A commercial lease agreement is not a standard document.
It looks standard. It is presented as standard. The landlord’s broker says it is the “usual format.” The landlord’s lawyer says it is “what we use for all our tenants.” And in the pressure of a closing transaction — when the office has been chosen, the management has approved the location, and everyone wants to move forward — the document gets signed without being read carefully.
That is exactly how it is designed to be received.
A commercial lease is drafted by the landlord’s lawyer, with the landlord’s interests as the primary consideration. Every clause that favours the landlord — the one-sided lock-in, the uncapped CAM charge, the landlord-appointed arbitrator, the reinstatement obligation without a defined standard — is there because someone put it there deliberately. Not by accident. Not as a neutral default.
A tenant who signs without negotiating is accepting every one of those clauses. And in a five-year commercial lease with a significant fit-out investment, the financial and legal consequences of those clauses can be substantial — sometimes catastrophic.
The good news: most of these clauses are negotiable. A landlord who is presented with a well-advised tenant — one who raises specific clause concerns through a lawyer, at the LOI stage, before the lease deed is circulated — will almost always engage. Not always successfully. But the negotiation happens. And the tenants who have done it emerge with materially better lease terms than those who signed the first draft.
This article covers every key clause in an Indian commercial lease that a tenant must understand and negotiate — what each clause means, what the landlord’s default version typically says, and what a fair, tenant-protective version looks like instead.
1. The Lock-In Clause — The Most Important Clause to Negotiate Early
The lock-in period is the duration during which neither party can terminate the lease. In commercial practice in India, lock-ins of three to five years are standard for most office and retail tenancies.
The lock-in clause determines how trapped the tenant is if the business changes — if headcount grows beyond the space, if the business model pivots, if a downturn requires cost reduction. Getting it right is not just a legal nicety. It is a business continuity question.
What the landlord’s default clause typically looks like:
“The Lessee agrees that during the lock-in period of [X] years from the date of commencement, the Lessee shall not terminate this Agreement. In the event of termination by the Lessee during the lock-in period, the Lessee shall forfeit the security deposit and pay rent for the remaining lock-in period as liquidated damages.”
The problem with this version:
This version binds only the tenant. The landlord — or the landlord’s successor if the property is sold — may have exit rights that the tenant does not. A tenant locked in for three years while the landlord can exit with 60 days’ notice for sale, redevelopment, or personal use is not in a bilateral lock-in. They are in a one-sided commitment.
What a fair, negotiated lock-in clause looks like:
- Lock-in binds both parties equally — the landlord cannot terminate for any reason during the lock-in period, including sale, redevelopment, or personal use
- If the landlord sells the property during the lock-in, the new owner is bound by the existing lease — the sale does not constitute grounds for termination
- The penalty for tenant breach during lock-in is specified and capped — typically forfeiture of security deposit, not an open-ended liability for remaining rent
The break clause — negotiating an exit within the lock-in:
For businesses with uncertain headcount or business plans, negotiate a break clause — the right to terminate at a defined mid-lease point, typically at the 18-month or 24-month mark, upon giving 3 to 6 months’ notice.
A break clause is standard in well-negotiated commercial leases internationally and is increasingly accepted by Gurugram and NCR landlords — particularly in buildings with moderate vacancy. It does not eliminate the lock-in concept. It introduces a structured exit right at a defined point within it.
2. The Rent and Escalation Clause — Precision That Saves Lakhs
The rent clause sounds simple. It is the number both parties agreed to. But how that number is stated, how it escalates, and what is included or excluded can determine whether the tenant’s rent in year three is what they budgeted for — or significantly more.
What the landlord’s default clause typically looks like:
“The monthly rent shall be ₹[X] per sq ft per month on a super built-up area of [Y] sq ft, amounting to ₹[Z] per month. The rent shall be revised upward by [percentage] per annum / every [X] years, at the sole discretion of the Lessor.”
The problems with this version:
Rent on super built-up area: Rent should be stated on carpet area — the space the tenant actually uses. Where the landlord insists on super built-up area as the basis, the effective rent per usable sq ft should be calculated and compared across options on that basis. A ₹90 per sq ft rent on 10,000 sq ft SBA with a 70% efficiency ratio costs more per usable sq ft than a ₹110 per sq ft rent on 7,500 sq ft carpet area.
