Lease or rent a shop or office in India: what to agree and what to register

Rent or lease: is there a difference?

In everyday use the words overlap. A rent agreement usually means a short stay (11 months or less) that is renewed. A lease usually means a longer, fixed term, for example three, five or nine years, with the main conditions fixed at the start. Some leases are paid as a monthly rent; some as a single lump-sum amount for the whole term, sometimes with a small monthly rent on top.

Points to settle in writing

• Who the owner and the tenant are, and the exact address and area.
• The monthly rent (or the lump-sum amount) and the date it is due.
• The term: when it starts and when it ends.
• The yearly increase in rent. Five to ten percent a year is common; write the exact number.
• The lock-in period: months in which neither side can leave without paying.
• The notice period for ending the lease.
• The security deposit: how much, and when and how it is returned.
• Maintenance, property tax and utility bills: who pays what.
• Whether the tenant may sublet or change the use of the space.
• Repairs and changes: what the tenant may alter and who restores it at the end.
• Whether the owner is open to renewing, and on what terms.

Registration

Lease agreements for more than 11 months should be registered at the sub-registrar's office, and the stamp duty depends on the state and the term. Many short agreements are written for 11 months for this reason. Decide in advance who pays the stamp duty and the registration fee, and write it down.

For the tenant

• See the owner's proof of ownership and that the building can be used for business.
• Ask for the fire safety clearance, the electricity load and parking.
• Check the trade licence or permissions your business needs.
• Do the handover with a list of fittings and photographs.

For the owner

• Check the tenant's identity and business details and keep copies.
• Take the deposit by bank transfer and give a receipt.
• Follow the police verification rules that apply locally.
• Keep a signed copy of every agreement and renewal.

A note on tax

Rent on commercial property can carry GST and TDS depending on who the owner and tenant are and how much is paid. Ask a chartered accountant before you fix the numbers.