Lease agreement drafting for land, industrial units and long leases

What a lease deed is, and when a lease is the right document

Section 105 of the Transfer of Property Act, 1882 defines a lease as a transfer of the right to enjoy immovable property for a certain time, or in perpetuity, in return for rent or a premium. The lessee receives an interest in the property, which a licensee never does. Unless the deed says otherwise, Section 108(j) lets the lessee transfer that interest, mortgage it or sub-let. And under Section 109, a buyer of the property steps into the lessor's shoes and takes it subject to the lease.

That makes a lease the natural choice where the lessee will build or invest heavily and needs its rights to outlast a change of owner. Typical cases are land taken for a warehouse, solar plant or school, an industrial unit, a hospital or hotel building, and an office floor taken for a decade. For an ordinary flat in Maharashtra, a leave and licence agreement usually suits both sides better.

Lease, leave and licence or sub-lease: which do you need?

What our lease agreement drafting covers

Every lease we draft starts with the lessor's title and any restriction on leasing. Land held from CIDCO or MIDC is itself leasehold, and the head lease usually bars sub-letting without the authority's permission, so that permission comes first. If the property is mortgaged, most loan documents also need the lender's written consent. Then the deed itself:

• Term, start date and any option to renew, with the renewal rent fixed or set by a formula.
• Rent, any premium, the escalation pattern (for example a fixed increase every three years) and interest on late payment.
• Security deposit and when it is returned.
• Permitted use, and who obtains the approvals it needs: building permission, factory licence, fire NOC or pollution consent.
• Construction by the lessee: what may be built, who owns it during the term, and whether it is removed or handed over at the end.
• Property tax, cesses, insurance and major repairs.
• Assignment, sub-letting and mortgage of the leasehold, which the lessee often needs for bank finance.
• Lock-in, early exit, and the breaches on which the lessor may end the lease, with notice and time to cure.
• Arbitration or the courts, and where disputes will be heard.

How to draft a lease agreement for land

Land needs a precise description: survey or gat number, hissa, area, boundaries and a plan signed by both sides. Read the 7/12 extract for the holder's name, other rights and any restricted-tenure or tenancy entries. In Maharashtra, Section 63 of the Maharashtra Tenancy and Agricultural Lands Act, 1948 restricts leases of agricultural land to non-agriculturists without permission. And land that will be built on must first be converted to non-agricultural use under the state's land revenue law, so the deed should say which side obtains that and who pays the assessment afterwards.

Industrial and warehouse leases

An industrial lease agreement needs points a shop lease never does: floor loading, power load and who pays for upgrading it, effluent and pollution consents, truck access and turning space, and a fire NOC for the stored goods. The lessee will usually want its machinery to remain its own property, with the right to remove it at the end. Write that down rather than relying on the general law.

What you send us

• The lessor's title papers: sale deed or allotment letter, the head lease if the land is itself leased, the 7/12 extract or property card, and the latest tax receipt.
• Details of any mortgage, and the lender's consent if the loan papers need it.
• For a company lessor or lessee, the incorporation certificate, a board resolution and the authorised signatory's ID; for a firm or LLP, the partners' authority.
• The term sheet or letter of intent, or simply the agreed figures: term, rent, escalation, premium, deposit and lock-in.
• A site plan or layout showing the leased area, and plans for anything the lessee will build.

Scans are enough at this stage. If the other side already has a draft lease agreement, send that too, and we will work from it rather than start again.

How does lease agreement drafting work?

1. Call and papers: we talk through the deal and you email the papers listed above.
2. Title and restriction check: we read the title and flag a head-lease consent, a mortgage or a land-use problem before drafting.
3. First draft: within 2 to 3 working days, with a note on any point that still needs a commercial decision.
4. Negotiation: both sides review it, we explain the other side's comments, and we make one round of revisions.
5. Final deed and registration note: you receive the print-ready deed, the stamp duty figure, the documents the Sub-Registrar will want, and who must attend.

Lease agreement drafting for property outside Maharashtra follows the same steps, using that state's stamp schedule. Both parties, or their attorneys, then sign before the Sub-Registrar of the area where the property lies. A company signs through the person its board has authorised.

Registered lease deed: stamp duty and registration

Section 107 of the Transfer of Property Act and Section 17(1)(d) of the Registration Act, 1908 require a lease from year to year, for more than a year, or reserving a yearly rent to be made by a registered instrument. An unregistered deed of that kind cannot prove the lease's terms (Section 49). In Anthony v K.C. Ittoop and Sons (2000), the Supreme Court held that where possession had been given and rent paid, a lease still existed, but only under Section 106: month to month, ended by fifteen days' notice, or year to year on six months' notice for agricultural or manufacturing use. The long term you negotiated is lost.

Stamp duty in Maharashtra

Duty depends on the state, and on a long lease it is often the largest cost after the deposit. Maharashtra charges leases under Article 36 of the Maharashtra Stamp Act, 1958, as if they were conveyances, on a share of the property's market value that rises with the term:

Renewal options can count towards the term for this purpose, so we check the bracket before fixing a renewal clause. Many other states follow the Indian Stamp Act, 1899 pattern of charging on the average annual rent, scaled by the term. Either way, you get the figure before the deed is printed.

Mistakes in long leases

• Signing on stamp paper and never registering. The lessee keeps possession but loses the term it paid for, as Anthony v K.C. Ittoop shows.
• Silence on buildings at the end. Section 108(h) lets a lessee remove what it attached to the land while it is still in possession, provided it leaves the land as it found it. If the parties want something else, the deed must say so.
• Renewal "on terms to be mutually agreed". That is an agreement to agree and is very hard to enforce. Fix the rent formula now.
• No re-entry clause. Under Section 111(g), a lessor can forfeit for breach of a condition only if the lease says it may re-enter on that breach, and then only after written notice. For unpaid rent, Section 114 lets a court relieve the lessee who pays the arrears with interest and costs.
• Taking rent after expiry without a clause. Under Section 116, a lessor who accepts rent from a lessee holding over renews the lease from year to year or month to month. A holding-over charge, described as such, avoids that.
• Sub-letting leasehold land without the head lessor's consent. That can put your own lease at risk.

Related services

If you are the business taking the premises and want the landlord's ownership checked first, use our commercial lease agreement with title search. For a flat, a leave and licence agreement is usually the right document. Owners who want to borrow against the rent from a long lease should read about lease rental discounting agreements. To change the rent or another term during the lease, an addendum, stamped and registered like the lease, is usually enough. If a lessee will not leave, see landlord and tenant disputes.