OFFICE LEASE AGREEMENTS/BUSINESS PREMISES LEASE AGREEMENTS: WHY YOU SHOULD NOT SIGN THEM JUST FOR THE SAKE OF COMPANY INCORPORATION

Many businesses think that an office or business location lease contract is just a normal paperwork, so it is usually signed quite quickly. However, this is a legal document that has a direct impact on the operation process and stability of the business. A contract signed "yes" today can become a legal risk in the future. The article below will point out the common legal risks and important notes for businesses to protect their rights right from the moment the contract is signed.

1. Office/business location lease agreement 

An office lease contract is an agreement between the lessor and the lessee on the use of a location as the head office, branch, representative office, or business location of the enterprise. The signing of the contract in accordance with regulations not only creates a legal basis for the business registration process with state agencies but also helps to limit the risk of the application being rejected because the registered address does not meet the legal conditions.

In addition, according to the Law on Enterprises 2020, the business location must be clearly identified in the business registration dossier. Therefore, before signing a contract, businesses need to check documents proving the lessor's legal ownership or leasing rights to limit risks and disputes later.  

2. Legal risks when signing an office lease contract in a hurry

2.1. Barriers to Investment Registration (IRC) and Enterprise Registration (ERC)

For foreign investors, applying for an Investment Registration Certificate (IRC) and Enterprise Registration Certificate (ERC) is a mandatory starting step. The authorities, when receiving the dossier, will appraise the legality of the rental location very carefully. If the enterprise chooses a location located in an area that is not allowed to be planned as a commercial office, such as apartment buildings with only residential functions, the dossier may not be approved (Clause 8, Article 3 of the Law on Housing 2023). The business at this time is in a situation: the company cannot be established but the land rent and house rent still have to be paid regularly according to the signed contract. 

2.2. Barriers to sub-licenses, retail licenses, and fire prevention and fighting acceptance

If the business is in conditional industries such as restaurants, karaoke services, spa, or direct retail chains, the rental location plays a large role in determining the possibility of issuing a license. Each industry has its own strict standards for ceilings, emergency exits, construction density or zoning planning. In addition, the law also sets requirements for fire prevention and fighting acceptance, if the building owner has not fulfilled this obligation or their fire protection system has exceeded the inspection deadline, the enterprise renting the interior space will not be able to apply for relevant operating licenses.

2.3. Invoice risks and accounting of tax expenses

An office lease agreement that is inadequately drafted or fails to clearly specify the parties' tax obligations may expose the enterprise to various risks in the process of tax declaration and expense recognition for accounting and tax purposes. For example, if the lease agreement does not contain complete information about the lessor, fails to clearly separate rental payments from applicable taxes, or does not specify which party is responsible for tax declaration and payment, the company may encounter difficulties in substantiating the legitimacy of rental expenses, claiming value-added tax (VAT) credits (if applicable), or undergoing tax finalization and audits with the tax authorities.

3. Common mistakes

3.1. Failing to specify the contract termination period

The contract does not clearly stipulate the term of termination of the contract or the responsibilities of the parties when terminating the contract, which may cause the enterprise to incur significant costs if it has to relocate its business location. 

3.2. Unclear about landlords' rental rights

Many businesses sign a contract with the subtenant (F2, F3) but forget to check whether the original contract with the landlord (F1) allows subleasing. If the lessor does not have the right to sublease or has not been approved by the owner according to the provisions of the original contract, the lease may arise a dispute or be terminated ahead of time. This causes businesses to relocate their business locations, interrupt operations, incur costs and affect legal procedures related to the head office or business location.

An office or business location lease contract is not only a basis for using the premises but also directly affects the operation and interests of the business. Therefore, carefully reviewing the terms and legality of the location before signing will help businesses limit risks, save costs, and avoid unnecessary disputes later. If businesses need detailed advice, Lexsol can assist in reviewing each specific case before carrying out relevant legal procedures, helping the investment and business take place smoothly and in accordance with regulations.