Should I sign a Lease Deed or Leave & License?

A Leave & License is generally safer for landlords as it does not create tenancy rights, making eviction easier compared to a Lease Deed.

Is registration mandatory for commercial rent agreements?

Yes, if the lease term is 12 months or more, registration is mandatory. Agreements for 11 months can be notarized.

Who pays GST on commercial rent?

If the landlord is GST registered and annual rent exceeds ₹20 Lakhs, the tenant must pay 18% GST over and above the rent.

DISCLAIMER: As per the rules of the Bar Council of India, this article is intended for informational and educational purposes only. It does not constitute legal advice or a solicitation of legal services. The user acknowledges that any reliance on this material is at their own risk.

Commercial Rental Agreements in India: The Landlord & Tenant Playbook

Real Estate Law | By M S Sulthan Legal Associates | 2026 Edition

Drafting a commercial rental agreement is fundamentally different from a residential lease. The stakes are higher, the tenures are longer, and the capital expenditure (CapEx) involved in fit-outs can be massive. A poorly drafted agreement can lock a landlord into a low-yield asset or force a tenant to shut down business due to arbitrary eviction.

Whether you are leasing a retail showroom, office space, or a warehouse, this guide deconstructs the legal clauses that matter most in the Indian commercial real estate market.

Critical Clauses You Cannot Ignore

1. The "Lock-in Period" Clause

This is the financial backbone of a commercial lease. It creates a guarantee that the tenant will not vacate (and the landlord will not evict) for a fixed period, usually 1 to 3 years.

Why it matters: If a tenant breaks the Lock-in period, are they liable to pay rent for the remaining months? Courts have ruled that landlords can only claim "actual loss," not the entire amount automatically. Therefore, the clause must be drafted as a "Pre-estimated Liquidated Damage" to be enforceable.

2. Rent Escalation & Renewals

Unlike residential agreements, commercial leases run for 3, 5, or 9 years. The standard industry practice is a 15% rent escalation every 3 years or 5-8% annually. The agreement must clearly state whether the renewal is automatic or requires a fresh deed (which attracts Stamp Duty again).

3. Usage & "Change of Business"

A "Permitted Use" clause prevents a tenant from turning a quiet office into a noisy gym or a restaurant. Landlords should strictly define the scope of business allowed to avoid nuisance complaints from neighbors or municipal violations.

4. Force Majeure (The Post-COVID Essential)

Before 2020, this was a boilerplate clause. Now, it is vital. Does a "Force Majeure" event (like a pandemic lockdown) entitle the tenant to a Rent Waiver or just a Deferral? Ambiguity here led to thousands of lawsuits during the pandemic. We recommend a specific "Rent Abatement" clause for government-mandated lockdowns.

The Financials: GST, TDS, and Deposits

GST on Rent: If the landlord is GST registered and the annual rental income exceeds ₹20 Lakhs, 18% GST is applicable on commercial rent. The agreement must state that rent is "Exclusive of GST" so the tenant pays it over and above the base rent.
TDS Deduction: Under Section 194-I of the Income Tax Act, tenants paying monthly rent above ₹20,000 (approx. ₹2.4 Lakhs annually) must deduct 10% TDS. The tenant must provide Form 16A to the landlord.
Interest-Free Security Deposit (IFSD): Typically equivalent to 3-6 months of rent. The agreement must specify the timeline for refund (e.g., within 7 days of vacating) and valid deductions (painting, damages vs. normal wear and tear).

Frequently Asked Questions (FAQ)

1. Should I sign a "Lease Deed" or a "Leave & License Agreement"?

For landlords, a Leave & License is safer. It grants "permission" to use the premises without creating an "interest" in the property, making eviction easier. A "Lease Deed" creates a stronger right for the tenant and can make eviction difficult under Rent Control Acts.

2. Is registration mandatory for commercial agreements?

Yes, if the tenure is 12 months or more, registration with the Sub-Registrar is mandatory under the Registration Act, 1908. To avoid high stamp duty, many parties opt for 11-month agreements (renewed periodically), which only require notarization. However, for long-term corporate leases, registration is non-negotiable for legal validity.

3. Can a landlord cut electricity if rent is unpaid?

Strictly No. Cutting off essential services (electricity/water) is illegal and can lead to criminal charges against the landlord. The correct legal route is to file an eviction suit or a recovery suit.

4. Who pays for structural repairs?

The Landlord is responsible for structural repairs (roof, pillars, external walls). The Tenant is responsible for day-to-day maintenance (fused bulbs, leaking taps) and Common Area Maintenance (CAM) charges.

5. What happens if the tenant refuses to vacate after the lease expires?

The tenant becomes a "Tenant at Sufferance." The agreement should include a heavy penalty clause (e.g., double or triple the daily rent) for every day of overstay. This financial deterrent is often more effective than an immediate court case.

Leasing a Commercial Property?

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