- What is a Commercial Rent Agreement?
- Commercial Rent Agreement
What is a Commercial Rent Agreement?
A commercial rent agreement is a legally binding contract between a lessor and a lessee for the lease of a commercial property. This agreement outlines and specifies various important details and terms that both parties must adhere to throughout the duration of the lease. In order to avoid any future disputes between the parties it is very necessary that such commercial rent agreement should be drafted very carefully.
Commercial rent agreement serves as a crucial tool for protecting the rights and obligations of both the lessor and the tenant. It provides a clear framework for the relationship between the two parties and helps to prevent misunderstandings or disputes that may arise during the lease term. By clearly outlining the terms and conditions, a commercial rent agreement ensures that both parties are aware of their rights and responsibilities, promoting a fair and mutually beneficial rental arrangement. Rent Agreements whether residential or commercial, it is always more favourable to the lessee whereas, leave and licence agreement is more favourable to the licensor.
Some key clauses included in a commercial rent agreement are as follows;
- The Duration of the Lease;
This specifies the length of time that the tenant will have the right to occupy and use the commercial property. It can range from a few months to several years, depending on the need of both the parties.
- Payment Clause;
Another crucial aspect covered in the agreement is the monthly rent amount. The rent amount is the agreed monetary value that the tenant is obligated to pay to the lessor in exchange for the use of the commercial property. The rent amount may be fixed for the entire duration of the lease or may be subject to periodic adjustments based on factors such as inflation or market conditions.
The payment clause also specifies about the due date for rent payments, the accepted methods of payment, and any penalties or late fees that may be incurred if the tenant fails to make timely payments.
- Responsibilities of both the lessor and the tenant:
Responsibilities and obligations of the lessor and lessee are also clearly defined in the agreement. The lessor is typically responsible for maintaining the structural integrity of the property, ensuring compliance with local laws and regulations, statutory duties and providing necessary repairs and maintenance. On the other hand, the tenant is responsible for maintaining the interior of the property, avoiding any illegal activity in the premises, as well as complying with any rules or regulations set forth by the lessor or governing authorities.
Additionally, a commercial rent agreement may include additional clauses or provisions that address specific circumstances or concerns. These may include provisions for subleasing, Lock-in Period, force majuere, cancellation of the agreement, dispute resolution mechanisms, or any other specific terms that the lessor and tenant deem necessary to include in the agreement.
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Commercial Rent Agreement
This Commercial Rent Agreement (hereinafter referred to as ‘Agreement’) is made at [City] this [Day, Month] of [Year], herein referred to as the (‘Effective date’).
BY AND BETWEEN
__________, Son of _________, aged _________ years, permanently residing at ____________________________________________________________________________________________________, (hereinafter referred to as “THE LESSOR”, which expression shall, unless repugnant to the context and meaning include his heirs, successors, administrators and assigns) of the ONE PART;
__________, Son of _________, aged _________ years, permanently residing at ____________________________________________________________________________________________________, (hereinafter referred to as “THE LESSEE”, which expression shall, unless repugnant to the context and meaning include his heirs, successors, administrators and assigns) of the OTHER PART;
WHEREAS the LESSOR is seized and possessed or otherwise well and sufficiently entitled to the premises situated at _______________________________________________________________________________________________________ with a total area of __________________ square feet and comprised of _____ rooms. (hereinafter referred to as “DEMISED PREMISES” )
WHEREAS, the LESSEE is engaged in the business of _______________________________ and requires a temporary premise for running his Shop, has approached the LESSOR with a request to allow the LESSEE herein for temporary possession of the Demised Premises on a lease basis.
WHEREAS on the request of the LESSEE, the LESSOR has agreed to grant a lease in respect of the Demised Premises for a term of _______________ Months/Years in the manner from now on appearing.
NOW THEREFORE IT IS HEREBY AGREED TO, DECLARED AND RECORDED BY AND BETWEEN THE PARTIES HERETO AS FOLLOWS:-
- The term of this Rent Agreement shall be for _____months/year taking effect from _____ (effective date) to _____ (expiration date).
