Before concluding a lease contract
Consider the decision thoroughly
Before entering into a contract, think through what kind of contract you want to conclude and on what conditions.
Read the contract thoroughly! Read the terms and conditions of the contract properly and make sure that all the rights and obligations under the contract are understandable. If necessary, discuss any unclear issues with the party that prepared the contract and specify the content of the contract.
Explore the premises for rent
The lessee should explore the condition of the rental premises before concluding the contract. It is also worth taking an interest in the surroundings and neighbours (young or old people, families with children, etc.)
If the parties wish to agree that the lessee shall not only bear the rent but also accessory expenses (e.g. for electricity, water, heat), the approximate amount of these payments shall be determined.
Investigate the background of the other party to the contract
Before concluding a lease contract, it is worthwhile for both the lessor and the lessee to investigate each other's background. Information that should be paid attention to can be obtained free of charge or for a reasonable fee from several databases.
The lessor can find useful information from the following sources:
- The Credit Register of Creditinfo – enables you to find out about the lessee's previous arrears and payment behaviour;
- Public notes – among other things, it includes notices of the bailiff, on seizure of property, on bankruptcy proceedings, from the Tax and Customs Board, and from the lease committee;
- E-file – contains data on a sentenced person and his or her sentence on the basis of court decisions that have entered into force and decisions of extrajudicial bodies;
- Riigi Teataja – enables you to examine court decisions that have entered into force;
- Social media (Facebook, etc.) – there you can find common acquaintances with the lessee, evaluate the lessee's lifestyle according to the pictures, etc.
Conclusion of contract
To avoid confusion and problems, conclude a written lease contract. If a dwelling lease contract is not concluded in writing, but the term of the contract exceeds one year, the contract is considered to be concluded for an unspecified term.
The contracting parties should communicate to each other regarding their rights and obligations both before the conclusion of the contract and during the term of validity of the contract by correspondence (e.g. e-mail) so that later the facts could be proved, should there be any disagreement.
Provisions of the law do not need to be included in the contract. At the same time, it is useful for both the lessor and the lessee to specify in the contract the terms and conditions that are important to him or her.
The following may also be useful to the lessee:
- e-Land Register, where the lessee can find information related to the immovable property to be rented: the owner of the immovable property, any restrictions imposed on the immovable property, and mortgages encumbering it;
- e-Business Register – if the lessor is a legal person, the information related to it can be accessed, including tax arrears, prohibitions on business, etc.
Recommendations to the lessor
- Accessory expenses. If the payment of accessory expenses is not agreed in the contract, they are paid for by the lessor pursuant to the law. However, the parties may agree that the accessory expenses shall be borne by the lessee. The law provides a formal requirement for an agreement on accessory expenses that can be reproduced in writing, i.e. the agreement shall be concluded in a manner that can be continuously reproduced in writing and contain the names of the persons who made the transaction, but it does not have to be signed by hand (e.g., e-mail).
- Building maintenance and improvement costs. In addition to accessory expenses, in the case of a dwelling lease contract, the parties can also agree that the lessee shall bear the costs required to maintain the entire building in its contractual status and improve it (maintenance and improvement costs of the building). The relevant agreement can be concluded at the initial conclusion of the contract and it shall be in a form reproducible in writing. Therefore, if the parties want to agree on the payment of the so-called repair fund by the lessee, the relevant agreement shall be reflected in the contract in accordance with the requirements.
- Agreement on repair obligation upon the return of the thing. In the case of a residential lease, the parties may also agree that the lessee shall return the dwelling in such a condition that the normal wear and tear or deterioration occurred upon normal use thereof pursuant to the contract has been eliminated or cover the reasonable and necessary expenses related to it. The parties can only enter into such an agreement upon the initial conclusion of the contract and it shall be in a form reproducible in writing.
Thus, when concluding a contract, the lessor should consider whether entering into such an agreement is desirable and relevant within the framework of the particular contract, and define the circumstances related to the agreement as precisely as possible in order to avoid later disputes.
