Rent agreement drafting for shops, offices and godowns

What a commercial rent agreement is and when you need one

A commercial rent agreement records the terms on which an owner lets a business use a shop, office, clinic, showroom or godown. In Maharashtra it is almost always drawn up as a leave and licence agreement. A licence, in the words of Section 52 of the Indian Easements Act, 1882, is a right to use the premises that creates no interest in the property. That is why owners prefer it to a lease.

Outside Maharashtra, a commercial letting is usually a lease under the Transfer of Property Act, 1882. Section 17 of the Registration Act, 1908 makes registration compulsory for a lease of more than a year or one reserving a yearly rent.

When to sign it

Before the keys change hands, and before anyone spends money on the fit-out. The occupant usually needs the registered agreement as proof of its place of business for GST registration, Shop and Establishment registration, a trade or FSSAI licence and a current account. A business that moves in on a verbal arrangement has nothing to show any of them.

Leave and licence or lease: which one applies to your premises?

For most shops and offices in Maharashtra, leave and licence. Section 55 of the Maharashtra Rent Control Act, 1999 requires every leave and licence agreement, and every letting, to be in writing and registered, and puts that duty on the owner. If it is not registered, the occupant's account of the terms is accepted unless the owner proves otherwise.

Premises given to banks, public sector undertakings, multinational companies, and companies with a paid-up share capital of rupees one crore or more fall outside that Act under Section 3. We still advise registration for them.

What our rent agreement drafting covers

We start with the owner's title, because a well-drafted agreement signed by the wrong person protects nobody. We look at the Index II or sale deed, the property card or society share certificate, any loan against the premises and whether every co-owner is signing. Then we draft the terms below, using the figures you have agreed.

• Licence fee, due date, yearly escalation and interest on late payment.
• Security deposit, the date it must be refunded and what may be deducted from it.
• Lock-in for both sides, and what leaving early costs each of them.
• A fee-free fit-out period, and who keeps the fit-out when the licence ends.
• Permitted use, signage, working hours and the occupant's own licences.
• Property tax, society maintenance, non-occupancy charges and electricity.
• GST on the fee and TDS on rent, which your chartered accountant should confirm.
• Repairs, insurance, a bar on sub-licensing, notice, handover condition and a daily charge for overstaying.

We also point out figures that do not sit well together, such as a three-year lock-in on a licence that runs for two.

Is a free rent agreement format enough for a shop?

Rarely. A standard rent agreement format is written for a flat let to a family, and it is silent on fit-out, two-way lock-in, GST, signage and handover, the points that cause commercial disputes. Online rent agreement portals produce a document quickly, but nobody checks who owns the premises or whether your use is allowed there.

What you send us

• The premises: full address, carpet area, floor, and a copy of the ownership document.
• Both parties: names, PAN and Aadhaar. For a company, firm or LLP, the resolution or letter authorising the person who signs.
• The agreed figures: fee, deposit, term, lock-in, escalation and start date.
• Fixtures handed over, the fit-out the occupant plans, and GSTINs where registered.
• Any letter of intent or term sheet already signed.

An owner who lives abroad can sign through an attorney in India. Our power of attorney drafting service prepares that document.

How does rent agreement drafting work online?

It runs entirely by phone, WhatsApp and email from our office in Sanpada, Navi Mumbai, for premises anywhere in India. Nobody needs to visit us.

1. Brief: you send the details and papers listed above. We call if a term is missing or unclear.
2. Title and use check: we read the ownership papers and flag a missing co-owner, a mortgage or a use problem before drafting.
3. First draft: within 2 to 3 working days, with the open points marked for the parties to settle.
4. Revision: once both sides have read it, we make one round of changes and issue the final text.
5. Stamping and registration: you pay the duty and register, at the Sub-Registrar's office or through Maharashtra's online leave and licence facility.

Stamp duty and registration for a commercial rent agreement

Both are paid at actuals, and both depend on the state. In Maharashtra, duty on a leave and licence agreement is charged under Article 36A of the Maharashtra Stamp Act. It is worked out on the total licence fee for the whole term plus notional interest on the refundable deposit, so a large deposit raises the duty even when the monthly fee is modest. A registration fee is added on top.

A registered rent agreement in Maharashtra can be completed at the Sub-Registrar's office or online, where the parties and witnesses are identified through Aadhaar and the duty is paid within the same process. Other states charge lease duty under their own stamp schedules, usually linked to rent, deposit and term, and most still need the parties before the Sub-Registrar for a lease longer than a year.

Mistakes we see in shop and office agreements

• A lock-in that binds only the occupant, so the owner can end the licence the week the fit-out is finished.
• No refund date for the deposit, which turns the refund into a negotiation on handover day.
• Relying on an 11-month term to skip registration in Maharashtra, where every leave and licence must be registered.
• Use described only as "commercial", which invites a society or municipal objection to a clinic or an eatery.
• Signature by one co-owner, or by a relative who holds no power of attorney.
• Treating a notarised agreement on stamp paper as enough. A notary registers nothing.

For a flat, use our leave and licence agreement service for homes. For a long lease where you want the owner's title searched first, see commercial lease with title search. To change the fee or another term mid-way, an addendum, stamped and registered like the original, usually does the job. If an occupant will not leave, see landlord and tenant disputes.