- During this period, the LESSEE shall have the exclusive right to occupy and utilise the Demised Premises as per the terms and conditions of this Agreement.
- The Agreement may be renewed after the expiry date, subject to the fresh and mutually agreed terms and conditions between the LESSOR and the LESSEE.
2. Security Deposit
- In consideration of taking the occupancy of the Demised Property on the lease, the LESSEE shall make a payment of Rs ___________/- (Rupees ______________ Only), to the LESSOR as an interest-free security deposit on the Execution Date of this Agreement.
- Such security deposit shall be refunded to the LESSEE at the time of expiration, pre-termination or cancellation of the Agreement, but shall be subject to deductions arising due to the arrears of the lease fee, CAM charges, or any other dues/penalties payable by the LESSEE during the Agreement following the terms and conditions of this Agreement.
- If the LESSOR fails to pay the security deposit by the date of the expiration, pre-termination or cancellation of the Agreement then the LESSEE shall be entitled to the possession of the DEMISED PREMISES, but liable to pay the agreed monthly rent without any escalation until he receives such due security deposit from the LESSOR.
3. Monthly Rent
- The LESSEE shall pay to the LESSOR a sum of Rs _________/- (Rupees___________ only), as the monthly rent of the ‘Demised Premises’ before the 5th day of every English Calendar month.
- The method of Payment preferred by both the parties is ___________
- Delay in the payment of the monthly rent consecutively for __________ months shall entitle the LESSOR to terminate the Agreement.
- The Renewal of the Agreement shall have an escalation up to _____% per annum in the monthly rent amount with mutual consent by both parties.
4. Lock-in Period
- Both the parties to the Agreement have mutually agreed upon a Lock-in Period of ______ months (in words) (hereinafter referred to as Lock-in Period) taking effect from the Effective Date of this Agreement. During this period, the parties are restrained from terminating the Contract and obligated towards the smooth functioning of the Agreement.
- The LESSEE acknowledges that he shall make a continuous and non-interrupted payment of the monthly rent minimum for a period of _____________ months during the Lock-in Period.
- Both parties acknowledge and agree that the Lock-in Period is binding upon them for the duration specified.
- In the event of the termination of the Agreement during the Lock-In Period by the LESSOR due to the breach of the terms and conditions of this Agreement committed by the LESSEE then the LESSEE shall be liable to pay the remaining monthly rent payable during the Lock-in Period to the LESSOR.
- In the event of the termination of the Agreement during the Lock-In Period by the LESSEE due to the breach of the terms and conditions of this Agreement committed by the LESSOR then the LESSOR shall be liable to pay the remaining monthly rent payable during the Lock-in Period to the LESSEE.
- Notwithstanding the above provisions, either party may terminate this Rent Agreement during the Lock-In Period upon mutual written agreement.
- Both the parties shall be entitled to immediate termination of the Agreement during the Lock-In Period and be exempted from all liabilities or penalties in the events of force majeure or any circumstances beyond reasonable control making the performance of this Agreement practically impossible.
- All the municipal taxes and statutory duties levied on the leased properties shall be borne by the LESSOR himself.
- The electricity, telephone, internet, water charges, and all Common Area Maintenance charges (CAM) in respect of the demised property shall be borne by the LESSEE on a timely basis.
- The LESSEE shall pay for the wear and tear damages amounting up to Rs ______/- (Rupees _____________ Only).
- Any major damage caused to the DEMISED PROPERTY due to the activity of the LESSEE shall be repaired by the LESSEE at his cost.
- The LESSEE shall not be liable to pay for the damages caused to the DEMISED PROPERTY due to natural calamities.
- Any need for structural repairs arising in the Demised Premises naturally shall be borne by the LESSOR.
6. Representations by the LESSOR
The LESSOR represents that;
- He is the lawful and absolute owner of the Demised Premises and enjoys all rights, title and interest therein;
- The LESSOR retains the sole and exclusive right to rent out his property and reserves the right to refuse or reject any offer of renting the same.
