P R A C T I C A L B U S I N E S S G U I D E

Before You Sign a Commercial Lease

13 Clauses That Decide What a Lease Really Costs You

A tenant-side checklist for founders, CFOs, retailers and business owners in India

By Ravi Vaswani & Himanshi Rai | Zentrum Law Partners

A business may negotiate the rent down by ₹50,000 a month and still lose far more on the terms it never focused on.

A ₹20 lakh security deposit held back for three months after handover. CAM charges that nearly double in two years because the lease has no cap and no formula. A flagship store that cannot put up façade signage, discovered after ₹80 lakh of interiors are already in. A landlord who, it turns out, did not have clear authority to lease the premises at all.

None of these are drafting curiosities. Each surfaces after the tenant has committed: capital spent, employees relocated, licences obtained against that address, which is precisely when the tenant has the least leverage to fix anything.

A commercial lease is not really a property document. It is a long-term allocation of who bears the cost when things go wrong: when the premises cannot be used, when costs rise, when the landlord defaults, or when the business needs to restructure or exit.

Commercial leases in India are governed principally by the terms agreed between the parties, read with the Transfer of Property Act, 1882, the Registration Act, 1908 and the applicable State stamp law. Depending on the property and location, municipal laws, development regulations, rent-control legislation and property-specific approvals may also apply.

Set out below are the 13 clauses that decide those outcomes, followed by five provisions tenants most often discover only when it is too late.

1. Don’t Let the Security Deposit Become an Unsecured Loan

The security deposit is often the tenant’s largest upfront commitment and the most common source of dispute when the lease ends. Many agreements permit the landlord to retain it for months after the tenant has vacated, or to make deductions at sole discretion. Once possession is surrendered, the tenant has lost its principal commercial leverage.

The lease should provide for:

• refund simultaneously with handover, or within a short and clearly defined period;

• deductions only for documented unpaid dues or damage beyond normal wear and tear;

• a joint inspection and written handover memorandum;

• release of the undisputed amount even if a particular deduction is contested;

• interest for unreasonable delay in refund; and

• no automatic forfeiture merely because the tenant exercises a valid exit right.

Security cheques and personal guarantees

Landlords frequently ask, in addition to the deposit, for post-dated or blank security cheques and a personal guarantee from directors or promoters. Both deserve resistance. A security cheque presented on a disputed claim can trigger proceedings under Section 138 of the Negotiable Instruments Act, 1881, converting a commercial disagreement into criminal exposure. A personal guarantee converts a company obligation into the promoter’s personal liability, often without any cap. Where these cannot be avoided, negotiate a cap, an express statement of the limited purpose for which cheques may be presented, prior written notice before presentation, and return of all instruments on handover.

ILLUSTRATIVE RISK: A technology company vacates its office after a restructuring. The landlord retains its ₹20 lakh deposit for three months, citing repainting and minor repairs. The lease contains neither a refund deadline nor objective deduction standards.

NEGOTIATION TAKEAWAY: Do not surrender vacant possession without recording the condition of the premises, agreed deductions, balance refundable and the payment date. Where commercially possible, link final handover directly to refund of the deposit.

2. Negotiate the Total Occupancy Cost, Not Merely the Rent

An attractive headline rent can conceal an expensive lease. The agreement should identify every recurring occupancy cost, including:

• base rent and applicable taxes;

• escalation percentage, frequency and effective date;

• whether escalation applies only to rent, or also to CAM, parking and other charges;

• CAM or facility-management charges;

• parking, utility, generator and HVAC charges;

• municipal taxes and other property-related levies; and

• any administrative fee, markup or sinking-fund contribution.

Avoid rent revisions based only on “prevailing market rates” or another subjective standard. If a market-linked mechanism is unavoidable, prescribe an objective valuation process and a cap.

GST and TDS — the costs that are rarely quoted

Commercial rent attracts GST at 18%. The lease should state whether the quoted rent is inclusive or exclusive, and confirm that the landlord is GST-registered and will issue compliant tax invoices.

Rent payments attract TDS under Section 194-I of the Income-tax Act, 1961. Landlords often insist on receiving rent net of TDS, which silently grosses up the tenant’s cost. The lease should state that rent is inclusive of TDS, record the landlord’s PAN, and oblige the landlord to furnish the documentation the tenant needs for its own compliance.

NEGOTIATION TAKEAWAY: Ask for a one-page occupancy-cost sheet before signing. The right number to compare across properties is not rent per square foot; it is the all-in cost of occupation over the entire committed period.

