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A lease deed is an instrument to transfer the right to possession and enjoyment, though not the title, of an immovable property, from the transferor to the transferee, in consideration of a price in the form of rent or premium. The transferor is called the Lessor and the transferee is called the lessee.
A commercial lease deed is executed between two or more parties where the property in question is being leased for commercial activities, like office operation, warehousing, manufacturing, amongst others. With the ever growing and dynamic real estate market, it is important that the interests of both the Lessor and the Lessee are adequately protected for their mutual benefit.
The agreement designed to rent out or lease a commercial property is known as a commercial lease deed. A legal document, the commercial lease deed will lay out all the terms under which the commercial property will be leased out from the owner to the tenant. In most cases, the relationship between a landlord and his tenant is cordial. However, that should not be a reason for not getting a written agreement made before getting or letting a property on lease. The agreement will help sorting out any issues or complaints which might arise in the future.
A commercial lease agreement is a written document signed between the landlord and the tenant. This agreement is usually required when the landlord decides to lease the property for a longer duration. This duration can range between 1 and 5 years, and in some cases, it can even go a longer duration. The agreement is needed in such cases to help lay down all the provisions while legally binding both the parties.
Who should use a Commercial Lease Agreement?
Any person above 18 years of age who wants to get a property on rental to setup his business can get a commercial lease deed made. Similarly, any owner who wishes who wants to rent out his property to someone who runs a business or has an income producing entity can also get a commercial lease agreement made.
There are several types of commercial lease agreement. Some of the important ones are:
Gross lease or full service lease
This is the type of lease that has Expense Stop – a mechanism in the lease in which the lessee is liable for paying fixed operating costs and the landlord has to pay all the operating expenses which fall under the Expense Stop.
Under a net lease, the lessee is liable for paying all or some part of the maintenance cost, taxes, and insurance fee for the property. All of this is in addition to the rent that the lessee owes to the landlord. This is the most common type of lease agreement used in commercial real estate industry.
Another type of lease which is commonly found in real estate industry. Under this type of lease, the lessee pays the fixed rent and agrees to share some amount of his business’s revenue with the landlord.
Q.1 What is a lease deed?
A lease deed or a lease agreement is a contract signed between two parties. Under the agreement, one party agrees to pay rent to the other party who owns the property.
Q.2 Who should be included in a commercial lease agreement?
Some of the important things which should be mentioned in a commercial lease agreement include:
Name of both the parties
Duration for the which property is being leased out
Monthly rental and all the other charges
Termination of the lease
Permission for the tenant to sublet the property
Conflict resolution methods
Q.3 Does commercial lease need to be witnessed?
Yes, the commercial lease needs to signed by both the parties and two witnesses.
Q.4 Does a landlord have to renew a commercial lease?
In India, leases are not automatically renewable since there is a stamp duty which is payable during the formation of such agreements. Therefore, at the time of the formation of the lease, renewal options should be thought through properly for the lessee.
Q.5 Can restraints be placed on the use of the property by the lessee?
Section 108(o) of the Transfer of Property Act 1882 provides that the lessee may use the leased property as a man of ordinary prudence would use them if they were his own; but the lessee must not use, or permit another to use, the property for any other purpose other than for which it was leased. The Lessee cannot use the leased property in violation of the lease deed or any activity that may cause destruction to the property.
Q.6 Can the property be transferred by the Lessor if it is leased?
Under section 109 of the Transfer of Property Act 1882, the Lessor can transfer the leased property to another person (the “transferee”), who shall then be subject to the rights and liabilities as of the Lessor, post the transfer. The original lease continues to subsist in case of such a transfer and it is not necessary to enter into a new deed. However, in order to avoid any disputes between the Lessee and the transferee it is prudent to enter into a ‘Deed of Attornment’, wherein the Lessee and the Lessee recognize each other’s rights.
Q.7 Does leasing the property to the Lessee allow the Lessee to further lease/sub-lease the property?
Under section 108(j) of Transfer of Property Act 1882, the lessee may sub-lease, mortgage or assign his interest in the leased property, however, the lessee by not, by reason of such transfer, cease to be the subject to any of the liabilities attaching to the lease. this right of the lessee is subject to the terms of the lease deed, which may place restraints on the lessee.
Q.8 Can the Lessor access the property during the tenure of the lease?
Under section 108(m) of the Transfer of Property Act 1882, the Lessor or his agents may enter and access the property and inspect the condition of the property at reasonable times and by providing reasonable notice to the Lessee.
Q.9 Does the lease deed need to be registered?
Section 17 of the Registration Act 190 provides that the registration of a lease deed of immovable property is mandatory if the lease period is for a duration exceeding 12 months. However, lease deed below a year are not required to be registered. Registration, however, is advisable as a registered lease deed has a higher evidentiary value in the courts of law.