COMMERCIAL LEASE

Lease is generally a contract between the Lessor and Lessee with regard to a Property, Plot or Building, legally known as Demised Premises, wherein, the parties agrees by the terms and conditions as specified in the Deed pertaining to the Lease to use the said Premises for commercial purposes. Lease is governed basically by 3 Statutes;

a) The Indian Contract Act 1882.

b) Transfer of Property Act 1882

c) Indian Stamp Act 1899

d) Indian Registration Act

c) Civil Procedure Code 1908

Furthermore, Lease[1] is defined under section 105 of Transfer of Property Act 1882

1. Leased Premises:

Leased Premises in common law is termed as Demised Premises, wherein, it may be inclusive of easement rights, including but limited to stair case, lifts, hallways, and parking bays. The said Premises is to be Leased at the Fixed rate of per square foot/metre depending upon the terms as agreed to between the parties to deed. In addition to this, the Leased Premises can also be entertained by the Sister concern/ Subsidiaries/ associate/ group companies of the said Lessee, wherein, the Management of which is the same proprietor subject to the agreement between parties. Further, subject of Premises can be further Sublease to another sub-Lessee by the original Lessee to the Deed by means of another Lease Deed, provided, original lessee has been duly authorised and empowered to sub lease the demised premises by the landlord of premises.     

Another important aspect with regard to Demised Premises is that, the Lessee and Lessor are both responsible to maintain the Premises i.e., Leased Premises wherein, the changes made by Lessee may or may not be reversed, notwithstanding to any of the assets installed by the Lessee in the Demised Premises the Lessor cannot claim or possess any rights over the said assets, furnishings, fit-outs, etc.

  TENURE OF LEASE AND COMMENCEMENT DATE

The Lease Deed is basically drafted and executed for a longer term/ time-period which may vary between 1 to 20 years depending on the offer and acceptance made thereto by both the parties. Though, law doesn’t defines any mandatory minimum period for lease agreement, however, any lease agreement for duration over and above 11 months requires mandatory registration along with stamp duty, it is the prime reason that many agreement pertains the lease period of 11 months which doesn’t require mandatory registration and stamp duty. Furthermore, the said lease can be terminated or extended with respect to the clauses, if introduced in the said Lease;

The Termination of Lease prior to the term of Lease can either be on part of Lessor or Lessee or both; in certain circumstances:

a) If Lessor/ Lessee becomes Insolvent.

b) If the Demised Premises is no longer Functional due to any Unforeseen Act.

c) If there pertains a Material Default on part of either party.

Note: if termination clauses are included in the Deed, they must be specific in nature as to when the said Deed can be Terminated.

The Deed can also be renewed, with respect to the mutual agreement and consent of both the parties, wherein, both the parties shall enter into a new deed post termination of the said Deed.

REGISTRATION & STAMP DUTY OF A LEASE DEED

The Registration of any document allows or permits the said document to be admissible in court as Prima-facie evidence of prime value. In addition to this, Section 107 of Transfer of Property Act 1882, “It is mandatory to register a Lease Deed exceeding 1 (one) year”[2]. Registration of a Lease Deed includes Stamp-Duty as well, that are as follows prevailing in Delhi;

  • Stamp Duty is to be paid @ 2% from 1 year – 5 years.
  • Stamp Duty is to be paid @ 3% from 5 years – 10 years.
  • Registration charges are 1100.

The Indian Stamp Act, 1899 states that in the absence of an agreement to the contrary, the expense of providing the proper stamp for a lease agreement is to be paid by both parties in equal. If proper stamp duty is not paid on lease instruments, any government authority competent to take evidence on oath can impound it and send it to the jurisdictional Collector of Stamps for adjudication and payment of proper stamp duty, along with a penalty which may vastly exceed the deficient stamp duty amount.

IFRSD (INTEREST FREE REFUNDABLE SECURITY DEPOSIT)

IFRSD, as the abbreviation itself defines, is an initial payment made by Lessee to the Lessor in order to LOCK-IN of the said Demised Premises. This Security Deposit is an obligation on the part of the Lessor to reimburse the Lessee post-termination of the Lease Deed. Furthermore, the Lessor can also deduct the outstanding amount, including but not limited to, rent payable; taxes; and other charges. Provided that the registration of lease is mandatory, the security deposit shall be payable by lessee only upon registration of the Lease Deed.

LESSOR’S OBLIGATIONS

That the Lessor is responsible and obligated with certain responsibilities on his part upon the execution of a Lease Deed, including but not limited to:

  1. The Lessor is a legal entity duly incorporated and validly existing in accordance with the laws prevailing in India.
  2. The Lessor possesses competent authority and power to be a party in the said Deed.
  3. The Lease deed constitutes Lessor’s Legal, valid and binding obligations enforceable against it in accordance with its’ terms.
  4. The Lessor possesses clear, absolute, unrestricted and unfettered Legal Title and Ownership rights with regard to the Demised Premises.
  5. The vicinity of the Demised Premises and the built-up area is in accordance with the guidelines and permissible floor area, as prescribed by the statutory authorities.
  6. The Lease of the said Premises is within the permissible Leasing limit and as may be prescribed by the statutory authority with regard to, leasing of institutional property.
  7. That with respect to the term of Lease Deed there shall be no impediment and the Deed shall be executed suo-moto as it would have been in past.
  8. That the efficient and usable carpet area of the Demised premises is 75% +/- 2% of the super area.
  9. That pertaining to any changes with respect to the MOA and MOU of the Lessor, the Lessor shall intimate Lessee 30 days prior to any amendment pertaining to Leasing/ renting/ letting out of the Property by Lessor.
  10. That the Lessor has obtained essential licences, sanctions and approvals pertaining to water and power supply to the Demised Premises.
  11. That the said Demised Premises is free from any and all encumbrances, liens and charges of any nature but notwithstanding, to any charges executed in favour of the banker, with respect to, any credit facilities, thus pertaining to this, the Lessor is subjected to lease the said Demised Premises to Lessee.
  12. That the Lessor hereby waives off his right, claim, tittle or interest of any nature, whatsoever, pertaining to the interior works, fittings and fixtures installed by Lessee during the term of this Deed, in the Demised Premises, shall remain the exclusive property of Lessee.
  13. That the Building constructed on the said plot is in accordance with the rules and guidelines of the competent and regulatory authorities, in addition to this, there are no deviations, or violations on the part of Lessor.
  14. That it is in best of the knowledge of Lessor that, no such notice or summon in regard of non-compliance has been issued or received by the Lessor pertaining to the Demised Premises.
  15. That the Lessor warrants and represents to procure/secure at all times during the term of this Deed, all clearances/ sanctions/ approvals with regard to the Demised Premises from any Government/ Statutory Body.
  16. That the Lessor shall be entitled and held liable to pay all or any dues pertaining to the Demised Premises including but not limited to electricity and water bills, ground rent if applicable on the demand of the concerned Authorities, up to the Lease Commencement Date.
  17. The Lessor covenants that the Lessee shall possess unfettered, unrestricted and complete rights pertaining to the Demised Premises, without any hindrance, on or from the part of Lessor or any person acting on behalf or in trust of Lessor.
  18. That the Lessor is in compliance of all environmental laws pertaining to the demised premises.

LESSEE’S OBLIGATIONS

  1. The Lessee is a legal entity duly incorporated and validly existing in accordance with the laws prevailing in India.
  2. The Lessee possesses competent authority and power to be a party in the said Deed.
  3. The Lease deed constitutes Lessee’s Legal, valid and binding obligations enforceable against it in accordance with its’ terms.
  4. The execution of the said Deed is not prohibited by way of its constituent documents, nor will its execution contravene provisions of any applicable laws prevailing in India,
  5. The Lessee has, prior entering to the deed, confirmed that the Lessor on his part has provided all the deliverables as listed in the Schedule B of this Deed
  6. That the Lessee shall only use the demised Premises for the sole purpose of carrying out business and corporate affairs as permissible by the applicable laws.
  7. That the Lessee absolutely undertakes that he shall not, whatsoever the circumstances be, assign, transfer, sublet, mortgage, underlet or grant leave and license, thereof, in any manner to the other party however, the Lessee may sub-lease or assign possession of the Demised Premises or any such portion of the said Property thereof, to any of its, associate/ group/ subsidiary companies or sister concern, wherein, for the sake of evidence, it shall prove that the ownership and management  remains the same as of Lessee or that the Lessee owns a substantial amount of shares in the said company subjected to 30 days prior intimation to the Lessor.
  8. That the Lessee agrees and undertakes, complete responsibility for the payment of electricity, water and energy charges, which will be recorded in the meter according to usage and consumption for the Demised Premises, to the concerned Authority or municipality. That the Lessee understands Prima-Facie, that non-payment/ due with regard to such charges may result in disconnection of the services in addition to penalties.
  9. That the Lessor possess the right to visit/ inspect/ monitor the activities that are being carried out in the said Demised Premises inclusive of Terrace, during the Term of Deed; A periodic inspection chart may also be provided, pertaining to the installations at Building at regular Intervals.
  10. That the Lessee agrees and undertakes to handover the said premises and terrace in on the expiry or earlier termination of Lease Deed, without causing any harm to the structure including but not limited to walls/ floors/ ceiling/ other parts, of the interior as provided by the Lessor. The Lessee is solely responsible for handing over the said Demised Premises to the Lessor in the similar condition as it was during the Commencement of Deed or while signing the Deed.
  11.        That the delay in handing over the Demised Premises, shall be construed as unlawful and unauthorised occupation of the Demised Premises or the Building. The Lessor shall be entitled to recover the rent for such unauthorised occupation, twice the rate of actual rent from Lessee.
  12.  That the Lessor and Lessee agrees to and shall abide by the applicable laws and any local enactments with respect to the demised premises.
  13. The Lessee shall not be entitled to perform any such activity that may cause Nuisance, or interference to peaceful occupation to other tenants in the Building.
  14. That the Lessee is well versed with the fact that Lessee’s representations and warranties in the Lease Deed are a material inducement to the Lessor’s entry in the Demised Premises.
  15. In case of any representations to be found faulty or defective, in the said Lease Deed the Lessee on his part shall be solely responsible to rectify them on his own part.

ASSIGNMENT & SUBLEASING

It is to be notified to the Lessor that the said Demised Premises when and to whom is being Sub-let or Assigned, in a period as specified in the Deed or agreed by the Parties to Deed; wherein there shall be a clause with respect to assignment and subletting of the Demised Premises in order for the said Premises to be assigned/ Sub-let to third party in compliance of all the Regulatory and Statutory Provisions withstanding to the Demised Premises and Assignee.

CONCLUSION

Prior signing a Lease Agreement, it shall be read, understood and examined at least twice, in order to cope up with any future uncertainties that may arise with respect to the said Deed. The Deed is binding in nature once registered and can be altered with respect to the consent of both the parties.

[1] A lease of immoveable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms. Lessor, lessee, premium and rent defined—The transferor is called the lessor, the transferee is called the lessee, the price is called the premium, and the money, share, service or other thing to be so rendered is called the rent.

[2] Siri Chand [deceased] through his Lrs. vs Surinder Singh Civil Appeal no. 2617 of 2020 decided 20.06.2020

COPY RIGHTS: AKSHIT RASTOGI

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