Commercial Lease Agreements in India
A Lease Agreement is a legally binding contract between a landlord (lessor) and tenant (lessee) that grants the right to use property for a specified period. For Indian businesses, whether leasing office space in Gurugram’s Cyber City, a warehouse in Bhiwandi, or retail space in a Bangalore mall, the lease agreement is one of the most important operational contracts you will sign.
Commercial leases in India are governed by the Transfer of Property Act, 1882, state-specific Rent Control Acts, and the Registration Act, 1908. Leases exceeding 11 months must be registered, and unregistered leases are inadmissible as evidence in court.
Critical Clauses for Commercial Leases
Rent and Escalation
Market standard in India: 5–15% escalation every 2–3 years. Define base rent, maintenance charges (CAM), and escalation formula clearly. Include GST treatment (18% on commercial rent).
Security Deposit
Typically 3–12 months rent for commercial leases. Specify interest-free or interest-bearing. Define conditions for deductions and return timeline (usually 30–60 days after vacating).
Lock-in Period
Common in Indian commercial leases (12–36 months). Neither party can terminate during lock-in without paying penalty (typically remaining lock-in rent). Negotiate shorter lock-in for startups.
Fit-Out and Restoration
Define who bears fit-out costs, approve alterations in writing, and clarify restoration obligations at exit. Negotiate a fit-out rent-free period (1–3 months is common).
Registration, Stamp Duty, and TDS
- • Registration: Mandatory for leases exceeding 11 months. File at Sub-Registrar office within 4 months of execution. Registration fee: 1% of total rent + deposit.
- • Stamp duty: Varies by state—Maharashtra charges 0.25% of total lease value, Karnataka charges 1%, Delhi charges 2%. E-stamping available.
- • TDS: Under Section 194-I, TDS at 10% on rent exceeding ₹2.4 lakhs per year. For individuals/HUF under Section 194-IB, TDS at 5% if rent exceeds ₹50,000/month.
- • GST: 18% GST on commercial rent. Landlord must be GST registered if annual rent exceeds ₹20 lakhs. Tenant can claim ITC on rent GST.
Key Takeaways
- ✓ Register all leases exceeding 11 months—unregistered leases are inadmissible in court
- ✓ Negotiate lock-in period carefully—it binds both landlord and tenant
- ✓ Deduct TDS at 10% on rent under Section 194-I and deposit by 7th of next month
- ✓ Include force majeure clause covering situations like government lockdowns
- ✓ Get landlord consent for subletting and signage rights in writing
Frequently Asked Questions
Why do many Indian leases use 11-month terms?
To avoid mandatory registration and stamp duty. However, this provides weaker legal protection. For business-critical premises, register the lease for enforceability.
Can a landlord evict a commercial tenant before lease expiry?
Only for reasons specified in the agreement (e.g., non-payment, breach of terms). The landlord must follow due process and cannot resort to self-help remedies like locking the premises.