- Users of the dwelling. It is worth determining in the contract who will use the dwelling. By law, the lessee has the right to accommodate members of his or family in a rented dwelling, but the contract may stipulate that this can only be done with the consent of the lessor. It is also reasonable to include in the contract whether the lessee has the right to bring pets to the rental premises.
- The condition of the premises. The contract should describe as accurately as possible the conditions that the rental premises must meet during the term of the lease and fix the condition of the dwelling (including utility meter readings). In order to be able to prove it later, the parties could prepare an instrument of delivery and receipt and attach to it photographs of the condition of the dwelling and its furnishings. If the condition of the dwelling and property is not accurately described, it is more difficult for the lessor to claim compensation from the lessee for the damaged or destroyed property. It is also important to indicate in the lease contract the number of key sets and how they are distributed.
- Contract concluded for a specified or an unspecified term? The lessor should thoroughly consider for how long he or she wants to rent out the dwelling. It is likely to be more beneficial for the lessor to have a contract with an unspecified term, as it can be cancelled both extraordinarily and ordinarily, in the latter case with at least three months' notice. Also, in the case of a contract entered into for an unspecified term, the lessor has greater rights under the law to increase the rent.
- Agreements on contractual penalty and interest on arrears. In the event of a significant breach of a non-monetary obligation, it is possible to provide for a contractual penalty in the dwelling lease contract, which may be up to 10% of one month’s rent for one violation and, in the case of various violations, in total no more than 20% of one month’s rent. In the case of dwelling lease contracts, the parties can agree on an interest rate exceeding the rate by law (rate referred to in section 94 of the Law of Obligations Act + 8% per annum), but no more than three times the rate by law (currently 3 × 8% = 24% per annum). The relevant agreements shall be concluded in a form reproducible in writing.
Recommendations to the lessee
- Accessory expenses. If, according to the contract, the lessee has to bear the accessory expenses, he or she should avoid a general agreement according to which he or she should fulfil all the obligations that would otherwise be incumbent on the owner of the thing as a result of ownership. The lessor may only charge as accessory expenses those costs that are directly related to the use of the dwelling. The contract should specify exactly which costs will be borne by the lessee.
- Building maintenance and improvement costs. If the parties have agreed that the lessee shall bear the costs of maintaining and improving the building, they can only be transferred to the lessee to a reasonable, proportionate, and foreseeable extent. It is also important to emphasise that such an agreement can only be entered into at the initial conclusion of the contract, so that the lessee is able to negotiate the amount of rent to be agreed upon accordingly.
- Agreement on repair obligation upon the return of the thing. It is important to emphasise that this is just a possibility provided for by law. If the lessee does not wish to perform the relevant work or incur expenses, the law presumes that expenses which may result from the normal wear and tear are covered by the rent. The lessee should carefully consider whether he or she has enough skills and opportunities to take on such an obligation. Repairs required to eliminate wear and tear or deterioration of the dwelling can be considered, for example, painting ceilings and walls, changing wallpaper, plastering marks on the walls, deep cleaning of the floors, or other such work, which the lessee can usually perform without special skills.
Once this corresponding commitment has been made, it should be taken into account when negotiating the amount of rent, since the amount of rent in this case should also be smaller. It is also important to emphasise that it is not possible to impose on the lessee a general maintenance obligation of the lessor (e.g. elimination of accidents, etc.) or an obligation to improve the dwelling with the respective agreement.
- Security deposit. The dwelling lease contract may stipulate that the lessee shall pay the lessor a security deposit in the amount of up to three months' rent. The parties may agree on a smaller amount, but a larger security deposit may not be claimed from the lessee, and the lessee has the right to refuse to pay it.
- Contract concluded for a specified or an unspecified term? The lessee should think carefully about whether he or she wants to conclude a contract for a specified or an unspecified term. A contract entered into for a specified term may be more beneficial for the lessee, as it can only be terminated by the lessor in an exceptional case (e.g. if the lessee violates the contract). Also, in the case of a contract with a specified term, it will be more difficult for the lessor to increase the rent.
