Commercial Lease Deed – A Place to Work and achieve Dreams
Each one of us who have a dream to conquer the world through their business, needs to explore new opportunities at different places. It is an important and tough decision to decide the place of business where it is to be established. However purchasing premises for commercial purpose is not easy that too at the initial stage of the business. So most of the people prefer to take it on lease basis. But it is pertinent to note down here that taking premises on lease in order to save the cost is only the one side of the coin and there is another side of coin means there are certain legal and technical points which every Lessor and Lessee has to keep in mind to protect its own interest.
Further, In order to keep things crystal and clear it is important to know what are the clauses which can be inserted in a Commercial Lease Deed,what are the points of negotiations and discussions and what are the points to be considered at the time of discussion.
Points to be inserted in a commercial lease deed are:
- Date and place of execution: Commercial Lease Deed must specify the date and place of execution. Date is utmost important to check the validity under the Limitation Act. Any legal action can be initiated only if the legal action undertaken against the act is not time barred. Further, if place is mentioned, it becomes easy to identify place where stamp duty in case of registration is to be paid.
- Details of the Parties: The details of the parties i.e. their name, Father’s Name, Address, Age and in case of non individual’s(Company, LLP, Partnership Firm) details of the entity and the mode of authorisation should be stated for easy identification.
- Address of Premises: the address of the Commercial lease deed must be mentioned specifically. For example if any person is taking only ground floor of the property then it should be mentioned properly in order to avoid ambiguity at later stage.
- Consideration: The details of the amount of consideration to be paid to the Lessor such as whether the consideration to be paid is monthly, quarterly, bi-annually or annually to be mentioned clearly.The amount of rent to be paid at the beginning/ end of the month/ quarter/ bi-annually/ annually needs to be mentioned. Further whether the rent amount would be inclusive of all other taxes, electricity charges, water charges, maintenance charges etc. or not, this also needs to be mentioned specifically. Further such consideration shall be subject to deduction of applicable taxes i.e. TDS, GST, etc. or not this also needs to be mentioned.
- Security Deposit: In case of security deposit amount involved, the amount to be paid, whether interest free or not and mode of refund at the time of expiry/termination should also be stated to avoid ambiguity.
- Lock-in Period, Renewal & Increment in Rent on Renewal: It is very common in commercial places to invest certain amount of money either by lessor or lessee in form of repair, renovation, installations etc. in order to customize the commercial place according to their respective requirement, then in such case party may prefer to have a lock in period clause. In that case, the lessee cannot vacate the premises before the expiry of the said lock in period or the lessor cannot force the lessee to vacate the premises before the expiry of the said lock in period. Further the parties should also mention clearly whether after the expiry of the initial term of the lease deed such lease deed shall be renewed on what terms and under what conditions including increment in rent etc.
- Duration of the Deed: The deed should specify the duration or the term for which the agreement is entered upon by the Parties. On the expiry of the term, the agreement stands terminated or if agreed upon by the parties may be renewed.
- Duties of the Lessor: There must be some certain duties on the part of the Lessor which needs to be fulfilled by him and be stated specifically. For eg. Right to let out premises without any interference, the property let out should be free from encumbrances, all Govt. dues and utility bill to be duly cleared etc.
- Duties of the Lessee: There must be some certain duties on the part of the Lessee which needs to be fulfilled by him and be stated specifically. For eg: to keep the premises in good working conditions, to allow the lessor to enter the premises for inspection etc.
- Subletting: Whether the lessee will be entitled to and reserve the right to sub-let the leased property or not, this has to be specified. Suppose if the Lessor want to restrict the lessee, then this has to be clearly mentioned in the commercial lease deed.
- Termination: what would be the grounds on which the commercial lease deed shall be stand terminated. Further what would be the notice period to be served for termination of Lease Deed.
- Additional Miscellaneous clauses:
- Registration of deed and expenses incurred: In case the period of lease deed (commercial and residential both) is more than one year than in that case registration of lease deed is mandatorily required as per Registration Act, 1908, normally in the commercial lease deed amount of registration is huge so it is essential for the lessor and lessee to decide that in what manner fees would be born.
- Service of Documents: The address of the parties where all official communication to be served should be mentioned in the agreement. In case of any communication, the documents could be couriered/ posted at the address provided above.
- Additional charges for fully furnished: In case any additional charge for use of the furniture and fixtures attached in fully furnished premises to be stated therein along with the amount of charge to be paid is on monthly/ quarterly/half yearly/ annually.
- Repairs and Expenses: Any day to day expenses incurred towards repairs and maintenance to borne by the Lessee. In case any structural changes to carried upon in the premises shall not be done without the consent of the Lessor. Further, the parties shall discuss the ratio in which the expenses shall be distributed among themselves.
- Copies of Rent Agreement: To ensure originality and to avoid temperament with the deed, one can state the number of original copies signed by the parties.
- Title: normally commercial lease deed involve very high stake of amount of lessee, so being a prudent lessee, it is very essential for him to cross check the title document of the property taking on lease. Proper due diligence of property, loan on property, litigation status of the property etc. needs to be checked property and warranties and representation in this respect also needs to be executed from lessor side by lessee.
- Rent Free Period: Sometime in the commercial lease transaction, the lessor or the lessee needs to make suitable changes in the property structure in order to make it fit for use of lessee. Further making suitable changes in the structure of the property may take time, so this period is called Rent Free Period. As lessee is not required to pay any consideration as a rent during this tenure.
- Expenses Incurred during Rent Free Period: who will be responsible to bear the expenses incurred during the rent free period.
- Sale of Property: Sometime it happen that during the tenure of the commercial lease deed, Lessor execute the sale deed of the property rented out and it may impact on in the smooth running of business of Lessee. In order to protect the interest of lessee in those cases It is very essential that write the clause that all such sales or assignment of property shall be subject to leasehold right of the lessee.
- Damages and indemnity: In case any damage is incurred by one of the Party due to the fault of the other, then the other party shall indemnify the party who have suffered loss.
- Not to create charge or lien: The Lessee shall not give the leased out premises as guarantee or create any charge or lien on the premises leased out without the permission of the Lessor.
- Jurisdiction: In case any dispute arises, the area of jurisdiction where any legal petition can be filed should also be mentioned in the agreement.
- Arbitration Clause: If the Parties mutually agree to resolve any dispute out of the Court, then this clause will help them to resolve the matter through arbitration.