedure contributes to legal certainty and protection for both parties involved in the contract.

In situations involving long-term leases or larger premises, it is highly recommended to consult a lawyer. A lawyer can provide valuable guidance in drafting the agreement, ensuring that all terms are clear and legally sound. Additionally, lawyer can help anticipate potential issues that may arise during the lease, such as disputes over maintenance or lease termination, and ensure that the agreement protects the interests of both parties.

FAQ – Most common questions about renting commercial space

Conclusion on lease agreement in Serbia

A lease agreement for business premises is one of the main contracts that owners of newly established companies and businesses enter into. An alternative that allows for cost optimization in the early stages of business is certainly the virtual office service. To ensure that your lease agreement will adequately protect your rights, it is essential to pay enough attention to the content of the contract.

However, if you don’t have the time or sufficient expertise to cover and foresee all important and potentially contentious situations, our law firm NCR Lawyers can provide you with the necessary legal support and assistance.

This article is for informational purposes only and does not constitute legal advice. If you need additional information regarding the topic in question, please feel free to contact us by email at office@ncrlawyers.com or by phone at +381677049551.