3. Don’t Pay Rent Before the Premises Are Operationally Ready

Commercial premises commonly require interiors, electrical work, networking, fire-safety installations, furniture, branding and regulatory approvals before operations can begin. The tenant should negotiate:

• an adequate rent-free fit-out period based on the premises, proposed use, contemplated works and approvals required;

• rent commencement only upon expiry of the agreed fit-out period; and

• uninterrupted access for employees, contractors and vendors, availability of electricity, water, lifts and other essential utilities during the fit-out period.

Landlord drafts routinely conflate three distinct dates that should be separately defined: the possession date, the fit-out commencement date and the rent commencement date. Any landlord delay in completing agreed works, delivering the premises in the agreed condition or providing access should automatically extend both the fit-out period and the rent commencement date.

NEGOTIATION TAKEAWAY: The fit-out clock should begin when the premises are actually capable of being fitted out, not when the lease is signed or the keys are ceremonially handed over.

4. Understand What the Lock-In Really Costs

A lock-in clause restricts one or both parties from terminating the lease during a specified initial period, except for any identified defaults or exceptional events. Four matters should be separated clearly:

• the overall lease term;

• the tenant’s lock-in period;

• the landlord’s lock-in period; and

• the financial consequence of a breach by either party.

Tenants sometimes accept identical lock-ins believing the arrangement is balanced. It rarely is. After the tenant invests in fit-outs, relocates employees and establishes customer traffic, any premature termination by the landlord is significantly more damaging than an ordinary tenant exit.

What a fair breach consequence looks like

The landlord’s standard ask is rent for the entire balance lock-in period. A reasonable negotiated position is the lower of (a) forfeiture of the security deposit, or (b) a defined number of months’ rent, coupled with an obligation on the landlord to make reasonable efforts to re-let, so the tenant is not paying for premises the landlord has already re-leased. On the other side, wrongful termination by the landlord should entitle the tenant to recover its deposit, unamortised fit-out expenditure, relocation costs and other agreed losses.

The tenant should also seek:

• a shorter tenant lock-in and, where possible, a landlord commitment for the full lease term;

• a break right after an initial minimum commitment period;

• exits during lock-in for landlord default, title or approval defects, prolonged disruption, regulatory action or  loss of lawful use.

NEGOTIATION TAKEAWAY: A landlord lock-in is only as valuable as the remedy attached to its breach.

5. Ensure the Premises Can Lawfully Support Your Business

“Commercial use” is often too vague for a restaurant, clinic, educational institution, warehouse, retail outlet, manufacturing unit or another regulated activity. The permitted-use clause should cover:

• the tenant’s specific present business activity and reasonably related activities;

• lawful use of the premises for that activity;

• working hours and 24×7 access, where required;

• customer, employee and vendor access;

• parking and loading or unloading facilities;

• use of common areas;

• installation of air-conditioning, generators, machinery, exhaust systems and network infrastructure; and

• the landlord’s cooperation and NOCs for licences and approvals.

Responsibility must be divided clearly: property-level approvals should ordinarily remain with the landlord, while licences relating specifically to the tenant’s business should ordinarily remain with the tenant.

If title defects, unauthorised construction, deviations from sanctioned plans or other landlord-attributable non compliance materially impair the intended use, the tenant should be entitled to suspend rent during the affected period. If the problem is not cured promptly, the tenant should be able to terminate without penalty, recover its deposit immediately and claim documented losses, including unamortised fit-out expenditure and reasonable relocation costs to the extent caused by the landlord’s default.

NEGOTIATION TAKEAWAY: The permitted-use clause should answer two separate questions: “What does the landlord permit?” and “What does the law permit?” You need satisfactory answers to both.

6. Preserve Flexibility for Restructuring and Group Use

Businesses evolve faster than leases. During a long tenure, a tenant may undergo a merger, demerger, acquisition, internal restructuring or change of control. It may also need to share the premises with an affiliate, franchisee, managed-service provider or strategic partner. The lease should permit, preferably without fresh landlord consent:

• assignment or novation to an affiliate or group entity;

• transfer pursuant to a merger, demerger, acquisition or business transfer;

• occupation or sharing by group companies;

• changes in shareholding or control that do not prejudice the landlord; and

• subletting or sharing with franchisees and business partners where commercially necessary.

If consent is required, provide that it cannot be unreasonably withheld or delayed, and prescribe a response timeline after which consent is deemed given.

NEGOTIATION TAKEAWAY: A routine corporate restructuring should not accidentally become a lease default.

