INDIA Law and Practice Contributed by: Vivek Chandy, Archana Tewary, Kumarmanglam Vijay and Brijita Prakash, JSA
5.6 Annual Entity Maintenance and Accounting Compliance
Maintenance and Repair Maintenance and repair of the actual premises occu - pied by the tenant are generally the tenant’s respon - sibility excluding major or structural repairs (that are
The costs for entity maintenance vary based on the type of entity involved. Annual compliance costs for a private limited company would typically be around USD20,000, and similar or lower costs can be antici - pated for compliance by LLPs. 6. Commercial Leases 6.1 Types of Arrangements Allowing the Use of Real Estate for a Limited Period of Time The law recognises leases and licences that permit a person to occupy and use real estate for a limited period without acquiring the absolute title to said real estate. The transaction is a lease if it transfers posses - sion of the premises; it is a licence if it gives a right to a permissive user with no possession/interest in the premises. 6.2 Types of Commercial Leases The law does not differentiate between different types of commercial leases. Most commercial leases are based on a fixed-rent, fixed-term structure. There are triple-net leases, where the tenant bears the cost of the property tax, insurance and maintenance charges, and profit-sharing leases, where the rent is based on a percentage of the lessee’s revenue, but these are not as common. 6.3 Regulation of Rents or Lease Terms Rent or lease terms are freely negotiable in contracts entered into between parties, except in states with rent-control statutes and properties where there are statutory tenants. Rent and lease terms largely depend on the city, location of the building and market rents for similar buildings. 6.4 Typical Terms of a Lease Duration of Lease Term There are no regulations governing the term of a lease. The initial term of a lease is generally three to five years. Tenants can opt for longer leases of up to ten years. It is common to have an agreement to lease for a longer period (paying nominal stamp duty) and to execute lease deeds thereunder, as such structuring can result in lower stamp duty.
not attributable to the tenant). Frequency of Rent Payments
In most commercial leases, rents are payable on a monthly basis in advance. For retail leases, malls, hotels, etc, lease rent or a portion thereof can be based on the turnover of the lessee’s revenue at the establishment. Where a furnished space is provided, rent may be payable on the furniture and fittings, until the cost of such furniture and fittings has been fully depreciated. 6.5 Rent Variation In a typical commercial lease, rent will escalate at the Rent review and escalation based on market rent are uncommon in Indian leases. Where a rent review is agreed to in a long-term lease, an independent expert determines the prevailing market rent. The determina - tion of rent is typically subject to certain exclusions, including disregarding: • goodwill attached to the premises by reason of the rate of 10%–15% every three years. 6.6 Determination of New Rent VAT has been subsumed by GST, which is payable on leases of property/assets for commercial use and is borne by the tenant. Tenants can claim input tax credit, subject to conditions, on such tax paid. Also, tax on lease rent is deducted at source, as per the Income Tax Act 1961, by the tenant prior to paying rent to the landlord. 6.8 Costs Payable by a Tenant at the Start of a Lease In most commercial leases, a tenant is required to pay the landlord an interest-free refundable security deposit (IFRSD), held by the landlord as security for the tenant’s obligations during the lease term. The quantum of IFRSD is commercially agreed, but the tenant’s business or occupation; and • the effect of tenant improvements. 6.7 Payment of VAT
329 CHAMBERS.COM
Powered by FlippingBook