The disadvantage is that if the lessor does not want to continue the contract after the expiration of the term, the lessee will have to look for a new place to live. Here, however, it shall be taken into account that if the lessee continues to use the rental space after the expiry of the contract with a specified term, then if neither the lessor nor the lessee expresses another intention to each other within two weeks, the contract will become a contract entered into for an unspecified term. This also means that the lessor has the right to claim payment for the use of the dwelling after the expiry of the term of the contract.
Main rights and obligations
Rights and obligations of the lessor
The main obligation of the lessor is to provide the lessee with a dwelling for use at the agreed time, as well as to ensure that it is in a suitable condition for its contractual use.
The conclusion of a lease contract does not mean that the lessor is no longer obliged to maintain the suitable condition of the dwelling. He or she shall ensure the usability of the dwelling and its compliance with the terms and conditions provided in the lease contract, i.e., eliminate from the dwelling any defects for which the lessee is not responsible at his or her own expense. At the same time, the lessee is obliged to possess and maintain the dwelling prudently.
It shall be kept in mind that a rented dwelling is the lessee's home, and the inviolability of the home is a constitutional right. On the other hand, the lessee is obliged to endure inconvenience if the lessor performs work required to maintain the dwelling and eliminate defects.
The lessor has the right to receive rent from the lessee for the use of the dwelling, as well as to receive the premises back from the lessee after the termination of the contract.
In the case of a contract entered into for a specified term, the lessor may increase the rent of the dwelling on the grounds provided for in the law every year after the conclusion of the lease contract, giving at least 30 days' notice. The notice shall indicate the new amount of rent and the time when it will take effect, as well as the justification and calculation of the rent increase and the procedure for contesting the increase in rent.
During the term of a contract entered into for a specified term, the rent may be increased if the extent of the increase and the basis for its calculation are specified in the lease contract either as a specific amount, percentage, or index, the lease contract is concluded for a term of at least three years, and the rent is not increased more frequently than once a year. The parties may also agree on the right of the lessor to unilaterally increase the rent on the grounds agreed in the contract. The basis for raising the rent or other unilateral amendment of the contract shall be specified in detail in the contract.
If the lessor has claimed a security deposit from the lessee, the deposit shall be kept by the lessor in a credit institution separately from the assets of the lessor and at least at the local average interest rate. The interest belongs to the lessee and increases the deposit. The deposit and the accumulated interest shall not be included in the bankruptcy estate of the lessor and a claim for payment cannot be made thereon against the lessor in enforcement proceedings. The lessee may demand the deposit to be returned if the lessor has not notified the lessee of any claims against the lessee within 2 (two) months after the expiry of the lease agreement.
In order to protect the rights of the lessor, the law provides for a right of security for the lessor. This means the right of the lessor to satisfy his or her contractual claim (e.g. a lease claim) in certain cases at the expense of movable property located in the rented space (it may belong to the lessee or a third party).
Rights and obligations of the lessee
The lessee has the right to receive from the lessor a dwelling that complies with the terms and conditions of the contract and use it during the term of validity of the contract. It shall be used prudently and according to the intended purpose agreed upon at the time of the lease. The lessee shall take into account the interests of other residents and neighbours in the building.
The main obligation of the lessee is to pay the agreed rent for the use of the dwelling. If he or she does not do this, the lessor has the right to cancel the contract in certain cases (see below for more details).
The lessee shall eliminate minor defects in the dwelling, which can be corrected by small cleaning or maintenance work. If the lessee wishes to make major changes, he or she shall obtain permission from the lessor (the permission shall be expressed at least in a form reproducible in writing, e.g. by e-mail).
The lessee has the right to accommodate members of his or her family in the rented dwelling. The contract may stipulate that this can only be done with the consent of the lessor.
The lessee has the right to sublease the dwelling, but the lessor’s consent is required for this too. The lessee must understand that if he or she subleases the dwelling to someone else, he or she is responsible for that person’s actions as if they were his or her own.
If the lessor wants to increase the rent, the lessee can challenge it within 30 days.
