Leasing It Right: An Overview Of The Various Types of Commercial Lease Agreements in India

When setting up a company, securing the right office space is critical to its smooth and efficient functioning. While identifying a suitable location can be challenging on its own, doing so in a foreign country adds an extra layer of complexity. This is further compounded by the need to draft a clear, reliable rental arrangement that protects your office space—and by extension, your business—from potential misunderstandings, errors, or bad faith actions.

This is where commercial lease agreements come into play. These agreements are documents that govern the relationship between the property owner and the tenant. They clearly outline the rights, obligations, and terms agreed upon by both parties. In India, commercial lease agreements apply exclusively to properties used for business or commercial purposes, making it crucial for businesses to understand the available lease structures and carefully negotiate terms to ensure long-term stability, compliance, and operational efficiency.

Let’s take a closer look at the different types of commercial lease agreements in India and how they differ from one another.

Gross Lease

In a gross lease, the tenant pays a fixed rent, while the landlord is responsible for property taxes, insurance, and maintenance, which helps in managing costs with clarity and ease.

Net Lease

Under a net lease, the tenant pays rent along with some or all property-related expenses, such as taxes, insurance, and maintenance, depending on whether it is a single, double, or triple net lease. For a single net lease, the tenant pays rent plus a portion of the property tax. For the double net lease, the tenant pays rent in addition to property taxes and insurance premiums. Finally, for the triple net lease, the tenant is responsible for rent, property taxes, insurance, and maintenance costs, which is common in long-term commercial leases.

Percentage Lease

In this type of commercial lease agreement, the tenant pays a fixed base rent along with an agreed-upon percentage of their sales revenue, making it ideal for retail stores and commercial outlets whose rent depends on business performance.

Ground Lease

A ground lease involves leasing only the land, while the tenant constructs and owns the building during the lease term, as per the agreed conditions.

Build-to-Suit Lease

Under this agreement, the landlord constructs the property according to the tenant’s business requirements, and the tenant leases the space once construction is complete.

Sublease

A sublease occurs when the original tenant rents the property to another party, while remaining responsible for fulfilling the obligations of the main lease.

With multiple commercial lease structures available in India, selecting the right one is key to protecting your business interests. Careful evaluation and negotiation of lease terms can ensure long-term stability and operational success in the market.