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A Comprehensive Guide to the Leasing Process in India

Singing a lease is a significant step for any new business owner. Whether you’re inaugurating a store, shifting to new office space, or renting out your facilities, leasing comes into the picture. The universe of commercial real estate India can be complicated, and it can sometimes even take years to find your perfect space. 

Once you have found that space, signing the agreement would be the next step before you can move in and focus on running your company. But, like most legal contracts, a business lease is a significant document that needs some research. 

Let’s look into the steps that are involved in the leasing process in India: 

Lease Selection: 

You have to zero in on the commercial property you wish to conduct your business. The leasing process begins when the lessee agrees to enter into a leasing agreement with the lessor. After gathering information and conducting thorough research, the lessee goes to the leasing company or broker (lessor) and a lease contract is roughly negotiated and finalized between them. 

Title Ownership Validation: 

As a business owner, you need to make sure that you have all the details and the information pertaining to the ownership of the property. This is why access to the title deep is absolutely essential to validate the lease. Check to verify there is no sub-rent of any other form of lease linked to the property before getting into a contract with the landlord of the commercial property. 

Income Tax & Mortgage Verification:

It is absolutely recommended to check the income tax background of the landlord to investigate if there are any remaining disputes or illegal proceedings. If there is any ambiguity, you could get into serious trouble later and there will be financial consequences. 

Lease Contract: 

One of the most significant parts of the leasing process is the lease agreement. Both the lessor and the lessee need to sign a contractual agreement where they list the details, terms, and conditions of the contract. The duration of the lease agreement will be cited. For instance: A typical commercial lease agreement can last from 3 to 5 years. It could either be a full pay-out lease or nominal rentals may have to be paid. 

Lease Period: 

Generally, the regular lease rental is usually paid by the lessee. While this depends on the agreement, usually the tenant is the one who is entrusted with the responsibility of properly maintaining the commercial space. At the end of the lease period, the lessee has the right to either renew the lease or terminate it. If the property is up for sale, they can even try buying it. 

Once you have gone through the leasing process, you can move in as per the commencement date and begin running your business on said property. 

If you’re looking for a commercial property to lease, CRE Matrix can help you by offering you an extensive line-up of properties all over India along with their lease data. 

For more such exciting analysis and details on real estate, visit CRE Matrix.

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Real Estate Leasing 101 – Deep Dive into Rent Free Period

When drafting a leasing contract, both tenants and landlords need to be mindful of all the clauses that are present in a commercial lease agreement. There are numerous general clauses in a rental agreement form.

However, specific clauses are significant in their effect on the lease relationship and need to be given extra attention while preparing agreements. A couple of these clauses comprise of the security deposit, rent-free period, force majeure, indemnity provisions, and the right to renew or prolong the lease.

Let’s look at rent-free period in detail:

What is a Rent-Free Period?

The rent-free period is approved by both the tenant and the landlord. Therefore, the renter is not obligated to pay the rent during this time. This duration is used to facilitate the tenant to set up and establish all the needed equipment for them to utilize the commercial property for the proposed reason.

This duration can increase from three months to eleven months, contingent on the scale and extent of installation needed in the property. This period can also be stretched if the requirement arises. Nevertheless, it would be good to cite the maximum length of the rent-free period after joint agreement between the two parties. A clause declaring that the fit-outs may be eliminated and taken back by the renter can also be integrated in a commercial lease agreement.

