Things to Know Before Renting a Commercial Property in India

Real estate investing even on a very small scale, remains a tried and true means of building an individual’s cash flow and wealth.

INTRODUCTION

What is commercial property?

Property purchased for residential purposes is referred to as residential property, whereas property utilised for commercial purposes is referred to as commercial property. It is seen as any structure that can make money and is purchased or used with the intention of doing so. Commercial real estate is profit-driven, thus there are specific laws and procedures that must be observed while dealing with it. when using a commercial space for a business.

There are numerous advantages to renting a residential property over leasing a commercial property. It involves bigger spaces, higher rent, and more expensive agency fees, which raises the overall investment. Additionally, commercial B2B or B2C agreements are signed for longer durations than residential agreements, which are typically for 11 months. There are therefore far too many issues to consider before choosing the ideal residence for oneself. A competent commercial property management business should be considered if you are just starting to rent out commercial property.

India’s real estate market is highly competitive. As a result, commercial property rental agreements need to be carefully arranged. The right questions to ask and the laws that relate to your particular organisation must be recognized by oneself. Understanding these principles will also enable us to save money and prevent expensive mistakes. All leases and rents for commercial property are governed by the Transfer of Property Act. One will save the trouble and make life simpler by working with a business property management company.

In a commercial rental arrangement, a property is rented out for business purposes. This can involve leasing a shop, an office, a facility, or other kinds of commercial buildings. The retail leasing agreement does not follow a typical or required format, unlike other contracts. As long as the essential elements of the leasing agreement are covered, the party may utilise any format. A qualified commercial property management company will handle all aspects of leasing if you hire them.

Steps for Renting Commercial Property

  • Title ownership validation

Always make sure you have full knowledge of who owns the property, therefore having access to the title deed is necessary to verify the rent. Before entering into a contract with the landlord, conduct more research to make sure there is no sub-rent or other type of rent connected with the property.

  • Sanctioned Plans and Power Of Attorney (PoA)

It is generally important to verify the title deed and commencement certificate given by the relevant authorities if the property you are renting is a building under construction. Make sure to verify the occupation certificate before renting out commercial space in a built-up property. In the case of indirect rent, it’s also crucial to verify and check to see if any kind of power of attorney is involved.

  • Appropriate Renting Agreement

Make sure the renting agreement is appropriate based on operations before getting into any type of mutual commitment with the landlord. Whether it is a rental leasing agreement or an agreement for co-working office space, be specific about the kind of rent.

  • Income Tax & Mortgage verification

While entering into a commercial lease, it is generally a good idea to verify the landlord’s income tax history to see whether there are any unresolved legal issues or current disputes. This will also confirm to you whether the mentioned property is classified under the Development Control Regulations of the Income Tax Act of 1961 as “commercial” or “residential.” If there is any doubt regarding this classification, you might later be assessed a TDS.

  • Background Check of the Property Agent

Before hiring a real estate agent, it’s crucial to research his reputation. Past rental agreements and word of mouth are other good ways to find out more about brokers. Demand that the agents provide information on previous clients they have served. Their hesitation to do so may be an evident sign of past dishonest behaviour if any.

  • The validity of Your Renting Agreement

In addition to other provisions, a commercial lease agreement must include the following fundamental details:

  • Start and termination dates.
  • Property address.
  • The rental amount and complete details of all deposits.
  • The interval of payment.
  • The provision of rent renewal.
  • Names of all the parties involved, including their signatures.
  • The names of the landlord and tenants and other parties involved and their signatures.

Make sure the working hours are specified in co-working space agreements, or else it may be difficult to alter them later.

The Rent Control Act varies from state to state. For instance, the “Rent Control Act 1999” exists in Maharashtra, the “Rent Control Act 1958” in Delhi, the “Tamil Nadu Buildings (Lease and Rent Control) Act” in Chennai, and the “New Rent Control Act, 2001” in Bengaluru.

