Commercial vs Residential Lease — Key Differences
Commercial/industrial leases differ significantly from residential leases: (a) longer terms (5-30 years vs 11 months-3 years), (b) higher deposits (6-12 months' rent), (c) fit-out provisions (tenant's right to modify premises for business use), (d) CAM charges (Common Area Maintenance — significant in commercial properties), (e) compliance obligations (fire safety, factory licenses, pollution control), (f) assignment/sub-lease provisions (more common in commercial), (g) no Rent Control protection in most states (Rent Control Acts typically cover residential tenancies).
Specimen Lease Deed — Commercial Property
[Key clauses — illustrative]
DEED OF LEASE — COMMERCIAL PREMISES
Between [Lessor/Landlord] AND [Lessee/Tenant]
1. Demised Premises: [Office/shop/warehouse at Address — floor, area in sq. ft., car parking spaces, storage area].
2. Term: [5/9/15] years from [Date] to [Date], with option to renew for [2] further terms of [5] years each.
3. Rent: Rs. [Amount] per month (Rs. [Rate] per sq. ft. per month × [Area] sq. ft.). GST at 18% applicable on rent — payable by the Lessee. TDS at 10% under Section 194-I deducted by the Lessee.
4. Escalation: [15]% increase every [3] years. Alternatively: linked to CPI or market rate review.
5. Security Deposit: Rs. [Amount] (equivalent to [6-12] months' rent) — interest-free, refundable on vacating.
6. CAM Charges: Rs. [Amount] per sq. ft. per month — covering: security, housekeeping, common area electricity, lift maintenance, DG backup, water supply. Escalation: [10]% annually or actual cost basis.
7. Fit-Out: The Lessee may carry out interior fit-out at their own cost — subject to: (a) Lessor's prior written approval for structural changes, (b) compliance with building regulations, (c) obtaining necessary municipal/fire approvals. On termination: the Lessee shall restore the premises to original condition — or forfeit the fit-out to the Lessor (as mutually agreed).
8. Permitted Use: [Office/retail/warehousing/manufacturing — specify]. The Lessee shall NOT use for any illegal, hazardous, or prohibited purpose. The Lessee shall obtain all necessary licenses (shops & establishments, fire NOC, factory license for industrial use).
9. Lock-In: [3] years — neither party shall terminate during the lock-in period except by mutual consent or for material breach.
10. Termination: After lock-in: [6] months' written notice by either party. Immediate termination for: non-payment (3 consecutive months), illegal use, insolvency, material breach.
11. Insurance: Lessor: structure insurance. Lessee: contents insurance, public liability insurance, and fit-out insurance.
12. Compliance: The Lessee shall comply with all applicable laws: (a) fire safety regulations, (b) environmental/pollution norms, (c) labour laws (for factories), (d) municipal bye-laws, (e) GST registration for the premises.
13. Assignment/Sub-Lease: Not permitted without Lessor's prior written consent — which shall not be unreasonably withheld for reputable assignees.
Registration and Stamp Duty
Commercial leases exceeding 1 year: MANDATORY registration. Stamp duty: typically higher than residential — based on total rent + premium + CAM charges for the entire term. Some states: stamp duty on the AVERAGE annual rent × term years. GST on rent: 18% (commercial property is not exempt from GST unlike residential — residential rent was exempted only for individuals not registered under GST).
Disclaimer: This article is for informational purposes only and does not constitute legal or professional advice. While every effort has been made to ensure accuracy based on the latest laws and amendments, readers should consult a qualified professional before acting on any information provided. For expert assistance, contact us.