In Kenya, a side agreement also referred to as a side letter or supplemental agreement, is a separate document that is signed by two or more parties to an existing agreement. It contains additional terms and conditions not included in the original agreement and/or seeks to clarify certain provisions of the original agreement.
A side letter can be used in various contexts, including employment contracts, lease agreements, and business contracts. In the case of lease agreements, a side agreement will contain additional provisions in regards to repairs and maintenance of the property, renewal of the terms of the lease or termination of the lease by either party.
How to negotiate exit terms in lease agreements?
Where parties are bound by a lease agreement that does not contain a termination clause, it is advisable for parties to negotiate their exit terms in a side agreement. Some of the critical provisions to include in a side agreement include, but are not limited to, the following:
- Notice period: The parties should agree and explicitly provide in the side agreement the notice period required to be issued before terminating the main lease agreement. The notice should be in writing and properly served to the other party before termination can be effected.
- Grounds for Termination: A side agreement should provide the grounds that entitle a party to prematurely terminate the lease agreement. These may include breach of a party’s obligation in the lease agreement, financial difficulties or the need to relocate.
- Consequences of Termination: Early termination of a lease by one party may result in the other party incurring losses. As such, it is important for the parties to negotiate and agree on writing the consequences of early termination by a party. This may include the reimbursement or forfeiture of the security deposit, payment of penalties or compensation in cases of loss or damage occasioned by a party.
- Mitigation of loss: A side agreement may provide provisions on how a party to a lease agreement can mitigate on loss before or after its occurrence. For example, before early termination of a lease, a tenant may be required to find a suitable replacement to take over the premises on similar terms to minimize the landlord’s loss of rental income. After termination, both parties may be required to mitigate any losses occurring on the lease property by ensuring that it is left in good condition and all repairs are undertaken.
- The procedures for vacating from the property: A side agreement may also provide for procedures when it comes to vacating the premises. For example, the agreement may provide that upon termination of the term, in addition to the tenant undertaking repairs on any damage caused on the property, they are required to remove all their fixtures, goods or assets from the premises. Failure to do so, the fixtures shall be deemed abandoned and of no value to the Tenant and the same shall automatically become the sole property of the landlord.
- Mutual Termination: The side letter may also provide for the mutual termination of the lease agreement, under certain conditions agreed upon by both parties. For example, where there is a high demand for the premises, the parties may mutually terminate the lease agreement before the due date provided that the tenant has complied with all his/her obligations in the lease.
In conclusion, negotiating early termination of a lease agreement through a side agreement can be beneficial to both the tenant and landlord. A properly drafted side agreement will ensure that parties avoid disputes and have a smooth exit from the lease agreement. Since a side agreement is legally binding, it is crucial for the parties to seek legal advice to ensure that their interests are catered for.
Written by Cynthia Kitolo
Legal Officer & Advocate of the High Court of Kenya