Commercial Property Rent/Lease Agreements in India

A Commercial Property Rent/Lease Agreement is a legal contract between a landlord/lessor and a tenant/lessee for renting premises for commercial or business use.
Unlike residential agreements, commercial leases involve additional terms such as GST, signage rights, lock-in period, fit-outs, and usage restrictions.
This article provides an in-depth look into how commercial leases are structured in India, legal requirements, and a model template.

1. What Makes Commercial Leases Different?

Purpose: For business activities (shops, offices, warehouses, showrooms).
Tenure: Typically longer than residential, often 3–9 years.
Stamp Duty & Registration: Mandatory registration for agreements exceeding 11 months.
Regulations: Governed by Transfer of Property Act, 1882, Indian Contract Act, 1872, and state-specific Rent Control laws (where applicable).
GST: Rent for commercial property is subject to GST at 18%, unless exempt.

2. Essential Clauses in Commercial Lease Agreements

A valid and effective commercial lease should cover:

Parties & Property Details: Identification of landlord and tenant; precise description of property (with floor plan, if possible).
Rent, GST & Payment Terms: Base rent, GST applicability, escalation clause.
Security Deposit/Advance: Typically higher than residential agreements (6–12 months’ rent).
Lock-In Period: A minimum period (e.g., 3 years) during which neither party can terminate.
Maintenance & Utilities: CAM (Common Area Maintenance), electricity, water, HVAC, internet.
Fit-Outs & Interiors: Rights and responsibilities for interior work, partitions, signage.
Usage Restrictions: Permitted business activity, prohibition on illegal or nuisance-causing businesses.
Subletting/Assignment: Allowed only with landlord’s written consent.
Insurance: Tenant often required to insure business operations, equipment, and third-party liability.
Termination & Renewal: Conditions for early exit, notice period, renewal rights.
Dispute Resolution: Arbitration or court jurisdiction.

3. Rights & Precautions

Landlord/Lessor:

Ensure clear title and ownership.
Define scope of permitted use.
Insist on lock-in and rent escalation.
Include indemnity clause for misuse.

Tenant/Lessee:

Verify commercial approvals for property.
Ensure electricity load, licenses, fire NOC.
Negotiate fit-out and signage rights.
Review termination and deposit refund conditions.

4. Stamp Duty & Registration

Stamp duty: Varies across states, often calculated on total rent for lease period.
Registration: Compulsory for leases ≥ 12 months.
Penalties: Unregistered agreements are not admissible in court.

5. Execution Checklist

Drafted on adequate stamp paper/e-stamp.
Signed by both parties and two witnesses.
Registered with Sub-Registrar for long-term leases.
GST registration and invoicing compliance (if applicable).

6. Model Commercial Lease Agreement Template

COMMERCIAL LEASE AGREEMENT

This Lease Agreement is executed on this [Date] at [City], between:

(1) Mr./Ms. [Landlord Name], aged __, residing at [Address], (hereinafter referred to as the "Lessor");

AND

(2) M/s [Company/Firm Name], a company/partnership/LLP registered under the laws of India, having its registered office at [Address], through its authorized signatory [Name], (hereinafter referred to as the "Lessee").

WHEREAS the Lessor is the lawful owner of the premises located at [full address with floor/plot details] ("the Premises");
AND WHEREAS the Lessee desires to take the Premises on lease for commercial use;
NOW THIS AGREEMENT WITNESSES AS FOLLOWS:

1. **LEASE & POSSESSION**: The Lessor hereby grants to the Lessee lease of the Premises along with the right to use common areas, parking, and facilities.

2. **TERM**: The lease shall commence on [start date] and remain in force for [x years], subject to renewal upon mutual consent.

3. **RENT & GST**:
   - Monthly rent: Rs. [amount], payable on or before the [date] of each month.
   - GST @ 18% shall be charged extra on the rent as per applicable law.
   - Delay in payment beyond [x] days shall attract interest @ [x]% per month.

4. **SECURITY DEPOSIT**: The Lessee shall deposit Rs. [amount], equivalent to [x months] rent, refundable upon expiry/termination subject to deductions for dues/damages.

5. **LOCK-IN PERIOD**: Both parties agree to a lock-in of [3 years]. Early termination by either party shall attract compensation equal to [x months] rent.

6. **RENT ESCALATION**: Rent shall increase by [5–10%] every [year/3 years].

7. **MAINTENANCE & UTILITIES**:
   - Lessee shall pay monthly CAM charges, electricity, water, and other consumables.
   - Lessor shall be responsible for structural repairs and property tax.

8. **FIT-OUTS & ALTERATIONS**:
   - Lessee may carry out interior works, subject to prior written approval and statutory compliance.
   - No structural changes without Lessor’s consent.
   - Signage rights subject to building by-laws and Lessor’s approval.

9. **USE OF PREMISES**:
   - The Premises shall be used only for [office/retail/warehouse] purposes.
   - Lessee shall not carry on unlawful or hazardous activities.

10. **INSURANCE & COMPLIANCE**:
   - Lessee shall maintain insurance for its equipment, employees, and liability.
   - Lessee shall obtain necessary trade licenses, fire NOC, pollution clearances (if applicable).

11. **SUBLETTING/ASSIGNMENT**: The Lessee shall not sublet, transfer, or assign rights without Lessor’s prior consent.

12. **TERMINATION**:
   - Either party may terminate post lock-in by giving [3/6 months] written notice.
   - Immediate termination in case of non-payment, unlawful use, or material breach.

13. **DISPUTE RESOLUTION**: Disputes shall be resolved through arbitration under the Arbitration and Conciliation Act, 1996. Venue: [City].

14. **GOVERNING LAW**: This Agreement shall be governed by Indian law and subject to jurisdiction of courts at [City].

IN WITNESS WHEREOF, both parties hereto have executed this Agreement on the day, month, and year first above written.

Lessor: ____________________
Lessee: ____________________
Witness 1: ____________________
Witness 2: ____________________