“At the sole discretion of the Lessor”: This phrase makes the escalation clause meaningless for the tenant — the landlord can demand any increase and the tenant has no contractual basis to refuse. Every escalation clause must specify an exact percentage or formula — not a discretionary revision.
What a fair rent and escalation clause looks like:
- Rent stated on carpet area — or if stated on SBA, the carpet area must also be confirmed
- Escalation at a fixed percentage — “rent shall increase by 10% every 3 years from the commencement date” — not “as mutually agreed” or “at the lessor’s discretion”
- If escalation is linked to an index — Consumer Price Index or WPI — the specific index, the base date, and the cap on any single revision must be defined
- Escalation applies to base rent only — not to CAM charges, which should escalate separately under their own mechanism
The compound effect of an unclear escalation clause:
On a ₹5 lakh per month rent with a 10% annual escalation, the difference between year one and year five is ₹2.32 lakh per month. A tenant who agreed to “revision as mutually agreed” is renegotiating from a weak position at year three. A tenant with a specific 10% formula knows exactly what year five costs — and has budgeted for it.
3. The CAM Charges Clause — The Most Disputed Clause in Indian Commercial Leases
Common Area Maintenance charges — the monthly payment for cleaning, security, lift maintenance, common area electricity, and building management — are the single most frequently disputed element in Indian commercial lease agreements.
The disputes are almost always traceable to a poorly drafted CAM clause — one that does not specify what is included, does not cap annual increases, and does not give the tenant any right to verify the calculation.
What the landlord’s default clause typically looks like:
“In addition to the rent, the Lessee shall pay CAM charges as applicable from time to time, as determined by the building management, towards maintenance of common areas and facilities.”
Why this clause is dangerous:
- No specified current amount — the tenant does not know what they are agreeing to
- No cap on increases — the landlord can double CAM charges without the tenant having contractual grounds to object
- No breakdown of inclusions — “as applicable” means anything the landlord decides to include
- No audit rights — the tenant cannot verify whether the charges are correctly calculated
- No gross-up protection — if the building is 40% vacant, occupied tenants bear a disproportionate share of fixed costs
What a fair CAM clause must include:
Current rate stated explicitly: “CAM charges as at the date of this Agreement are ₹[X] per sq ft per month on carpet area of [Y] sq ft, amounting to ₹[Z] per month.”
A written breakdown of inclusions: CAM should include only specific, legitimate operating costs — security, housekeeping, common area electricity, lift maintenance and AMC, landscaping, building management fee. It should explicitly exclude:
- Capital expenditure — replacing a lift, installing a new generator, major building renovation
- Depreciation on building equipment
- Costs specific to other tenants
- The landlord’s financing costs, insurance, or property tax (unless separately agreed as a pass-through)
An annual increase cap: “CAM charges shall not increase by more than [8%] in any twelve-month period.”
Without this cap, CAM increases are unlimited. With it, the tenant can budget for year five with confidence.
Audit rights: “The Lessee shall have the right to audit the building’s actual operating expenses once per calendar year, upon 30 days’ written notice, to verify that CAM charges are being calculated in accordance with this Agreement.”
Gross-up provision: “For the purpose of calculating each tenant’s proportionate share of variable CAM costs, the building shall be treated as at least [85%] occupied, regardless of actual occupancy.”
This prevents the tenant from subsidising the landlord’s vacant floors.
4. The Security Deposit Clause — Amount, Conditions, and Return
The security deposit in Indian commercial leases typically runs six to twelve months’ rent — a significant sum of capital that is tied up for the full lease duration. Getting the security deposit clause right protects the tenant from two specific risks: arbitrary deductions and indefinite delays in return.
What the landlord’s default clause typically looks like:
“The Lessee shall deposit ₹[X] as security, which shall be refundable upon vacation of the premises, subject to deductions for unpaid rent, damages, and any other amounts due under this Agreement.”
The problems with this version:
- No timeline for return — “upon vacation” does not specify when the refund will actually arrive. Six months after vacation is technically “upon vacation.”
- “Any other amounts due” — an undefined deduction category that gives the landlord broad authority to withhold
- No interest provision — on a deposit of ₹30 lakh held for five years, the tenant forgoes meaningful investment returns with no compensation
- No defined condition standard — what condition must the premises be in for the full deposit to be returned?
What a fair security deposit clause looks like:
Defined return timeline: “The security deposit shall be returned to the Lessee within [30] days of vacation of the premises and delivery of vacant possession, subject only to deductions for [specifically listed items].”
