The following are the usual forms of leases:
- Lease of any kind of real property
- Lease with purchase option
- Lease of lands
- Commercial leases
Leases of offices, factories and industries are governed by the Law on Real Estate Leases. While leases of “real estate properties intended for commercial purposes” (meaning those in which business activities are performed or services are rendered on a regular basis) and leases of offices, factories and industries are governed by the Law on Commercial Real Estate Lease.
The Law on Commercial Real Estate Lease presumes (unless there is evidence to the contrary) that all real estate properties in which a commercial establishment operates are intended for commercial use, regardless of whether they are located in a mall, in an office building or in a housing building. This excludes the real estate properties intended for uses such as housing, offices, industries and rural farms.
In some cases, when a shopping center is under construction, a pre-lease agreement is used providing the terms and conditions that will govern the lease once the property is completed and ready for operation. Usually, a guaranty equivalent to three or four rental fees, or a bond, is requested to guarantee the tenant’s obligations. A grace period of one to three months is also usual to construct the premises or office to the tenant’s requirements.
The normal condominium expenses are for the tenant’s account and the extraordinary expenses are borne by the tenant. The costs of the utilities received at the property (electricity, gas, phone, etc.) are for the tenant’s account.
Generally, most leases are entered into by executing the contract before a notary public.
- Residential leases
The Law to Regulate and Control Leasing of Homes (LRCAV) governs residential leases. Rentals of all residential properties are subject to regulation, whereas commercial properties built after January 1987 are exempt from regulation. In addition to the regulation of the rentals, a resolution of the National Executive that prohibits increasing the rentals of the leased homes has been in force for several years.
In commercial leases, there are provisions that may be freely negotiated between the parties and others that are imposed or regulated by the law or by decrees and resolutions issued by the executive branch of the government. Meanwhile, the LRCAV establishes that provisions governing the lease of houses are of public interest; thus, the ability of the parties to freely negotiate the terms of the contract is very limited.
The Civil Code sets the maximum term for leases at 15 years. However, case law has established that after 15 years, the lease continues but becomes a lease for an indefinite term. In such case, an eviction may only be requested if there is a default on any essential obligation set in the contract or any of the restrictive causes contemplated in the LRCAV or in the Law on Commercial Real Estate Lease.
Commercial leases are generally made for a term of one to five years, and, in many cases, they provide for automatic extensions. In the case of properties leased to expatriate workers, transnational companies and other similar individuals or entities, it is usual to include a diplomatic clause that allows for terminating the contract before the original term by giving prior notice to the landlord and paying an indemnity.
In residential leases, landlords are obligated to renew the agreement at the expiration of its term, at the sole discretion of the tenant, because the tenant has a preferential right to continue occupying the property at the expiration of the agreement. For this right, it is only required that the tenant has complied with payment of the rentals and all other obligations pursuant to the agreement and the law. This preferential right is automatic and deemed enforced until the expiration of the term of the agreement. To avoid this, the tenant must notify the landlord at least 30 days before the expiration of the agreement and through an authentic document that must also be filed with the Office of the National Superintendent of Residential Leases (SNAV).
In commercial leases for a definite term, there is the possibility of a legal extension that allows the tenant to continue occupying the leased property upon the expiration of the term agreed to in the contract. This extension varies from one to three years, depending on the duration of the lease relationship.
In residential leases, the tenant has the preferential right to continue occupying the property upon the expiry of the agreement. In addition, the LRCAV prevents eviction from properties used for housing, even if there is a judicial decision declaring the termination or rescission of the contract, until the executive branch of the government guarantees that the tenant has a property to live in.
For leases subject to the LRCAV, lease contracts will have a minimum term of one year, which may be renewed at the option of the lessee. The lessee may elect before the expiry of the term not to continue with the contract without prejudice to the payment of indemnities or remaining fees.
Leases that are subject to the Law on Commercial Real Estate Lease may be terminated by the expiry of the term. The law expressly prohibits the inclusion of clauses providing for the parties’ unilateral right to terminate the lease contract. However, the eviction of the property may be requested if there is a default on an essential obligation of the contract or any of the restrictive causes provided by law.
For commercial leases subject to the Law on Commercial Real Estate Lease, the establishment of lease payments in foreign currency in lease contracts is expressly prohibited by Article 41 of that law. Agreements executed before the enactment of the Law on Commercial Real Estate Lease, which provided for the payment of rent in foreign currency, have a six-month period to adopt this restriction. Thus, rent must thereafter be paid in Venezuelan bolivars at the official exchange rate.
For residential leases, the LRCAV establishes that payment of rentals cannot be set in foreign currency. The agreements executed before the enactment of the LRCAV, which established payment of rent in foreign currency, have a 30-day period to adopt this restriction. Thus, rent must thereafter be paid in Venezuelan bolivars at the official exchange rate.
For commercial leases, the period for the payment of rent will depend on the agreement between the parties. It is usually agreed that rent be paid in advance on the first few days of each month.
