INDIA Law and Practice Contributed by: Vivek Chandy, Archana Tewary, Kumarmanglam Vijay and Megha Arora, JSA
irresistible force. After the COVID-19 pandemic, several tenants were not using the premises due to the lockdown imposed, which resulted in claims for waivers and reductions of rents. In some cases, landlords agreed to such requests. The courts have held that a lease is an executed contract where the landlord has performed its part of the contract once it has delivers pos - session, and the inability of the tenant to use the property due to the lockdown is a temporary event that will not entitle the tenant to seek the abatement of rent, unless there is a clause in the rent deed that specifically exempts the payment of rent during such time. 6.5 Rent Variation In a typical commercial lease in India, rent will escalate every three years. The rate of escalation The concept of rent review and escalation based on market rent is not common in Indian leases. Where a rent review is agreed to in a long-term lease, an independent expert determines the prevailing market rent. The determination of rent is typically subject to certain exclusions, includ - ing disregarding: is generally between 10% and 15%. 6.6 Determination of New Rent • goodwill attached to the premises by reason of the tenant’s business or occupation of the premises; and • the effect of tenant improvements at the premises. 6.7 Payment of VAT VAT has been subsumed by GST, which is pay - able on leases of property/assets for commercial use and is borne by the tenant. The tenant can claim input tax credit of such tax paid, subject to conditions. Tax on lease rent is deducted at
source in terms of 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), which is held by the landlord as security for the tenant’s obligations during the lease term. The quantum of deposit is commercially agreed but the practice differs from state to state and can vary between three and 12 months’ rent. 6.9 Payment of Maintenance and Repair In addition to rent, tenants usually pay mainte - nance charges and a fixed parking fee based on the number of parking spaces provided exclu - sively to the tenant. The landlord generally takes responsibility for the maintenance and repair of the common areas, the cost of which is charged back to tenants on a fixed-cost basis (with an agreed escalation) or on an 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 as well as 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, etc) are paid by each tenant of the building based on actuals. 6.11 Insurance Issues In most instances, the insurance obtained is a fire and perils policy covering loss of property.
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