7. Make the Landlord Stand Behind Its Title and Approvals

A tenant investing serious capital in a property should not rely only on the landlord’s promise to provide possession. The landlord should represent and warrant that it:

• has good and valid title to, or legally enforceable authority over, the premises;

• has legal capacity and all necessary consents to grant the lease;

• has obtained and will maintain material property-level approvals required for lawful occupation and permitted use;

• has disclosed all mortgages, charges, litigation, acquisition proceedings and third-party rights;

• has not created conflicting lease or occupancy rights;

• has disclosed any pending demolition, sealing or material municipal action; and

• will not interfere with the tenant’s quiet and peaceful use, subject to the lease.

These assurances should survive execution and be backed by a meaningful indemnity for losses arising from title defects, ownership disputes, unauthorised construction, property-level regulatory non-compliance or breach of warranty. If the property is mortgaged, consider obtaining a lender’s NOC or non-disturbance confirmation, so that enforcement against the landlord does not automatically displace the tenant.

ILLUSTRATIVE RISK: A retailer spends ₹80 lakh on a flagship store, only to discover six months later that the signatory lacked authority to lease part of the property because of an unresolved family ownership dispute.

NEGOTIATION TAKEAWAY: A representation without a remedy may provide comfort on paper, but little protection when the business is disrupted.

8. Verify the Property Before Investing in Fit-Outs

A well-drafted indemnity cannot fully compensate for a store that is sealed, a warehouse that cannot obtain a fire approval, or an office that must suddenly relocate. Depending on the premises and proposed activity, due diligence may cover:

• title documents and chain of ownership;

• sanctioned building plans and building permission;

• occupancy or completion certificate;

• fire NOC and structural stability certificate;

• commercial electricity connection;

• municipal permissions and property-tax records;

• society, association or developer approvals;

• disclosed litigation, notices and acquisition proceedings; and

• lender or mortgagee consent, where applicable.

Crucially, these should not sit outside the contract. Receipt and verification of the essential documents should be written into the lease as conditions precedent to payment of a substantial deposit or commencement of fit-outs, with an express right for the tenant to walk away and recover any advance if they are not satisfied within an agreed period.

NEGOTIATION TAKEAWAY: Lease review and property due diligence are different exercises. A strong lease cannot cure a fundamentally defective property.

9. Put Guardrails Around CAM and Major Repairs

Common Area Maintenance charges frequently receive less attention than rent, even though they can become a substantial part of the total occupancy cost. The lease should specify:

• services included in, and expressly excluded from, CAM;

• the area and formula used for allocation;

• whether CAM is fixed or based on actual expenditure;

• revision frequency and any cap;

• supporting statements and the tenant’s audit or inspection rights;

• facility-manager markups or administrative fees; and

• treatment of vacant units and capital expenditure.

Responsibility for structural and capital repairs: roof, façade, structure, lifts, common pipelines, electrical systems and major plant should ordinarily remain with the landlord and should not quietly reappear as CAM.

A practical pre-signing test: ask the landlord for the last two years’ actual CAM statements for the building. A landlord willing to share them is usually charging on a defensible basis. A refusal is itself information.

ILLUSTRATIVE RISK: A warehouse operator secures an attractive rent, but CAM nearly doubles within two years because the lease contains no cap, formula or right to inspect supporting expenditure.

NEGOTIATION TAKEAWAY: “As charged by the facility manager” is not a calculation mechanism.

10. Secure Signage, Access and Operational Rights

For retailers, restaurants, clinics, educational institutions and franchise businesses, visibility and access are not conveniences; they are revenue drivers. The lease should specify:

• location, dimensions and nature of permitted signage;

• façade, pylon, directory and internal branding rights;

• objective conditions and timelines for landlord approval;

• responsibility for municipal or association permissions;

• continuing customer, employee and delivery access;

• parking allocation and visitor parking;

• loading bays, service lifts and common entrances; and

• access for maintenance, repairs and emergency work.

ILLUSTRATIVE RISK: A restaurant completes expensive interiors and learns only before launch that external signage on the façade is prohibited. The lease is silent, and the location’s expected visibility collapses.

NEGOTIATION TAKEAWAY: If a particular access, parking or signage right influenced your decision to lease the property, it belongs in the agreement: not in a brochure, an email assurance or a site-visit conversation.

11. Suspend Rent When the Premises Cannot Be Used

The agreement should state what happens if the premises become wholly or substantially unusable because of:

• fire, flood or structural damage;

• failure of essential utilities;

• damage to common access areas;

• government restrictions;

• sealing or demolition action; or

• another event beyond the tenant’s reasonable control.

Rent, CAM and other recurring occupancy charges should be suspended proportionately for the period and to the extent that the premises cannot reasonably be used. If disruption continues beyond an agreed long-stop period, the tenant should be able to terminate and obtain an immediate refund of the security deposit.

