In recent years, India has changed a lot in terms of commercial property. More businesses are choosing to lease commercial spaces. In fact, these commercial spaces are a popular choice for startups and big tech companies. According to the recent report shared by Money Control, office leasing is expected to grow by 14% in the top 9 cities. It is projected to reach a record high of 70 million sq ft.
Among those cities, Noida is becoming a popular place for renting commercial properties. It has good roads and metro connections. For example, TCS and Capgemini are leasing flexible commercial premises. This helps them save money and allows employees to work from home. Busy places like Connaught Place in Noida are also attracting new retail shops.
Also, businesses like HCL, Flipkart, & Amazon are opening offices here. Since online shopping is growing fast, there is an increasing demand for warehouses and the need for warehouse leases.
Retail spaces in Sector 18 are popular for shopping. Coworking options are also available for startups and freelancers who need flexibility. Leasing gives businesses financial flexibility. It helps them respond quickly to changing needs.
In this blog, we will explore commercial leases and the recent trends. We will also look at the types of spaces available. Finally, we will see why leasing is famous for many businesses in India.
What is Commercial Property Leasing?
Commercial Property leasing is when a business rents a property for its work. This is done through a formal agreement between the landlord & the tenant (business). The tenant pays rent to use the property.
Commercial leases are different from residential leases. Commercial properties can include:-
- Office spaces
- Retail shops
- Warehouses
These are places where businesses operate. In 2024, commercial leasing is changing. More companies are using hybrid work models, which means they want flexible office spaces. As per a recent report, 12.7% of full-time workers in India are working from home, which means they do their jobs from their houses. At the same time, 28.2% of workers follow a hybrid model.
Let us understand leasing agreements before we learn more about commercial lease agreements.
What is a Commercial Lease Agreement?
A commercial lease agreement is a legal contract between the landlord & the tenant. It allows the tenant to use the property for business. Knowing the lease terms is important for protecting tenant interests. Many tenants now hire legal counsel to review their agreements.
Key Components of a Lease Agreement
A typical commercial lease agreement includes:
- Parties: Names of the landlord and tenant.
- Property Description: Details about the property, such as location and size.
- Lease Term: Duration of the lease.
- Rent and Fees: The amount of rent and any additional charges.
- Property Use: What activities are allowed, and what restrictions exist?
- Maintenance & Repairs: Who takes care of the property?
- Termination & Renewal: This tells you how to end or extend the lease.
- Liability & Insurance: This explains what type of insurance you need.
Why Have a Well-Drafted Commercial Lease Agreement?
An explicit lease agreement is very important. It shows each party’s rights and responsibilities. A good lease helps build a strong relationship between the landlord and the tenant.
Benefits of Leasing Commercial Property
Leasing has many advantages:
- Lower Initial Costs: Renting usually requires less upfront investment than buying a property.
- Flexibility: Businesses can lease space as long as they need, adapting to changing demands.
- No Maintenance Hassles: Landlords often handle maintenance. It will allow tenants to focus on their operations.
Leasing has become more appealing. Nowadays, businesses claim that leasing helps maintain financial flexibility, which is especially true during uncertain economic times.
Types of Commercial Properties Available for Lease
- Office Space for Lease: Many companies need office space. Options include shared and private offices.
- Retail Space for Lease: Retail businesses need leases. They look for spaces in shopping centres or separate buildings. Unique spaces are popular.
- Warehouse Lease: Some companies need storage. They can rent warehouses. The need for warehouses is growing because of online shopping.
- Restaurant Space for Lease: People want to open restaurants. They are looking for the right locations. Many restaurants offer dining in and delivery. Leases for restaurant spaces in cities have increased by 47%.
Types of Leases
a. Based on payment structures
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- Fixed Lease: You pay a set rent each month, and the landlord pays for property taxes and maintenance. This type is common in commercial lease agreements.
- Percentage Lease: You pay a base rent plus a percentage of your sales. This is common in retail spaces. If your sales go up, your rent goes up, too.
- Net Lease: You pay rent plus some property costs, like taxes and insurance.
- Single Net Lease: You pay rent & property taxes.
- Double Net Lease: You pay rent, taxes, & insurance.
- Triple Net Lease: You pay rent, taxes, insurance, & maintenance.
- Hybrid Lease: This combines different types of leases. For example, it can mix fixed and percentage leases.
- Full-Service Lease: You pay rent only. The landlord takes care of everything. This includes utilities & maintenance.
- Long-Term Lease: This lasts for 10 years or more. Large businesses prefer this for stability.
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Key Differences in Leases
1. Payment Structure:
- Fixed Lease: Set monthly payment.
- Percentage Lease: Base rent plus a percentage of sales.
- Net Lease: Rent plus extra costs.
- Hybrid Lease: A mix of payment types.
- Full-Service Lease: Rent only. The landlord covers all other costs.
- Long-Term Lease: Commitment for 10 years or more.
2. Responsibilities:
- Full-Service Lease: Landlord handles all costs.
- Net Lease: Tenant pays for extra expenses.
b. Based on Ownership, Risks, & Responsibilities
- Operating Lease: This is a short-term rental. The lessee uses the asset for a set time without owning it. The lessor keeps ownership. The asset is returned when the lease ends.
- Financial Lease: This is a long-term rental. The lessee takes on most of the risks & benefits of owning the asset. They can use it for most of its life. Also, they may have the option to buy it at the end.
How to Rent/Lease Commercial Property?
- Identify the type of commercial space you need.
- Use online platforms to find commercial properties for lease. About 50% of tenants start their search online. In 2024, virtual property tours are gaining popularity. This allows prospective tenants to explore spaces remotely before visiting in person.
- Schedule visits to potential properties. Pay attention to location, size, and condition.
- Discuss the lease terms with the landlord & sign the agreement.
Why is Commercial Leasing Popular?
Major companies like TCS, Capgemini, and HCL favour commercial leasing. They enjoy cost efficiency and flexibility. Leasing allows businesses to avoid large upfront payments, keeping funds available for daily operations. India’s need for office space is likely to be more than 70 million sq ft in 2024, which means many businesses will be looking to rent offices.
Some Important Commercial Lease Terms
Understanding common lease terms is vital for effective negotiation:
- Rent Clause: Specifies the rent amount and conditions for increases.
- Premises Clause: Describes the rented space. It includes shared areas.
- Parties Clause: Identifies the landlord & tenant for liability protection.
- Term Clause: Outlines lease duration and obligations.
- Use and Exclusives Clauses: Clarify allowed activities & restrictions.
- Improvement and Alterations Clauses: Detail responsibilities for property modifications.
- Maintenance Clause: Defines maintenance responsibilities.
- Insurance Clause: Outlines required insurance types.
- Security Deposit Clause: Addresses the security deposit amount & negotiation options.
Conclusion
Commercial leasing offers flexibility and cost savings, making it attractive for businesses in 2024. Understanding the terms of a commercial lease agreement is vital, as this helps in effective negotiation and protecting interests.
