Commercial shop lease and key money (khuluw / jadak)

The office of lawyer Ali Barakat in Baghdad sets out the framework that governs a commercial shop lease, and a payment sometimes agreed under the name khuluw (jadak), or key money. The lease itself is read in Civil Code No. 40 of 1951, published in the Iraqi Official Gazette, issue 3015, of 8/9/1951. The scope of Rent of Immovable Property Law No. 87 of 1979 is cited to identify what falls outside that statute; its residential rules do not transfer to a shop.

The scope of the Rent of Immovable Property Law and the shop lease under the Civil Code

Rent of Immovable Property Law No. 87 of 1979 applies to built properties leased for residential purposes to Iraqis, lying within the limits of Amanat Baghdad and the municipalities, under article 1, first. What is excepted from paragraph 1 is, as to its lease, subject to the Civil Code or to the special laws governing it, under paragraph 2. A commercial shop prepared for sale, services or a craft is not a property leased for residential purposes within the meaning of that article. The mandatory monthly rent timetable, the eviction grounds in article 17, and the rule in article 21 of that law are therefore not transferred to the shop unless it is shown that the contract itself falls within the statute for a reason the text supplies.

A lease in the Civil Code is a transfer of a known benefit for a known consideration for a known period, by which the lessor undertakes to enable the lessee to use the leased property, under article 722. Formation of the lease requires the parties' capacity at the time of the contract. For the lease to take effect, the lessor must own what is let, or be the owner's agent or guardian, under article 723. An undivided share may be leased to a co-owner or to a third person, under article 731. Those provisions are the starting point for a shop lease: identifying the shop, the use, the term and the rent, and the capacity of the person who lets it.

The title deed or a copy of the real estate register is reviewed to identify the owner and the rights affecting the property, under articles 10 and 83 of Real Estate Registration Law No. 43 of 1971. If the shop is subject to a mortgage, a restriction on disposition, or a right belonging to someone other than the lessor, that appears on the register before the contract is relied on alone.

Rent, term and the parties' duties in a commercial shop

The term, the rent and the conditions of use are fixed in the contract. If the contract does not sufficiently identify the obligation, recourse is had to the Civil Code lease provisions, not to rent limits laid down in Law No. 87 of 1979, because those limits were set for properties covered by that law. The lessor remains bound to enable the lessee to use the shop as agreed. The lessee remains bound to pay the consideration when it falls due and to look after the property within the limits of the contract and the law.

If the parties agree to prohibit sub-leasing or assignment of the benefit, that agreement binds them. The prohibition in article 11 of the Rent of Immovable Property Law, which bars sub-leasing or assignment except by a written agreement, is a rule within the scope of that statute. It is not laid on a commercial shop lease unless the contract falls within that scope. Likewise, the notary's warning and the time limits for eviction for unpaid rent, set out on the page Eviction for unpaid rent, are a path for properties under Law No. 87.

What a landlord reviews before and after a residential lease is described on the page What a landlord reviews before and after a lease in Baghdad. The subject of that description is not the subject of this account, even though both involve a review of the register and of the lessor's capacity.

Khuluw (jadak) as a bargain

In dealings over commercial shops, an agreement sometimes appears for a sum or a benefit called khuluw, also known as jadak, or key money, in return for fittings in the shop, for the advantage of the location, or for an assignment of the use or of a right to remain, according to what the parties write. Rent of Immovable Property Law No. 87 of 1979 contains no rule that organises khuluw in that sense. The word «vacancy» (khuluw) in article 20 of that law means that a property prepared for residence has become unoccupied, and that the Real Estate Tax Office and the information office, or the police station, must be informed. It is not a payment made on handing over a commercial shop.

Articles 722 and following of the Civil Code likewise contain no statutory definition of khuluw or jadak. The agreement is therefore reviewed in the light of what the parties agreed and in the light of the Civil Code rules on contract and obligations: whether the sum is part of the rent, a price for movables and fittings, or consideration for an assignment of a benefit; who pays and who receives; and what effect it has when the contract ends, when the shop is sold, or when the lease is transferred. The statute does not fix a figure for this payment.

Article 21 of the Rent of Immovable Property Law prohibits the lessor, the lessee, the intermediary or any other person from obtaining any money or benefit outside the scope of a lease concluded under that law, other than the broker's fee. That prohibition is tied to a contract concluded under Law No. 87, that is, within the residential scope drawn by article 1. It is not, by itself, proof that khuluw in a commercial shop is permitted, or that it is forbidden, so long as the shop lease lies outside that scope.

If a party disputes the existence of the agreement, its characterisation, or its effect, the dispute is heard by the Court of First Instance under the procedure law and the Civil Code, on the basis of the written contract and of what is proved of its performance, not on the basis of a list of amounts detached from the contract and from what is proved of its performance.

Legal basis and sources

1. Civil Code No. 40 of 1951 (Iraqi Official Gazette, issue 3015 of 8/9/1951) — Article 722 and following
2. Rent of Immovable Property Law No. 87 of 1979, as amended (Iraqi Official Gazette, issue 2719 of 30/6/1979) — Articles 1 and 21

Frequently asked questions

Related topics and articles

• 01What a landlord reviews before and after a lease in BaghdadWhat a Baghdad landlord reviews before and after a lease under Rent Law 87/1979 and the Civil Code.
• 02An eviction claim for unpaid rentEviction under Rent Law 87/1979 for unpaid rent (art. 17, first paragraph): the notary warning and the seven-, eight- and fifteen-day periods.
• 03Sale or mortgage and the real-estate tax step in governorates not organised in a regionSale or mortgage and the real-estate tax step in governorates not organised in a region, under Law 162/1959 and Land Registration Law 43/1971.
• 04Ending co-ownership of shared propertyHow co-ownership of property ends under the Civil Code: agreed partition by registration, a First Instance claim, or sale if it cannot be divided.
• 05Acquisitive possession of property and the passage of timeWhen an ownership claim against a possessor of unregistered property is not heard: fifteen years, or five with good faith and just title (art. 1158).

Always check the text in force and its amendments in the official source.

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