Crucially, regulatory action caused by the landlord’s title defect, unauthorised construction or property-level non compliance should not be treated merely as force majeure. It should constitute landlord default and trigger the tenant’s contractual termination and indemnity rights.

Insurance: what makes this clause work commercially

A rent-suspension clause addresses the rent; it does not replace the tenant’s destroyed stock, equipment or interiors. The lease should allocate insurance expressly: the landlord insuring the structure and common areas, and the tenant insuring its own fit-outs, contents, stock, equipment and public liability. Address whether either party must be named as an additional insured, whether a waiver of subrogation applies, and who bears the risk of underinsurance.

WHY EXPRESS DRAFTING MATTERS: In Raja Dhruv Dev Chand v. Harmohinder Singh & Anr., AIR 1968 SC 1024, the Supreme Court distinguished a completed lease from an ordinary executory contract and held that Section 56 of the Indian Contract Act, 1872 does not ordinarily apply to leases. The Court also discussed the statutory protection under Section 108(e) of the Transfer of Property Act, where a material part of the property is wholly destroyed or rendered substantially and permanently unfit by specified irresistible forces. Businesses should therefore not assume that general principles of impossibility will automatically suspend rent or discharge a lease. The commercial consequences of interruption must be written expressly.

NEGOTIATION TAKEAWAY: “Force majeure applies” is incomplete. The clause must state what happens to rent, CAM, restoration obligations, the deposit and termination rights.

12. Negotiate Real Exit, Reinstatement and Renewal Rights

Business circumstances change. Expansion, consolidation, restructuring, relocation or market conditions may make an early exit necessary. Where commercially feasible, negotiate:

• an unconditional termination right after a minimum commitment period;

• termination for uncured landlord default;

• termination for prolonged disruption or regulatory action;

• termination if lawful or reasonable use becomes materially impossible;

• a cure period before the landlord can terminate for tenant default;

• a right to remove fit-outs, equipment and branding; and

• a defined handover and deposit-refund process.

The reinstatement trap

This is the single most commonly overlooked cost in a commercial lease. Landlord drafts routinely require the tenant to restore the premises to “original bare shell condition” on exit — stripping out flooring, partitions, false ceilings, electrical and network cabling, air-conditioning and civil work. On a large office or a fitted-out restaurant, that obligation can run into lakhs, and it is almost never budgeted at signing. It also sits awkwardly alongside a clause vesting all improvements in the landlord: the tenant can end up having gifted the fit-outs and then paying to remove them.

Tenants should negotiate:

• a clear distinction between removable trade fixtures and permanent improvements;

• reinstatement limited to what the tenant actually installed, with fair wear and tear excluded;

• a landlord option to retain agreed improvements in lieu of reinstatement;

• a monetary cap on the reinstatement obligation, or a fixed sum in lieu; and

• agreement on the handover condition recorded at possession, ideally with a photographic schedule annexed to the lease.

Renewal language also deserves scrutiny. An option to renew “on mutually agreed terms” may be little more than an agreement to negotiate. Consider a tenant option with a predetermined escalation, formula-linked rent or a clearly defined market-determination mechanism.

LEGAL INSIGHT: In State of U.P. v. Lalji Tandon, (2004) 1 SCC 1, the Supreme Court explained that renewal ordinarily requires a fresh grant in accordance with the renewal covenant. Continued occupation after expiry does not, by itself, recreate the stipulated fixed term. Renewal documents should therefore be completed before the existing lease expires.

NEGOTIATION TAKEAWAY: A lease should accommodate foreseeable business change, not freeze the tenant’s circumstances as they existed on signing day.

13. Get Stamp Duty, Registration and Dispute Resolution Right

A commercially negotiated lease may still face serious enforcement limitations if it is inadequately stamped or not registered where registration is compulsory.

Under Section 107 of the Transfer of Property Act, 1882, read with Section 17 of the Registration Act, 1908, a lease from year to year, for a term exceeding one year, or reserving yearly rent ordinarily requires registration. Stamp duty and registration requirements vary by State and should be checked for the particular transaction. The agreement should allocate responsibility for stamp duty and registration expenses, and require both parties to cooperate in timely registration.

The dispute-resolution clause should address:

• escalation to designated business representatives;

• negotiation or mediation before formal proceedings, where appropriate;

• arbitration or court jurisdiction;

• seat, venue, language and method of appointing the arbitrator;

• interim-relief rights;

• exclusive jurisdiction for court proceedings; and

• continued performance of undisputed obligations during a dispute.