The lessee has the obligation to vacate the dwelling at the end of the contract and deliver it to the lessor. All keys shall also be returned. The dwelling shall be returned in a condition corresponding to the contractual use. If, at the time of the conclusion of the contract, an instrument of delivery and receipt was drawn up, the dwelling shall be transferred in the condition indicated in it. If the parties also agree on lessee’s obligation to return the thing in such a condition that the normal wear and tear or deterioration occurred upon normal use thereof pursuant to the contract has been eliminated or cover the reasonable and necessary expenses related to it, the relevant obligations shall be fulfilled upon termination of the contract.
Termination of the contract
In order to cancel the contract, a declaration of cancellation shall be submitted to the other party, which must be in a form reproducible in writing (e.g. by email). The lessor’s declaration shall contain at least the following information: the leased thing, the day of termination of the contract, the grounds for cancellation, the procedure for contesting the cancellation, and the term. The terms for cancellation shall also be observed.
A lease contract entered into for a specified term expires upon expiry of the term unless the contract is extraordinarily cancelled earlier. A contract entered into for a specified term cannot be cancelled ordinarily.
A lease contract entered into for an unspecified term may be ordinarily cancelled by both the lessee and the lessor with at least three months' notice. The same applies if the term of the lease contract exceeds 30 years, unless the lease contract is concluded for the lifetime of either the lessee or the lessor.
Both a lease contract entered into for a specified and an unspecified term can be extraordinarily cancelled for good reason. The reason is good if, in the event of its occurrence, the contracting party seeking cancellation cannot be expected to continue to perform the contract, taking into consideration all the circumstances and the interests of both parties.
The lessee can cancel the contract extraordinarily primarily if he or she is unable to use the leased space for reasons attributable to the lessor.
The lessor can cancel the contract extraordinarily primarily in the following cases:
- the lessee violates the obligation to use the rented space prudently and in accordance with the intended purpose or neglects the interests of neighbours or other residents of the house;
- the lessee has failed to pay a significant part of the amount due (rent, accessory expenses, maintenance and improvement costs of the building) on two consecutive due dates; rent or security deposit debt exceeds two months’ rent; the debt for accessory expenses or for the maintenance and improvement costs of the building exceeds the amount of the accessory expenses or the costs of maintaining and improving the building payable for two months, respectively.
In this case, the lessor shall give the lessee an extended term of at least 14 days in a form reproducible in writing, warning that in the case of non-payment of the debt by the given term, he or she will cancel the contract.
The cancellation is void if the lessee had the right of offsetting the rent claim and makes a declaration of offsetting immediately after receiving the declaration of cancellation;
- bankruptcy of the lessee is declared and the lessee does not provide the lessor with a sufficient security deposit to cover future rent and accessory expenses.
Both parties to the contract have the right to cancel the contract if the condition of the dwelling may pose a threat to human health upon its use.
The sale of the leased immovable does not terminate the validity of the lease contract. The rights and obligations of the lessor arising from the lease contract are transferred to the new owner. The new owner can cancel the lease contract within three months if he or she urgently needs the space. In this case, the lessee shall be notified of the cancellation at least three months in advance.
However, the regulation of the urgent need to use the premises by the owner does not apply to the transfer of residential and commercial premises in enforcement or bankruptcy proceedings. In this case, the new lessor has the opportunity to simply cancel the lease contract by observing the cancellation term. On the above grounds, the contract cannot be cancelled if a note about the lease contract has been made in the land register.
It should also be taken into account that the termination of the lease contract does not in itself lead to the termination of the sublease contract. The sublease contract may remain in force after the termination of the contract for use if the parties to the contract did not agree that it will terminate at the end of the lease.
Resolution of disputes
If disputes arising from the lease contract cannot be resolved by agreement of the parties, the parties may apply either to the county court or to the lease committee of the area of the dwelling. Lease committees only resolve disputes where financial claims do not exceed 3200 euros.
Both the court decision and the decision of the lease committee are binding on the parties. However, if you do not agree with the decision of the lease committee, you can still take the matter to court. If the decision is not executed voluntarily, a bailiff can be contacted with relation to both the court decision and the decision of the lease committee.
Last updated: 06.12.2022