- The said property is free of all security interest, lien and encumbrances;
- The LESSOR is free of all criminal charges and judgements against him including insolvency;
- The DEMISED PREMISES was constructed in accordance with applicable laws. No notices have been issued by any municipal authority or local body challenging the legality of the DEMISED PREMISES;
- The LESSOR has conducted all due diligence concerning the LESSEE including a police verification before leasing the said premises to him.
- The LESSEE shall be entitled to erect temporary fitting, fixutures wooden partitions or any such minor additions or alterations in the DEMISED PREMISES provided the same shall be removed at the time of the expiration, pre-termination or cancellation of the Agreement.
- The LESSOR warrants that he shall refrain from undertaking any activity in the leased premises that may cause disturbance in the peaceful possession of the LESSEE;
- The LESSEE acknowledges that, apart from the above-mentioned representations, the LESSOR has made no express or implied representations or warranties concerning the Demised Premises.
- The LESSOR shall indemnify the LESSEE for any damages caused to him by the breach of the above-mentioned Representations and warranties by the LESSOR.
7. Representations by the LESSEE
The LESSEE represents and warrants that;
- He is legally capable of entering this Agreement and is free from any criminal charges against him.
- He is financially capable of entering into this Agreement and can bear the financial cost of the lease.
- He has obtained all the necessary licences and complied with all the statutory requirements mandatory to run his business.
- The Demised Property shall be used only for the aforesaid purpose by the LESSEE.
- The LESSEE shall use the property with reasonable care and ensure the physical well-being of the property;
- The LESSEE shall not conduct any illegal activity prohibited by the Central or the State Government on the leased property;
- The LESSEE shall not sub-let or sub-license the Demised without the written consent of the LESSOR;
- The LESSEE shall refrain from causing any kind of nuisance to the neighbours;Inspection
- The LESSOR, after giving a prior notice of ____ hours/days and between ___am to ____pm, shall have the right to enter and inspect the DEMISED PREMISES either by himself or by any other person appointed by him with the object of examining the physical condition of the said property or check upon to on the activities carried by the LESSEE.
- The LESSOR shall also be entitled to enter upon the Demised Premises on account of any complaints of private or public nuisance made by the neighbours against the LESSEE, or for collection of rents or repair purposes.
- The LESSOR or his authorized representative shall not cause any unreasonable disturbance to the LESSEE’s right of quiet enjoyment of the Demised Premises during the inspection.
- It shall be the duty of the LESSEE to allow easy access to the Demised Premises to the LESSOR or his representative during the inspection.
- The LESSEE shall not be permitted to make any material additions or alterations in the leased property or any part or parts thereof, during the lease term without intimating the LESSOR about the need for such additions or alterations in writing.
- The LESSEE is obligated to submit a request along with supporting documents about the same to the LESSOR regarding any needful alterations.
- The LESSEE may conduct the alterations only after obtaining permits and approvals.
- Any unauthorised alteration or addition in the Demised Premises, or any part or parts thereof, other than movable furniture and trade fixtures, shall, unless otherwise provided in the agreement between the LESSOR and the LESSEE, be and become the property of the LESSOR and remain in the property at the expiration or earlier termination or cancellation of this Agreement.
The LESSOR by serving a notice prior ____days (in words), shall have the right to cancel the Agreement before its expiry and demand the LESSEE to vacate the leased Premises on the following grounds;
- If the LESSEE is found guilty of conducting any illegal activity on the premises;
- If the LESSEE is guilty of causing any nuisance to the neighbours;
- If the LESSEE has made any material addition or alteration in the premises without the consent of the LESSOR.
- If the LESSEE fails to make the timely payment of the monthly leased fee or fails to pay the same consecutively for ____ months whether or not such rent amount was demanded.
- If the LESSEE breaches any of the terms of the Agreement;
- If the LESSOR urgently needs to retain the DEMISED PREMISES due to unforeseen reasons, in that case, the LESSEE shall be duty-bound to vacate the said premises and hand over the peaceful possession of the same. upon a written notice served prior ______________ days by the LESSOR.
