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.

All about Deed

A Deed is a solemn document. It is a formal writing of a non-testamentary character which purports or operates to create, declare, confirm, assign, limit or extinguish some right, title, or interest. It is used to describe all the instruments by which two or more persons agree to effect any right or liability. Deeds are in writing, signed, sealed and delivered.

Components of Deed:

1.      Description of title:

The Deed should contain title at the beginning of the documents preferably on capital letters.

2.      Place and Date of Execution:

Place determines the territorial and legal jurisdiction which is important for registration and stamping of the document and for  claiming legal remedies in case of breach by either parties. The date of execution is important for the purpose of application of law of limitation, registration, maturity period etc.

3.      Parties to the Deed:

Parties (with address) to the Deed should be clearly mentioned in the Deed. While describing the parties, transferor should come first and transferee should be mentioned last. If there is confirming party, the same may be placed after transferor. Reference label may be used against each party to avoid repetition of names at subsequent places. The refusee of heirs, executors, assigns, liquidators, successors etc. should mentioned against each party’s name

4.      Recitals:

Recital is a short story about the subject matter of the Deed. Recital should be written in chronological order. Generally recitals are not taken into evident but are open for interpretation for the court. Recitals begins with the word “Whereas”.

5.      Testatum:

This is witnessing clause. Generally begins with ‘Now this Deed Witnesses as follows’.

6.      Consideration:

Consideration is very important part of the Deed. It also necessary for determining stamp duty payable on the Deed.

7.      Description of Subject Matter and operative clause:

Subject matter should be properly described in the document along with operative clause such as transfer of interest etc. along with other terms and conditions.

8.      Covenents and Undertakings:

Covenant is an agreement or consideration or promise by the parties, by Deed in writing, signed sealed and delivered, by which either of the parties, pledged himself to the other than something  is either done or shall be done for stipulating the truth of certain facts. Covenant clause includes undertakings also.

9.      Testimonium Clause:

This clause is the last part of the Deed. It signifies that parties have signed the deed. Ex: “In witness whereof the parties hereto have signed this day on the date above written.

10.  Signature and Attestation:

Both parties should sign the Deed. If the parties are not competent to sign or is juristic person, person competent to sign should sign the Deed on behalf of the party. For ex: in case of Companies, Authorized person should sign on behalf of the Company. Wherever necessary, attestation should be done by two witnesses.