For businesses operating across multiple cities, the agreed forum should be practical and not dictated solely by the landlord’s convenience.

LEGAL INSIGHT: In Anthony v. K.C. Ittoop & Sons, (2000) 6 SCC 394, the Supreme Court held that an unregistered instrument could not create the five-year lease recorded in it. However, possession accompanied by payment and acceptance of rent could independently evidence a landlord–tenant relationship of a more limited character. Signing a long-term lease deed without completing compulsory registration may therefore fail to secure the fixed-term rights the parties thought they had documented.

NEGOTIATION TAKEAWAY: Registration is not a post-signing formality to be indefinitely deferred. It is part of securing the bargain itself.

Five Clauses Tenants Most Often Overlook

The following provisions rarely feature in negotiations, but each has caused real commercial damage.

1. Sale of the premises and attornment

Section 109 of the Transfer of Property Act, 1882 transfers the lessor’s rights on a sale, but tenants should not rely on that alone. Require the landlord to sell subject to the lease, to procure the purchaser’s written attornment and non-disturbance confirmation, and to transfer the security deposit to the purchaser — failing which a mid-term sale becomes an unplanned renegotiation.

2. Asymmetric interest and holdover penalties

Landlord drafts typically charge 18–24% interest on delayed rent while paying nothing on a delayed deposit refund, and impose double or triple rent on holding over. Ask for symmetry: the same interest rate should apply to a delayed refund, and any holdover charge should be reasonable and apply only after written notice.

3. Exclusivity and co-tenancy (retail and F&B)

A retailer or restaurant should seek a radius restriction preventing the landlord from leasing adjacent or nearby space to a direct competitor. In a mall or managed development, a co-tenancy clause giving rent abatement or an exit right if the anchor tenant departs protects against the footfall collapse that follows.

4. Notices and service

Mundane, but a frequent litigation trigger. Specify designated addresses and recipients, whether email constitutes valid service, deemed-delivery timelines, and an obligation on both parties to notify a change of address. A termination notice served at the wrong address can cost a party its rights.

5. Landlord’s right of entry, and expansion rights

The landlord’s access rights should be subject to reasonable prior notice, tenant accompaniment and confidentiality - relevant for any office handling sensitive data or regulated operations. Separately, growing businesses should consider a right of first refusal or first offer over adjacent or additional space in the same building.

The Two-Check Rule Before Signing

A commercial lease is not merely an agreement to occupy space. It allocates the financial and operational consequences if the premises become unusable, costs rise unexpectedly, the landlord defaults or the business needs to restructure or exit.

Before paying the security deposit or commencing fit-outs, businesses should complete two separate exercises:

Property due diligence: Can the landlord lawfully lease the property, and can the premises lawfully support the proposed activity?

Clause-by-clause lease review: Does the agreement protect cost certainty, continuity, flexibility, investment and exit rights?

The cost of reviewing a lease before signing is usually insignificant compared with the cost of recovering a deposit, relocating operations, or responding to sealing, access disruption or a title dispute after the business is operational.

The best time to negotiate a commercial lease is before the deposit is paid and the first fit-out rupee is spent.

One-Page Pre-Signing Checklist

A quick reference for reviewing a landlord’s draft.

About the Authors

Ravi Vaswani is the Founder of Zentrum Law Partners, a corporate lawyer and Company Secretary with over 15 years of experience. An alumnus of NLIU and recognised among BW Legal World’s 40 Under 40 Lawyers and Legal Influencers in 2025, he has held legal and leadership roles with Cognizant, IBM, PUMA Sports and UPL, and later served as General Counsel and Company Secretary of AgroStar. He advises founders, boards, investors and businesses on transactions, commercial arrangements, governance and business-critical legal matters.

Himanshi Rai is part of the corporate and commercial practice at Zentrum Law Partners.

The authors regularly advise founders, companies and business owners on structuring and negotiating commercial arrangements, with a practical focus on risk allocation, enforceability and business continuity.

PLANNING TO LEASE AN OFFICE, RETAIL OUTLET, WAREHOUSE OR COMMERCIAL FACILITY? Zentrum Law Partners assists businesses with property due diligence, lease-risk reviews and negotiation of commercial occupancy arrangements. A focused review before signing can identify legal and commercial issues that would otherwise surface only after possession is taken. office@zentrumlaw.com | www.zentrumlaw.com | 9611644477

Disclaimer: This article is intended solely for general informational purposes and does not constitute legal advice. The applicable legal position, stamp duty, registration requirements and regulatory approvals may vary depending on the transaction, property, location and applicable State laws. Specific legal advice should be obtained before acting on the basis of this article.