Rent in Leases Rent is usually a consideration for a
lease. Rent is money paid for the exclusive use of the premises or money’s
worth. Rent is not mandatory in lease and there could be a valid lease without
the payment of rent. Indeed, a main feature of a lease is lawful occupation by
tenant and whether a person pays regular rent, subsidized rent or no rent at
all is immaterial.
Situations where a Lease may be Created without
Payment of Rent
Some situations where a lease may be created
without payment of rent are –
i. Where a capital sum is paid (premium) so long
as it is permissible;
ii. Where there is a right to live rent-free under
a sale and a lease-back arrangement;
iii. Where there is only the undertaking to
perform and observe the covenants in a lease; and
iv. The mere acceptance of the lease by the
tenant.
Types of Rent Chargeable in Leases
There are many types of rent chargeable in leases.
The ones that are relevant to our discourse are ground rent, rack
rent and premium.
We shall provide a brief explanation of these.
(i) Ground Rent: This is the rent payable
in respect of bare land without consideration for any development or
improvement upon the land. This is payable to the Government. A good example
can be found in section 5(1) of the LAND Use Act 1978, which empowers
the governor of a state to grant statutory right of occupancy on land and also
to impose ground rent for such grant.
(ii) Rack Rent: This is economic rent payable for the land
and any development therein. It is rent for the value of the property. It is
economic rent payable on the total investment on the property. It is determined
by the location of the property, the quality of the building and the extent of
the building. It fluctuates depending on the vicissitudes of market forces.
(iii) Premium Rent: This is a lump sum payment
made by the tenant to the landlord. It is a lump sum which is capitalized and
paid in addition to rent. It is regarded as a fine. Sometimes it is charged
along with the reduced rack rent. It should be noted that in some States like
Lagos, premium rent is prohibited. However, a similar result may be achieved by
the device of demanding rent in advance, although payment of rent in advance is
not advisable because of inflation and taxation implications, especially where
the period is beyond 5 years.
However, premium is to be discouraged because for
the purpose of tax, it is treated as earnings in one year and may attract heavy
tax burden unlike a situation where it is treated as earnings from year to
year. However, if the advance rent does not exceed five years, it will be
treated as earnings from year to year: section 4(2) of the Income Tax
Management Act.
All in all, it should be noted that unless
otherwise stated, rents are paid in arrears and to protect the interest of the
landlord, there should be a rent review clause in a lease to take care of
inflation and other economic consideration and the rent review clause should be
appropriately worded to take care of any possible disagreement that may arise
between the landlord and the tenant: Awaye Motors v. Adewumi (1993) 5 NWLR
(Pt. 292) 236.
©Onyekachi Duru Esq and www.legalemperors.com,
2016. (All Rights Reserved) Unauthorized use and/or duplication of this
material without express and written permission from this site’s author and/or
owner is strictly prohibited. Excerpts and links may be used, provided that
full and clear credit is given to Onyekachi Duru Esq and www.legalemperors.com with
appropriate and specific direction to the original content.