Specific, exhaustive deduction list: “Deductions from the security deposit shall be limited to: (a) unpaid rent; (b) unpaid CAM charges; (c) utility bills outstanding as of the date of vacation; (d) damage to the premises beyond normal wear and tear, documented by a joint inspection report.”
The phrase “normal wear and tear” is important and must be defined or at least acknowledged. A scuff on a wall, minor floor scratching after five years of use, or faded paint are normal wear and tear — not damage. A tenant who accepts a vague deduction clause has no contractual basis to dispute a deposit withholding for these ordinary signs of occupation.
Interest on deposit: For deposits held beyond the agreed return period, negotiate interest at SBI MCLR or a fixed rate — “in the event the deposit is not returned within [30] days of the due date, interest shall accrue at [10%] per annum on the outstanding amount until full repayment.”
This provision changes the landlord’s incentive from “delay and see if the tenant pursues” to “return promptly to avoid an interest obligation.”
5. The Permitted Use Clause — Narrower Than It Should Be, Or Broader Than Permitted
The permitted use clause defines what the tenant is allowed to do in the leased premises. It sounds straightforward — and in most residential and simple commercial transactions, it is.
In commercial leases, the permitted use clause has two failure modes:
Too narrow — restricting the tenant unnecessarily: A clause that says “the premises shall be used solely for software development activities” may create a problem if the tenant expands into product management, data analytics, customer support, or any adjacent function that the landlord later claims is outside the defined use.
Too broad relative to the building’s land use approval: A clause that permits “any commercial activity” in a building that is approved only for IT/ITES use creates a regulatory risk for the tenant — they may be operating in violation of the building’s land use classification without knowing it.
What a fair permitted use clause looks like:
- Defined broadly enough to cover the actual and likely business activities of the tenant — “for use as office space for IT, technology, business process, and related professional services activities”
- Consistent with the building’s land use classification and occupancy certificate — the landlord should warrant that the permitted use is consistent with the building’s approvals
- Including an explicit permission for after-hours working — if the business operates beyond standard building hours, this should be stated rather than left to the building management’s discretion
6. The Reinstatement Clause — The Cost That Arrives at the End
Most tenants think about reinstatement obligations when they are vacating — by which point it is too late to negotiate the standard or the cost.
A reinstatement clause requires the tenant to restore the premises to their original condition at the end of the lease — typically meaning the removal of the fit-out, the restoration of bare walls and floors, and the return of the space to the condition it was in before the tenant moved in.
On a fully fitted 5,000 sq ft office, reinstatement can cost ₹15 to ₹40 lakh — the cost of demolishing everything the tenant installed at their own expense five years earlier.
What the landlord’s default clause typically looks like:
“At the expiry or earlier termination of this Agreement, the Lessee shall restore the premises to its original condition, fair wear and tear excepted, failing which the Lessor shall be entitled to carry out such restoration at the Lessee’s cost.”
The problems with this version:
- “Original condition” is not defined — the landlord’s interpretation of original condition may differ from the tenant’s
- No pre-fit-out condition record — without a documented baseline (photographs, schedule of condition), disputes about what “original” means are almost inevitable
- “At the Lessor’s cost” with no cap — the landlord can engage expensive contractors and charge it to the tenant without competitive tendering
- No clarity on what the fit-out’s fate is — does the tenant’s installed false ceiling, flooring, and electrical work become the landlord’s property at lease end, or must it be removed?
What a fair reinstatement clause looks like:
Option 1 — No reinstatement: “The Lessee’s fit-out, fixtures, and installations shall, at the expiry of this Agreement, become the property of the Lessor at no cost to the Lessor. The Lessee shall have no obligation to restore the premises to its pre-fit-out condition.”
This is the most favourable outcome for the tenant — common in longer leases and in buildings where the landlord values a fitted space for re-leasing.
Option 2 — Conditional reinstatement: “The Lessee shall, at the request of the Lessor given no less than [90] days before the expiry date, restore the premises to the condition documented in the Pre-Fit-Out Inspection Report dated [date]. Any reinstatement work shall be carried out by contractors approved by both parties, at competitive market rates.”
This version introduces three tenant protections: advance notice of the requirement (so the tenant can plan and budget), a defined baseline condition (the inspection report), and competitive pricing for any work required.