The salient features of these Acts are:

  • For premises covered by this act, oral tenancies are no longer permitted, and documented rent deeds are now required.
  • Every real estate agent is required to register with the rent controller and provide details on every transaction.
  • Even though any rent can be agreed upon at the beginning of the rent, the schedule attached to the act governs rent increases.
  • The landlord and renter can agree on the cost of amenities. In the absence of such a clause, the law mandates that 15% of the rent be set aside for amenities.

It is also important that the following be adhered to;

  • Registration And Stamp Duty

The Transfer of Property Act mandates that lease deeds for a period of more than one year should be registered. (Rent for periods less than a year does not require registration.

  • Rentfor More Than One Year

All leases lasting longer than a year should be required to be registered. Such rent papers and rent agreements are subject to substantial stamp duties, which are calculated based on the average yearly rent and any required deposits. Stamp duty is nearly the same as the cost of a sale document. It is common practice to divide the rent in half and label one of the portions as an amenity agreement, which is exempt from registration. The amenity agreement must be stamped in compliance with the movables lease clause.

  • Consequences of Non-Registration of Lease Deeds 

Rents not being registered for more than a year constitute a criminal violation. There are no rights established between the landlord and the tenant. Because it hasn’t been registered, it also cannot be submitted in court. Understamped documents are excused, while unregistered documents are simply inadmissible as evidence.

When renting or leasing commercial office space in India, a lessor needs to pay close attention to the essential aspects that were discussed above. This guarantees that your interests are served, which cuts down on time wasted and helps you save money.

Conclusion:-

Due diligence requirements for buying a commercial property or office building may be different from those for buying a piece of land. The commercial area is typically constructed as a part of a commercial building. The approvals and consents needed for a business facility can vary from state to state.

The parties must get approvals from the appropriate authority for the fire extinguisher installation certificate for lift operation, including the completion certificate, occupancy certificate, and no-objection certificate, as the commercial space is a built-up area rather than a piece of land. The parties may also require other particular permissions depending on how the lease plans to use the commercial property.

Case Laws:

  • U.T. Administration vs. B.K. Khanna And Others

One cannot lose sight of the fact that the petitioner was aware of his obligation to make payment of instalments but failed to do so for the last more than 24 years, therefore the petitioner is not entitled to any indulgence. A Division Bench of this Court in Adviser to the Administrator, U.T Chandigarh v. B.K Nanda, 2013 (2) RCR (Civil) 808, in which one of us (Hemant Gupta J.) was a member, held that equitable consideration for the extension of time of cancellation of a lease or resumption of a residential plot would be materially different from cancellation of lease of a commercial property. It was held to the following effect:

  • Voltas Limited vs. Tahsildar, Thane And Others

further refers to the judgment passed by the Bombay High Court in the case reported in 2005 (2) MH.L.J. 644 (Indian Oil Corporation v. the State of Maharashtra) in W.P. No. 1041 of 2002 decided on 14.01.2005 and refers to para – 11, 12, and 13 of the said judgment and submits that the ordinary law which is applicable to the other private players in the field relating to rent control is not applicable to the State, but still, the State cannot resort to profiteering by taking a decision on demand of premium on land while leasing out to various authorities and they cannot escape from their obligations under Article 14 of the Constitution of India. He also refers to another judgment by the Hon’ble Supreme Court (2004) 3 SCC 214 para – 19 of the said judgment to submit that it has been held by the Hon’ble Supreme Court that the balance has to be struck between the two streams and this judgement has been followed in 2005 (2) MH.L.J. 644 (Indian Oil Corporation v. the State of Maharashtra) (supra). He has also referred to another judgment reported in (2012) 13 SCC 165 (Voltas Limited v. Tahsildar, Thane) para – 31 and 33 to submit that the respondents having allowed the petitioners to change the land use from commercial to residence-cum-commercial, therefore at the time of renewal of the lease, the property cannot be treated as purely commercial and it has to be treated as a residence – cum – commercial. He further submits that such change in land use was duly contemplated in the lease deed itself as is apparent from the various clauses of the lease deed particularly clause no. 15 thereof.

Reference:

https://vakilsearch.com/blog/commercial-leasing-in-india/

6 Steps for Renting Commercial Property in India

https://www.99acres.com/articles/key-factors-to-focus-when-leasing-a-commercial-property.html

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