INDIA Law and Practice Contributed by: Vivek Chandy, Archana Tewary, Kumarmanglam Vijay and Brijita Prakash, JSA
practice differs from state to state and it can vary between three and 12 months’ rent. 6.9 Payment of Maintenance and Repair In addition to rent, tenants usually pay maintenance and parking charges. The landlord is generally respon - sible for maintenance and repair of common areas, the cost of which is charged back to tenants on a fixed-cost basis (with an agreed escalation) or on actual cost-plus basis, with the landlord receiving a management fee of 15%–20% of the cost incurred in providing the services. All such payments (other than municipal taxes borne by the tenant) made to the landlord for use of the property are subject to withholding tax and GST. Any IFRSD is subject to the deduction of tax at source as rent. 6.10 Payment of Utilities and Telecommunications Utilities (including power, back-up power, water) are paid by each tenant of the building based on actuals. Some landlords charge a mark-up for services such as diesel generators. 6.11 Payment of Property Taxes Typically, lessors are responsible for payment of prop - erty taxes except where the lessees take the land on lease and construct the building. In some cities, land - lords require the tenant to bear property taxes under contracts. 6.12 Insurance Issues Generally, landlords obtain a fire and perils policy covering loss of property. The cost of insurance is sometimes charged back to tenants as part of the maintenance charges. Business interruption (BI) insurance is not sold stan - dalone and can be taken only in conjunction with a fire insurance/machinery/boiler explosion policy or as part of a package in products such as industrial all-risk insurance. It offers protection to the net profit, stand - ing charges and an increase in the cost of working to maintain normal output/turnover.
The COVID-19 pandemic and consequent lockdown orders would not have triggered payments under such BI policies because they did not result in physical damage to the insured property. The Supreme Court of India has consistently held that when interpreting insurance contracts, the terms of the policy will govern the contract between the par - ties and courts cannot interfere. Thus, it is unlikely that courts would interpret BI policies to cover the COVID-19 pandemic or lockdown, unless such situa - tions are specifically covered by the policy. 6.13 Restrictions on the Use of Real Estate The use of a project/building is dependent on the zon - ing of the land and any conditions running with the land. At times, land is allotted to a landlord for a deter - mined purpose, such as biotechnology or IT-related uses, and the landlord would impose the same restric - tions on the tenants. Non-compliance with the usage conditions could result in termination of the lease. 6.14 Tenant’s Ability to Alter and Improve Real Estate Generally, a tenant is only permitted to perform non- structural alterations at the premises. The landlord may also require the tenant to reinstate the premises to the condition prior to the alteration upon expiry/ termination of the lease. Where a tenant takes land on a long-term lease, the tenant would have the right to develop the land as they require, subject to applicable law. Upon expiry or termination of the lease, development on the land would revert to the landlord, at no cost or at an agreed cost. Under Indian law, the owner of the land and the owner of the building constructed thereon can be different people. Any gain on a transfer of development rights in a property is subject to tax as income of the land - lord. The transfer of development rights to the tenant for developing the land and for commercial exploita - tion is subject to GST in the hands of the tenant (under the “reverse charge mechanism”).
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