- The LESSOR is entitled to regain the possession of the Demised Premises in a sound condition on the Agreement’s expiration, cancellation or pre-termination.
- The LESSEE shall vacate the DEMISED PREMISES in a sound condition and hand over the peaceful possession of the same immediately after the expiry of the Agreement whatsoever without any objection and without any necessity to be served by the written notice about the same.
- In case of pre-termination or cancellation of the Agreement, a written notice before __________ days shall be served by the party initiating such pre-termination or cancellation to the other party.
- The events of Force-Majeure shall include but are not limited to any act of God, fire, flood, riots, physical or mental illness, epidemic quarantine restrictions, insolvency or any other unforeseen circumstances beyond reasonable control making the performance of the contract practically impossible.
- Any event of force majeure shall not constitute a breach of contract on the part of either Party.
- Parties are obligated to resume the performance of the Agreement as soon as reasonably possible, but non-performance of the Agreement due to the Force-Majeure events for a continued period of ____days shall entitle either party to terminate the Agreement.
- Termination of the Agreement due to the Force-Majeure events shall exempt the parties from all the liabilities and penalties payable following the terms of this Agreement.
13. Dispute Resolution
- Any dispute, claim, or controversy arising out of the Agreement shall be settled by the way of Arbitration.
- The arbitration award shall be final and binding upon the Parties, and judgment upon the award may be entered in any court having jurisdiction.
- Notwithstanding anything mentioned above, either partner may seek interim injunctive relief or other equitable remedies from a court of competent jurisdiction to protect its rights and interests pending the arbitration proceedings.
- The costs and expenses incurred in the dispute resolution process, including arbitration fees, shall be borne as determined by the arbitrator, taking into account the dispute’s circumstances and the Parties’ conduct.
- The Arbitrator may pass the ex-parte order if either party disrupts or remains absent from the arbitration proceedings, and such order shall be binding upon both parties.
The Registration fee if any, and the stamp duties in respect of the Demised Premises shall be borne by the LESSEE.
IN WITNESSETH WHEREOF the parties hereto have herein unto set and subscribed their respective hands on the day and year mentioned hereinabove.
Signed, Sealed and Delivered by:
In the presence of Witnesses:
Can a lessor remove the lessee and his belongings from the rented property?
- No, a lessor cannot remove the lessee and his belongings from the leased property without recourse to the Court of Law.
- A lease is very favourable to the lessee as it creates tenancy rights in the favour of the Lessee. It is always advisable for the LESSOR to adhere to the guidelines provided in the respective State Rent Control Act, of the state where the rented property is situated.
- A Lessor should always refrain from forcefully removing the Lessee or his belongings from the rented property or disconnecting the basic service supply.
- He can follow the legal procedure of filing an eviction notice in the court of competent jurisdiction and if needed he can file an eviction suit to get the Lessee evicted from the rented property.
Can a lease be terminated during the locking period?
- Yes, a lease can be terminated during the Lock-in Period in force majeure events when the observance of the terms and conditions or obligations related to the rent agreement becomes impossible.
- The rent agreement can also be terminated during the Lock-in Period due to the unreasonable breach of terms and conditions or obligations stipulated in the agreement by either party, then the party affected by such breach may initiate to terminate the contract by serving a termination notice in advance to the other party.
- Termination of the rent agreement due to force majeure events during the lock-in period shall exempt the terminating party from paying any penalties. In contrast, termination of the agreement due to unreasonable breach of terms and conditions of the Agreement shall make the defaulter party pay an amount of penalty pre-determined by both parties.
Do parties have to pay a penalty for terminating a rent agreement during the Lock-in Period?
Termination of the rent agreement due to force majeure events during the lock-in period shall exempt the terminating party from paying any penalties. In contrast, termination of the agreement due to unreasonable breach of terms and conditions of the Agreement shall make the defaulter party pay an amount of penalty pre-determined by both parties at the time of entering the agreement.
Is the Registration of the Rent Agreement compulsory?
It is mandatory to register a rent agreement if it is more than a period of 11 months.