Important aspects of Lease Agreement

1.       Identity Proof

Identity proof i.e. PAN card copy, Passport, Visa in case of foreigners etc. should be verified. PAN is also required for deducting TDS on Rent.

2.       Ownership

Proof of Ownership of the property has to be verified before entering into the Lease Agreement.  Lessee can verify the ownership of the property by checking the Sale agreement, Property tax payment receipt etc.

3.       Charges or encumbrances

It would be advised to ensure that the property is free from any charges or encumbrances by obtaining a declaration in the agreement from the Lessor that the property is free from any charges and not subject any encumbrance.  Agreement may also contain clause that there is no statutory prohibition on lease of the premises by the Lessor.

4.       Rent and Security deposit

Rent will be negotiated on the basis of prevailing market rate of the city in which premises is located. Generally security deposit will be equal 10 months’ rent. However it can be reduced based on negotiation. In some cases where Lease is for long period, the Lessor may put the obligation of repair/painting etc. on Lessee. In such a case it would be advisable to specify the maximum limit of expenditure i.e. Rs.10000 or Rs.15,000 etc. However major repair charges shall be borne by the Lessor as he is the real owner of the property.

5.       Use of Premises

Agreement should clearly specify the use of the premises. Before entering to an agreement, Lessee shall ensure that the property can be used for the desired purpose i.e. residential or commercial. He should ensure that all statutory approvals have been obtained and the premise has been constructed in accordance with the applicable law. 

6.       Peaceful possession of the property

Agreement should also contain a clause allowing the lessee on complying with terms of the lease, to peacefully hold and enjoy property during the lease period without any interruption or disturbance from the Lessor.

7.       Re-possession of the property

Generally all agreements consists one clause that in case of default by the party in payment of Rent within the prescribed time period or breach of any terms of the agreement, the Lessor shall be entitled to enter in to the property and repossess the same.  It would be advisable to provide an opportunity to the Lessee to correct the default (for ex: within 15 days) by adding one sentence to the said clause.

8.       Electricity and water connection

Lessee shall ensure that separate electricity and water meters are available if not, on what basis charges are levied. It also advised to specify the present sanctioned load of electricity especially when the property used for commercial purposes.

9.       Force majeure

Force majeure should form part of the agreement to protect the parties in case of breach or non-performance of the agreement caused by the reasons or circumstances beyond its control.

10.   Arbitration

Arbitration clause should form part of the agreement to settle the dispute if arises between the parties. Settlement through court is takes more time and is expensive. Hence arbitration clause helps to avoid proceedings through court. However if parties failed to reach the settlement through arbitration, then case may be referred to the court having jurisdiction.

11.   Annexure

In order to ensure clarity and to avoid all types of ambiguity, details of property including Furnitures and fixtures should be mentioned separately in the annexure to the agreement.