Commercial Late Penalties, Guarantees, and Heavy Eviction Fines (Wajh-ol-Elzam) in Iran

Within commercial transactions and leasing corporate workspaces in Iran, delaying rent payments can cause significant damage to the landlord's interests. Effective since its ratification on 25 August 1997, the Landlord and Tenant Relations Act governs these commercial arrangements. Because compound interest is prohibited by Islamic law, parties within commercial contracts utilize specific legal mechanisms and guarantees embedded within the Iranian banking and judicial systems to address late payments.

1. Late Payment Fines: Wajh-ol-Elzam

Instead of percentage interest, commercial lease agreements often invoke Article 230 of the Civil Code to include liquidated damages clauses termed "Wajh-ol-Elzam for Delayed Monetary Payments". While these clauses stipulate predetermined penalties for delays, Iranian judicial practice and the Civil Code allow judges to moderate excessive penalty clauses that are disproportionate to the actual damages incurred.

Furthermore, Article 522 of the Civil Procedure Code provides the statutory framework for compensation when a monetary debt is delayed, allowing for adjustments based on the Central Bank's annual inflation index (for "certain" and "demanded" debts). The General Civil Courts have the discretion to review these cumulative penalties to ensure they do not violate the principle of justice or 'La Darar' (No Harm).

In modern corporate office spaces, this predetermined damage is typically drafted using daily-calculated formulas. However, landlords cannot unilaterally extract these penalty demands from the collateral (Deposit/Rahn) held in the Court Registry Fund; such actions require proper judicial intervention and a court order or executive writ from the Dispute Resolution Council or General Civil Court.

2. Monetary Collateral: Registered Sayyad Cheques and Bank Guarantees

Due to the liquidity involved, corporate tenants frequently use documentary guarantees rather than large cash deposits. These instruments provide mechanisms for landlords to secure rent and potential damages:

The Guaranteed Registered Cheque (Modern Sayyad System)

Under the Law on Issuance of Cheques (as amended in 2018), tenants may issue barcode-bearing cheques registered in the centralized "Sayyad" system. These are electronically registered in the Central Bank of Iran's system as guarantee instruments to cover potential damages or rent arrears. If the commercial tenant defaults, the landlord may pursue direct enforcement through the Registry Execution Department to seek collection against the issuer's assets, bypassing standard litigation for the principal amount.

Bank Guarantee (Zemanat-Nameh Banki)

For larger commercial properties, landlords may require an "Unconditional Bank Guarantee for the Good Performance of Obligations" from the corporate tenant. This instrument binds the issuing bank to pay the specified amount upon presentation of the required documents by the landlord, in accordance with the guarantee's terms, providing a direct avenue to secure funds for unpaid rent or damages without standard litigation, provided the conditions of the guarantee are met.

3. Penalties for Delays in Vacating Commercial Space

Tenants operating under the 1997 Act (without the rights of Sargofli) who fail to vacate the premises by the contract's expiration may be subject to "Ojrat-ol-Mesl for the Days of Unlawful Possession" (Tasarrof-e Odvani).

• Contracts often specify a daily rate for unlawful possession that is higher than the standard rent. However, courts may review these clauses if they are excessively punitive.
• In the event of an eviction, the Judiciary manages the enforcement process. The landlord's verified damages and unpaid rent may be satisfied from the tenant's collateral or guarantees, and the remainder is returned to the tenant following the legal resolution of the eviction order by the competent court.

The Landager platform allows commercial landlords to archive registered Sayyad cheques and manage "Wajh-ol-Elzam" clauses and Bank Guarantees. This helps landlords efficiently navigate the complexities of commercial rent collections in Iran.

How Landager Helps

Landager tracks lease terms, commercial compliance, and important deadlines - making it easy to stay compliant with Iran regulations.

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