The pre-fit-out inspection report — essential regardless of the reinstatement clause:
Before any fit-out work begins, conduct a joint physical inspection of the premises — with the landlord or their representative present — and document:
- The condition of walls, floors, and ceiling (with photographs)
- All existing fittings and their condition
- Any pre-existing damage or defects
This report, signed by both parties and attached to the lease as a schedule, is the only reliable protection against a reinstatement dispute at lease end. Negotiate its creation into the lease deed — and execute it before fit-out begins, not afterwards.
7. The Sub-Letting and Assignment Clause — The Right to Transfer the Lease
The sub-letting and assignment clause determines whether the tenant can:
- Sub-let part of the space to another occupant — relevant for tenants who may need to shed space mid-lease
- Assign the lease to a new entity — relevant in mergers, acquisitions, restructurings, or business sales
What the landlord’s default clause typically looks like:
“The Lessee shall not sub-let, assign, transfer, or part with possession of the premises or any part thereof without the prior written consent of the Lessor, which may be withheld in the Lessor’s absolute discretion.”
The problem:
“Absolute discretion” means the landlord can refuse any sub-letting or assignment for any reason — including unreasonable ones. A tenant who is acquired by a larger company cannot assign the lease to the acquiring entity. A tenant who needs to reduce headcount cannot sub-let the surplus space. In both cases, the tenant remains fully liable for the rent with no exit mechanism.
What a fair sub-letting and assignment clause looks like:
“The Lessee shall not sub-let or assign the premises without the prior written consent of the Lessor, such consent not to be unreasonably withheld or delayed. The Lessor agrees that consent shall not be withheld where the proposed assignee or sub-tenant is of comparable or better financial standing than the Lessee.”
The phrase “not to be unreasonably withheld or delayed” is the critical addition. It transforms the landlord’s consent right from a veto power to a reasonable approval right. Combined with the financial standing qualifier, it protects the tenant’s ability to manage the space commercially while protecting the landlord’s legitimate interest in the quality of the occupant.
For corporate transactions specifically:
“Notwithstanding the above, the Lessee shall be entitled to assign this Agreement to a group company, holding company, subsidiary, or any entity resulting from a merger or acquisition involving the Lessee, without the Lessor’s prior consent, provided written notice is given to the Lessor within [30] days of such assignment.”
This provision is essential for businesses that are part of corporate groups or that may be subject to M&A activity. Without it, a business sale or restructuring can technically put the tenant in breach of the lease.
8. The Renewal Option Clause — The Right to Stay, on Known Terms
The renewal option gives the tenant the right to renew the lease at expiry — before the landlord can offer the space to another party. It does not obligate the tenant to renew. It gives them the first right to decide.
Without a renewal clause, the tenant has no contractual right to stay in the space after the lease expires. The landlord can offer the space to a competitor, a new tenant, or no one — at their complete discretion.
What the landlord’s default lease typically does:
Omit the renewal clause entirely — leaving renewal to a side letter, a verbal assurance, or nothing at all.
What a fair renewal option clause looks like:
“The Lessee shall have the option to renew this Agreement for a further term of [3] years by giving written notice to the Lessor not less than [6] months before the expiry of the initial term. The rent for the renewal term shall be at the prevailing market rent as agreed between the parties, failing which as determined by a mutually appointed independent valuer.”
The key elements:
- A defined notice period — the tenant must give notice within a specified window (typically 3 to 6 months before expiry). Missing this window forfeits the renewal right.
- Market rent as the basis — not the landlord’s asking price, but the prevailing market rent for comparable space in the same building or locality
- Independent valuation as backstop — if the parties cannot agree on market rent, an independent valuer determines it. This prevents the landlord from using an inflated renewal rent demand to effectively force the tenant out.
9. The Dispute Resolution Clause — Who Has Structural Advantage When Things Go Wrong
The dispute resolution clause determines how disagreements are resolved — and who has structural advantage in that process. Most tenants do not read it carefully until they are in a dispute. By then, the clause has already determined the outcome.
What the landlord’s default clause typically looks like:
“All disputes arising out of or in connection with this Agreement shall be referred to a sole arbitrator appointed by the Lessor. The arbitration shall be conducted in accordance with the Arbitration and Conciliation Act, 1996.”
The problems with this version:
Landlord-appointed arbitrator: An arbitrator appointed solely by the landlord is structurally biased toward the appointing party — even if individual arbitrators act in good faith. The tenant has agreed, in advance, to a dispute resolution process where the judge is chosen by the opposing party.