For residential leases, rent must be paid monthly within the first five working days of a given month by way of deposits in a current account to be opened by the landlord. This account cannot be closed during the lease relationship.
The general principal is that rent (i) is fixed for the first year of the contract, and (ii) for the following years, renewals or extensions, may be adjusted by mutual agreement between the parties.
The Law on Commercial Real Estate Lease provides that rent may be adjusted (i) upon the expiry of one year from the execution of the lease agreement (on the basis of section “Diverse Goods and Services” of the Consumer Price Index reflected by the Central Bank of Venezuela, corresponding to the preceding year), and (ii) whenever the landlord makes improvements on the leased premises, the value of which exceeds 40% of such leased premises’ value. The value of the improvements is used for establishing the rent.
The LRCAV provides that the fixing of the rental fees of real estate fees for residential purposes will be based on a band between 3% and 5% of annual profitability on the value of the real estate determinable according to the type of lessor. This is annually fixed by means of a resolution issued by the National Superintendence of Home Leasing. In addition, the National Executive may modify the percentages of profitability described above when so determined for reasons of public or social interest.
The basic obligations of landlords are the following:
- Deliver the leased property to the tenant
- Preserve the property in a condition that serves the purpose for which it has been leased
- Maintain the tenant’s quiet enjoyment of the property
- Conduct the repairs required by the property, except for minor repairs
The basic obligations of tenants are the following:
- Pay the rent within the agreed-upon term
- Properly use the property for the use intended in the contract
- Inform the landlord if any repairs are needed and allow the landlord access to the property to carry out the repairs
- Return the real property in the same condition as received
The LRCAV establishes several new obligations for the landlord:
- Lease agreements must be written in a public instrument (notarized or recorded with the real estate registry) and previously reviewed by the SNAV. Three original copies must be executed, one for each party and one for the SNAV, and it must comply with the guidelines established by the LRCAV, especially in connection with the rental. The agreement must be accompanied by the resolution by which the SNAV establishes the rent.
- Rent not calculated according to the methods established by the LRCAV, or according to a resolution issued by the SNAV, cannot be established in an agreement.
Landlords must open a current account for the tenant to pay the rent by way of deposits into that current account. The account cannot be closed during the lease relationship. If the account is not opened or if it is closed, the tenant is not obligated to pay rent.
Before carrying out any operation to transfer the ownership of the leased property, landlords are obligated to offer the property to the tenant who has complied with the payment of rent (offering a preferential right). The offer must be personally made to the tenant occupying the property by an authentic document that must contain the sales price (which cannot be higher than the price established by the SNAV in the resolution issued to calculate the rent and that must be attached to the offer), the terms and conditions of the negotiation (obligation to sell on credit, minimum term of one year to obtain a mortgage credit, prohibition to request payment in arrears or assets to secure the operation, prohibition of unilateral termination of the agreement by the owner), the notification address, the title and condominium deeds of the property and the certificate of liens.
The owner will be obligated to make a new offer to the tenant if time elapses from the date of the rejection or lack of answer and the property has not been sold to third parties on the required date. Sales to third parties without notifying the tenant of its preferential right will be void without the need for a judicial action.
The owners are obligated to give a discount on the sale price to the tenants (from 10% to 25%), depending on the number of years of the lease relationship (between 10 and 41 years, or more).
The buyers of the leased property must notify the tenants, by means of a public document, of any transaction to transfer the ownership of the leased property. A certified copy of the document containing such transaction must be attached to such notification. The tenants are entitled to subrogate themselves in the same conditions established in the transfer document, in the place of the third party acquiring the leased property, if the owner transfers the property without considering the preferential offering right. The tenant will have 180 business days, as of the date of the notification of the acquiring party, to institute the legal lease retraction.
Violators of the LRCAV will be subject to fines of 50, 100, 400 or 1,000 tax units. The fines must be paid within five business days following their notification. Recurrence will be punished with double the fine imposed. A third recurrence by the owner of more than five homes for leasing will entitle the SNAV to expropriate the property, which will be awarded to the tenant (Articles 141, 142, 143 and 145).
Landlords of multiple homes that have been leased for more than 20 years must offer them to their tenants within a term of 60 days as of the enactment of the law, following the procedure established concerning the offering preferential right.
The assignment of the contract or the subletting of the leased property without the landlord’s express authorization is a cause for termination of the contract.
If due to an act of God the property should be entirely destroyed, the contract is rescinded. If it is partially destroyed, the tenant may, according to the circumstances, request the termination of the contract or a reduction in the price.
If the leased property is damaged or destroyed due to causes imputable to the tenant, the landlord will be entitled, in addition to a request for the termination of the contract, to demand that the tenant pay for the damages caused.
Under the Law on Commercial Real Estate Lease, the tenant may be evicted from the leased premises in case of duly justified demolition.
Legally, there is no obligation to insure leased property. In commercial leases or leases of property to be used as offices, the landlord typically demands that the tenant insure the leased property. In properties to be used for residential purposes, the tenant is not typically required to insure the leased property.