Benefits of a Rent-free Period

  • If the landlord is promoting a new lease of commercial property and wishes to provide a rent-free period as an incentive to prospective occupiers, particularly if renters are apprehensive about startup expenses or footfalls in the present economic climate.
  • If a significant ‘fit-out’ work is required to place the commercial property into an appropriate condition to permit the tenant to trade. In such a scenario, a rent-free period will facilitate the renter to make use of the cash which might otherwise be utilized on rent to execute the works and enhance the condition of the premises. For instance, if work is essential to fulfill the health and safety protocols for a restaurant, or if the occupier is altering the use of the property and needs to basically modify the layout.
  • It can assist the renters’ cash flow during an existing lease, with a view to enable the future landlords’ rental yields. In this case, negotiation could have a landlord consenting to a lower rent with their occupier during an existing term in return for other revisions to the lease. For instance, if there is a break clause, the tenant assents to push back their ‘break date’ or relinquish their right to break and thus essentially extends the overall length of the term (by a tenant waiving their capability to end a lease early).
  • If the lease is about to expire soon and the landlord wants the existing tenant to continue with their arrangement, then a rent-free period clause could be offered to the tenant. It can be a way to mitigate the renters’ temporarily delayed cash flow, instead of forfeiting their lease or having to take other enforcement action.

In a nutshell, rent-free periods are especially common when times are tough economically. This specific incentive is offered to motivate tenants to sign leases. It is interesting to reflect as to why a landlord does not lower the level of rent and instead opts for rent-free period as this allows him to charge the same rent from other prospective tenants, who may not fully know about the rent-free discounts.

At CRE Matrix, we dissect every lease and figure out the effect of rent-free period on the overall lease economics.

For more CRE industry insights and data research do Contact us.

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Real Estate Leasing 101 – A to Z about CAM (Common Area Maintenance) Charges in India

Negotiating a lease for your business is not only a complicated procedure but if you’re a novice at it, you will most likely stumble into several new, possibly confusing concepts. One such term is common area maintenance (CAM). This is the fee that tenants pay in commercial leases for areas that are common to all renters. 

What exactly are Common Area Maintenance (CAM) Charges?

There are numerous tenants in a commercial building and the shared areas need to be maintained regularly. A CAM (Common Area Maintenance) expense is a surplus expenditure, in addition to the base rent, paid jointly for the maintenance of the commonly owned premises like the lobbies, elevators, parking lot, laws, corridors, public bathrooms, and building security. 

They are fees paid by tenants to landlords to assist in covering expenditures related to overhead and operating costs for common areas. CAM rates are generally described in the lease agreement to dispel any uncertainty as to what they might entail. It is vital to completely comprehend these charges prior to signing a new lease. 

How is CAM Fee Computed?                                                                             

At the commencement of every year, the property manager projects common area maintenance chargesfor the property in its entirety or a part of the yearly budget. Then, that CAM estimate is split correspondingly across the tenants in the building. Your percentage of the charges is gauged by dividing your square footage by the gross leasable portion of the building. This total cost is computed into your monthly operating outlay, so it can be paid in little increments all through the year. 

Is CAM Fixed or Variable?

The CAM fees can either be ‘fixed’ or ‘variable’. The tenants need to get it incorporated in the lease agreement as to what type of common area maintenance charges they will have to pay – whether it is fixed or variable. If it is variable, then it must be explained on what factors the fees diverged. Then, it must also be included in the contract as to what percentage will the CAM fee be raised from one year to another. Tenants need to be aware if they are charged with ‘administrative fees’ apart from the CAM fees and what would be the separation of charges for the two. 

Drawbacks to Avoid 

Utmost care needs to be taken when consenting to the CAM charged by the tenant. It is highly recommended to scan through the financial documents of the landlord carefully to reach the accurate CAM fees or to clear out the anomalies in the CAM charges in real estate suggested. What encompasses common area maintenance charges is described roughly to pass on the operational expenses of the commercial building as much as possible to the tenants. 

Unless the lease agreement specifies what comes under the CAM charges, the tenants are counseled prior to signing the lease agreement to get a clear understanding from the landlord about the following:

  • Salaries of the supporting staff as well as the security guards in the common areas
  • Insurance expenditures of the building
  • Restoration and revamping of the building, parking lot, and any supplement to the building at a later stage such as solar panels of the rooftop and so forth. 
  • Electricity and water charges in the expenses in the common areas. 

Where can you find the CAM charges in the building which interests you?

At CRE Matrix, we have analyzed over 1 Lakh lease documents across the country and many of these contain CAM charges. CRE Matrix is the India’s most favorite authentic analytics platform that allows stakeholders from different industries analyze CAM charges and much more.