Single arbitrator: For complex commercial disputes, a single arbitrator creates a single point of failure — one person’s judgment with limited appeal. Three-arbitrator panels (one appointed by each party, with a third mutually agreed or appointed by an institution) provide more balanced and reliable outcomes.
No institutional oversight: Institutional arbitration — under the auspices of the Indian Council of Arbitration, the Delhi High Court’s arbitration centre, or the International Chamber of Commerce — provides procedural rules, administrative support, and accountability mechanisms that ad hoc arbitration lacks.
What a fair dispute resolution clause looks like:
“All disputes arising out of or in connection with this Agreement shall be referred to and finally resolved by arbitration in accordance with the Arbitration and Conciliation Act, 1996. The arbitration shall be conducted by a sole arbitrator mutually appointed by the parties within [30] days of the dispute arising, failing which by an arbitrator appointed by [named institution]. The seat of arbitration shall be [city where the property is located].”
This version introduces mutual appointment — neither party controls who decides the dispute — and provides a named institutional backstop if the parties cannot agree.
Jurisdiction clause: The jurisdiction clause should specify the courts in the city where the property is located — not where the landlord’s registered office is. A tenant in Gurugram should not be required to litigate in Chennai because the landlord’s company is registered there.
10. The Force Majeure Clause — What Happens When the Premises Cannot Be Used
The COVID-19 pandemic converted the force majeure clause from a rarely invoked theoretical provision to a live commercial battleground in tens of thousands of Indian leases simultaneously. Businesses whose leases included rent abatement provisions for force majeure events fared significantly better than those whose leases were silent on the point.
What the landlord’s default clause typically looks like:
“Neither party shall be liable for any delay or failure to perform its obligations under this Agreement to the extent caused by a Force Majeure Event beyond its reasonable control.”
The problem:
This clause addresses liability — but not rent. A tenant who cannot use the premises because of a government-mandated closure is still obligated to pay rent under this clause, because paying rent is a financial obligation — not a performance obligation affected by force majeure.
What a fair force majeure clause for a commercial tenant looks like:
“In the event of a Force Majeure Event that prevents or materially restricts the Lessee’s use of the premises for a period exceeding [30] consecutive days, the rent and CAM charges payable by the Lessee shall be proportionally abated for the duration of such prevention or restriction. If such Force Majeure Event continues for more than [90] days, either party shall have the right to terminate this Agreement upon [30] days’ written notice, with the security deposit returned in full within [15] days of termination.”
This version introduces two critical protections: rent abatement (not just liability relief) during periods of forced non-use, and a termination right if the situation persists beyond a reasonable period.
Force majeure events should be defined broadly but specifically — including pandemic, epidemic, government-mandated closure, natural disaster, war, civil unrest, and any governmental order or restriction preventing occupation of the premises.
11. The Fit-Out Rights Clause — What the Tenant Is and Is Not Permitted to Do
Most commercial leases require the landlord’s prior written approval for fit-out works. In a well-managed building, this approval process exists for legitimate reasons — ensuring the fit-out does not affect structural elements, building systems, or fire safety compliance.
In a poorly drafted lease, the approval requirement becomes a mechanism for delay, interference, or additional cost that the tenant did not anticipate.
What the landlord’s default clause typically looks like:
“The Lessee shall not carry out any alteration, addition, or improvement to the premises without the prior written consent of the Lessor, which may be withheld at the Lessor’s discretion.”
What a fair fit-out rights clause looks like:
Blanket approval for defined categories: “The Lessee shall be entitled to carry out the following fit-out works without requiring the Lessor’s prior approval: installation of furniture and fittings not attached to the building structure; installation of IT equipment and data cabling; painting and minor interior decoration.”
Defined timeline for approval responses: “For fit-out works requiring the Lessor’s prior approval, the Lessor shall respond to the Lessee’s written request within [10] business days. Failure to respond within this period shall be deemed approval.”
Approval not unreasonably withheld: “The Lessor’s consent shall not be unreasonably withheld or delayed for fit-out works that do not affect the structural integrity of the building, the building’s fire safety systems, or the building’s shared infrastructure.”
Building-approved contractor list: If the building requires fit-out works to be carried out by approved contractors, the approved contractor list must be provided at lease signing — not discovered post-signing when the tenant has already engaged a preferred contractor.
