If you’re planning to invest in a rental property in Phnom Penh, it’s important to understand the different types of rental agreements that are used in the city. This blog provides a complete and easy-to-understand guide for local and foreign investors looking to enter the rental market.
Cambodia is a land rich in history and culture; its historical buildings testify to its past and are prevalent all around. These beautiful and impressive buildings grab the attention of tourists worldwide, making them a valuable asset to Cambodia’s economy and the real estate market.
Searching for a phenomenal rental property in Phnom Penh’s leasing sector, you will encounter the various concepts of complexity and uncertainty. But, by understanding these in real estate, you can better assess the risks of renting a property in Phnom Penh. And who’s better than an expert real estate agent to explain the details?
Expert real estate agents at IPS Cambodia provide complete details regarding rental agreements, facilitating a safe and secure investment. For all those confused with the terms associated with rental agreements and their meaning, let’s get into the details below!
What Exactly is a Rental Agreement?
A rental agreement is a legally binding contract between two parties, a tenant and a landlord. It defines the terms and conditions under which the tenant leases the property. This contract includes the rent amount for the property, the duration of the lease, the security deposit, and the rights and duties of both parties.
Rental agreements are essential to protect both the tenant and the landlord. For the landlord, a rental agreement provides a legal way to collect rent and to evict a tenant if they breach any term/ condition of the contract. For the tenant, this agreement provides security for the period mentioned and ensures that nobody can evict them from the property without any cause.
Types of Rent Agreements
There are various rental agreements, each with specific terms and conditions. Some of the most common types of rental agreements include the following:
Lease Agreement
A lease agreement is a long-term rental agreement that typically lasts for a year or more. Lease agreements are usually used for renting phnom penh apartments, houses, and commercial properties. This fixed-term agreement provided both the landlord and tenant with stability.
License Agreement
A license agreement is a short-term rental agreement that typically lasts less than one year. License agreements are often used for renting vacation rentals and furnished apartments. Unlike a lease, this agreement is more flexible. Although this specific type of agreement may not be widely used presently, it can be helpful in the near future due to the increasing popularity of vacation rentals in Cambodia.
Commercial Lease
A commercial lease is an agreement for a property used for business purposes. Commercial leases typically have different terms and conditions than residential leases. Specifically designed for businesses, these agreements cater to commercial properties’ and tenants’ unique needs.
Tenancy Agreement
A tenancy agreement is a different type of lease agreement that is used in Cambodia. Tenancy agreements can be for a fixed term or based on an indefinite period. The tenancy agreement is a general term for agreements that don’t fit the above categories and usually for shorter-term residential rentals.
Difference Between Rental and Lease Agreement
The significant difference between a rental agreement and a lease agreement is the terms of the agreement. A rental agreement can be for any period, while a lease agreement is typically for a more extended period, such as one year or more.
The method of payment for leasing is also different from renting. In renting, the tenant pays a rental fee, whereas, in leasing, there are more options of payment to choose from, like monthly, quarterly, or annually.
The rental and lease agreement also differs in terms of their provision of renewal of agreement. At the end of the leasing tenure, the lessor may give an option of either buying the property or renewing the agreement. On the other hand, there’s no such provision in the rental agreement.
In the case of both a lease agreement and rental agreement, the lessee/ tenant has to pay the property taxes and maintenance charge of the property. But there is more flexibility regarding renewal and moving to another location.
Common Rental Agreement Terms
Term of lease
The lease term is the total period for which the property is taken on rent/ lease. The lease term is usually six months onwards, with or without a renewal option. The rental tenure also plays a crucial role at the time of negotiation for the amount of rent. The landlord’s willingness to provide a discount on rent is directly proportional to the length of tenure.
Rental Payment
The rental payment is the fee paid by the tenant/ lessee for using the property on a monthly basis. It usually includes maintenance, fittings, and fixtures in the property; sometimes, even the furniture rent is added if the property is furnished. The tenant pays the utility bills for the water and electricity supply separately.
If the property is an apartment, most commonly equipped with amenities like internet, TV, AC, etc., but some landlords charge an additional amount.
Security Deposit
The security deposit is a fixed amount the landlord takes when entering into the rental/ lease agreement. It is a refundable amount without interest at the end of the tenancy period, subject to the provision that all the terms and conditions of the deal were duly complied with by the tenant.
This security deposit generally equals 1 to 2 months of the monthly rent. The landlord holds all the rights to deduct all the costs or expenses from the deposit if the tenant breaches any of the terms in the rental agreement.
Legal fees
The legal fees are the amount the solicitor charges for preparing the rental/ tenancy agreement. The tenant has to bear any such legal fees and other incidental costs for the agreement. Usually, no such case arises, as the landlord or real estate agent prepares the rent agreement at no charge.
Tax on Rental
The tax rate on the rental property is equalized at 10% of the gross rental amount; the rest depends on the provision mentioned in the lease agreement. This tax is payable to the general department of taxation of the Ministry of Economy and Finance. Though the tenant can pay these taxes, the government collects them from the landlords.
Documents needed for Rental Agreement
Whether renting the property for the first time or the tenth, you must furnish a set of documents for the rental agreement.
The landlord needs to have the land title of the property, a National identification card, proof of paid property tax, and details of the premises.
The tenant must produce a national identification card, previous address (for background check), and clear criminal records.
Once the above documents are produced, the essential details need to be discussed, such as payment method, rent tenure, termination clause, maintenance clause, transfer of ownership, utilities and services, and building structure.
Mandatory Clauses to be included in Rent Agreement
Below are the mandatory clauses that must be included in the rent agreement:
Payment Arrangements
It includes the mode of payment in cash or bank transfer, due date of rent payment, and frequency of payment, that is, monthly, bimonthly, quarterly, or annually.
Termination clause
It generally states the terms and conditions, the breach of which may impact the early termination of the agreement.
Tax payment
It describes the property tax, VAT, or any other tax that is to be paid by the tenant.
Utility charges
Suppose the rental property in Cambodia is furnished. In that case, it is necessary to mention a list of all the inventory and amenities and an additional charge for these utilities or amenities, if any.
Whether you are a landlord or a tenant planning to rent a property, it is crucial to understand the rent agreement thoroughly before signing it. Contact us here or via Telegram to assist you in renting out or managing your property in Cambodia.
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