INDIA Law and Practice Contributed by: Vivek Chandy, Archana Tewary, Kumarmanglam Vijay and Brijita Prakash, JSA
5.6 Annual Entity Maintenance and Accounting Compliance The costs for entity maintenance vary based on the type of entity involved. Annual compli - ance costs for a private limited company would typically be around USD20,000, and similar or lower costs can be anticipated 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 per - mit 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 possession 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 differ - ent types of commercial leases. Most com - mercial leases are based on a fixed rental and fixed term concept. 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 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 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 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. Maintenance and Repair Maintenance and repair of the actual premises occupied by the tenant are generally the ten - ant’s responsibility excluding major or structural repairs (that are not attributable to the tenant). Frequency of Rent Payments In most commercial leases, rents are payable on 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 furni - ture and fittings has been fully depreciated. 6.5 Rent Variation In a typical commercial lease, rent will escalate at the rate of 10%-15% every three years. 6.6 Determination of New Rent 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 prevail - ing market rent. The determination of rent is typically subject to certain exclusions, including disregarding: • goodwill attached to the premises by reason of the tenant’s business or occupation; and • effect of tenant improvements.
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