12. The Termination and Forfeiture Clause — What Happens When the Relationship Breaks Down
The termination clause defines under what circumstances either party can end the lease before its natural expiry — and what the consequences are.
Grounds for landlord termination in a standard clause typically include:
- Non-payment of rent for a defined period (usually 30 to 60 days)
- Material breach of any lease term not remedied within a defined cure period
- Insolvency of the tenant
- Abandonment of the premises
Grounds for tenant termination in a standard landlord-drafted clause: typically none, beyond the break clause if one has been negotiated.
What a fair termination clause looks like:
Remedy period before termination: “Before exercising any termination right for breach, the non-defaulting party shall give the defaulting party written notice specifying the breach and a period of [30] days to remedy it. Termination shall only be exercisable if the breach remains unremedied at the expiry of the cure period.”
This provision prevents termination for technical or minor breaches that are easily remedied — a payment that was a few days late, a temporary maintenance issue, an administrative oversight.
Tenant’s right to terminate for landlord breach: The lease should also give the tenant the right to terminate — not just the landlord — for material, continuing landlord breach:
“In the event that the Lessor fails to maintain the building in a condition fit for the Lessee’s use and occupation, and fails to remedy such failure within [60] days of written notice from the Lessee, the Lessee shall be entitled to terminate this Agreement and the Lessor shall refund the security deposit in full within [15] days of termination.”
Without this provision, a tenant whose building management has deteriorated severely — unreliable power, non-functional lifts, inadequate security — has no contractual exit mechanism other than continued occupation and complaint.
13. The Registration Clause — Mandatory, But Often Neglected
Under Section 17 of the Registration Act, 1908, a lease of immovable property for a period exceeding 12 months must be registered. An unregistered lease for such a period is not admissible as evidence in any court proceeding and does not bind the landlord’s successors.
Despite this mandatory requirement, a significant number of commercial leases in India are not registered — because both parties prefer to avoid the stamp duty cost, because the landlord resists disclosure of the rent to tax authorities, or because both parties simply do not address the requirement.
What the registration clause must state:
“This Agreement shall be registered at the Sub-Registrar’s office having jurisdiction over the property within [30] days of execution. The stamp duty and registration charges shall be borne by the [Lessee / shared equally between the parties / as agreed in Schedule [X]]. Each party shall cooperate and provide all documents reasonably required for registration.”
The allocation of stamp duty cost:
By convention in most Indian commercial leasing markets, the tenant bears the full stamp duty on the lease deed. But this is convention, not law — it is negotiable, particularly in buildings with high vacancy where the landlord is motivated to fill space.
Stamp duty on a commercial lease is calculated on the total lease value — (annual rent × lease period) + security deposit × the applicable state rate. On a five-year lease at ₹5 lakh per month with a ₹30 lakh deposit, the total lease value is ₹3.3 crore. At a 2% stamp duty rate, the stamp duty is ₹6.6 lakh. This is a significant cost that must be budgeted for — and allocated between the parties — at the LOI stage, not at the lease deed stage.
14. The GST and Tax Compliance Clause
Commercial leases in India carry mandatory tax obligations that must be explicitly addressed in the lease agreement — not left to informal arrangement between landlord and tenant.
GST on commercial rent:
If the landlord is GST-registered, the tenant must pay 18% GST on base rent and CAM charges. The lease must clearly state:
“The Lessee shall pay GST at the applicable rate on all amounts payable under this Agreement, against a valid GST invoice issued by the Lessor. The Lessor shall issue a GST invoice within [5] days of the first of each month.”
The GST invoice obligation is important — the tenant needs a valid tax invoice to claim Input Tax Credit. A landlord who does not issue proper GST invoices prevents the tenant from claiming ITC — which is effectively an additional 18% cost with no recovery.
TDS on commercial rent:
Under Section 194-I of the Income Tax Act, tenants are required to deduct TDS at 10% on commercial rent where the annual rent exceeds ₹2,40,000. The lease should acknowledge this:
“The Lessee shall deduct tax at source on the rent payable in accordance with Section 194-I of the Income Tax Act, 1961, and deposit the same with the Income Tax Department within the prescribed time. The Lessee shall provide the Lessor with Form 16A within [X] days of the end of each quarter.”
A landlord who is not aware of this requirement may expect to receive full rent and be surprised when 10% is deducted. Addressing it in the lease — explicitly, before the first rent payment — prevents a conflict that should not exist.
15. The Insurance Clause — Who Covers What
Commercial lease agreements should address the insurance obligations of both parties — to ensure there are no coverage gaps that leave either party exposed.
The standard allocation:
- Landlord’s insurance — covers the building structure, common areas, and building systems (fire, flood, earthquake, structural damage)
- Tenant’s insurance — covers the tenant’s fit-out, furniture, equipment, business interruption, and public liability within the leased premises
What the lease clause must specify:
“The Lessor shall maintain building insurance covering the structure and common areas against standard perils throughout the lease term. The Lessee shall maintain: (a) all-risk insurance covering the Lessee’s fit-out, furniture, and equipment at replacement value; (b) public liability insurance of not less than ₹[X] crore per incident; (c) business interruption insurance.”
The structural gap to flag:
If the lease does not specify that the landlord maintains building insurance, the tenant may discover — at the worst possible moment — that the building is uninsured and that their own insurance does not cover structural failure.
The Negotiation Sequence — When to Raise Each Clause
Knowing which clauses to negotiate is one thing. Knowing when to raise them is equally important.
At the LOI stage:
Raise every commercial clause — lock-in, break clause, escalation formula, CAM rate and cap, security deposit amount and return timeline, fit-out period, renewal option, stamp duty allocation, and reinstatement standard.
The LOI stage is when both parties are most flexible — neither has invested in lease deed legal fees, neither has committed publicly to the transaction. The terms agreed in the LOI set the ceiling for the lease negotiation.
At the lease deed stage:
Raise every legal and structural clause — permitted use language, sub-letting provision, dispute resolution mechanism, force majeure rent abatement, fit-out rights, termination and remedy provisions, GST and TDS acknowledgement, and registration commitment.
These clauses are typically not discussed at the LOI stage because the LOI is a commercial document, not a legal one. But they must be addressed before the lease deed is signed — not after.
What the lawyer does:
The tenant’s lawyer reviews the full lease deed and identifies clause-by-clause deviations from the agreed LOI, legal risks in the current drafting, and provisions that require amendment. The broker’s role at this stage is to keep the process moving — flagging when the landlord’s response to comments is unreasonable, facilitating commercial negotiations that arise from legal review, and ensuring the timeline does not drift.
A Quick Commercial Lease Clause Negotiation Checklist
Use this at the LOI stage — before any lease deed is drafted:
Business-critical clauses:
- Lock-in mutual — confirmed in writing
- Break clause — yes or no, at what point, with what notice
- Rent basis — carpet area confirmed, not SBA only
- Escalation — specific formula — not “as mutually agreed”
- CAM charges — current rate confirmed, breakdown promised in writing
- CAM cap — annual increase cap agreed (typically 5–8%)
- Security deposit — amount, conditions, return timeline
- Fit-out period — duration confirmed, CAM during fit-out addressed
- Renewal option — yes or no, and on what terms
- Stamp duty — allocation confirmed between parties
Legal clauses — for lawyer review:
- Sub-letting — “consent not unreasonably withheld” confirmed
- Assignment — group company assignment permitted without consent
- Reinstatement — standard defined, pre-fit-out inspection agreed
- Dispute resolution — mutual arbitrator appointment, correct jurisdiction
- Force majeure — rent abatement provision included
- Permitted use — broad enough for actual and likely activities
- GST invoice obligation — landlord to issue valid tax invoice
- TDS acknowledgement — deduction mechanism agreed
- Registration — confirmed, timeline and cost allocation agreed
What Tenants Who Negotiate Well Do Differently
They do not sign the first draft. They engage a lawyer. They raise clause concerns at the LOI stage — before the lease deed is in circulation — when both parties are most flexible and least committed.
They understand that every clause in the landlord’s draft that they did not negotiate is a clause that assumed the landlord’s interest was the only interest that mattered. And in a five-year commercial lease with a ₹50 to ₹80 lakh fit-out, a ₹30 lakh security deposit, and a total occupancy cost of ₹3 to ₹5 crore, that assumption is worth many lakhs.
The tenants who negotiate well do not get everything they ask for. Landlords push back. Some clauses are non-negotiable in some buildings. But they enter the lease knowing which clauses protect them, what they agreed to, and what the consequences are if something goes wrong.
That knowledge — and the lease it produces — is the foundation of a commercial tenancy that does not generate surprises.