You may have heard these terms before, while all of them in laymans language mean taking a certain premise on rent, they could mean and imply very differently for both tenant and landlord.
Rental Agreements: Usually refers to a short term contract between the commercial property owner and tenant.. The term can be of any duration, but month-to-month agreement with one month notice period applicable for both landlord and tenant is most common. Each month the tenancy automatically renews for a new term, unless the property owner or the lessee ends the tenancy by giving a 30 day written notice. Changes to the terms of the rental agreement can be made by giving the appropriate written notice.
Lease Agreement: A lease agreement allows the tenant to rent the property for a set term unlike the rental agreement. The terms are not changeable during the lease unless the tenant and owner mutually agree to do so.. Unlike a rental agreement, a lease does not automatically renew upon termination. Instead, a lease agreement morphs into rental agreement if the tenant wants to stay in the demised premise even after the end of the lease term. Lease agreement requires to be registered under registration act 1908 and transfer of property act if the lease term is more than 11 months. A lease agreement creates interest on the lease property in favour of lessee and is transferable even if the title of the property changes hands or for example lessee can sue a third party directly for trespassing without getting property owners approval.
Leave and License Agreement: A leave and license is similar to lease agreement except it does not create any interest on the lease property in the favor of tenant instead it is more favorable for the land lord. It is also not inheritable or assignable. Leave and license agreement needs to be registered with the sub registrar incase the term of the lease is more than 11 months, earlier it was exempted from any stamp duty. Leave and license can the revoked by the property owner at anytime with giving any prior notice unless specified in the agreement terms.
Popular Commercial Space Lease formats
|Lease Form||Rent Basis||Frequently Used in|
|Revenue Sharing Lease agreement||Fixed Rent + Percentage of monthly revenue. – the tenant is responsible for paying a fixed rent (often lower than the FMV of the area) on the property, as well as a monthly % of revenue earned from the business occupying the rented space. Such lease agreements are very common in retail set ups, especially larger formats like hyper markets, play area, cinema etc.||Retail, Cinema,|
|Net Lease||The lessee or tenant is responsible for paying property taxes as well as the fixed monthly rent per sq ft for the demised premise. This type of lease can be executed in any type of commercial lease property.||Any commercial space, industrial space, institutional space or retail area|
|Double Net||The lessee or tenant is responsible for paying property taxes as well as insurance along with the fixed monthly rent per sq ft for the demised premise. This type of lease can be executed in any type of commercial lease property.||Any commercial space, industrial space, institutional space or retail area|
|Triple Net||A lease agreement on a property where the tenant or lessee agrees to pay all real estate taxes, insurance, and maintenance on the property in addition to the per sq ft rent for the demised premise. In such a lease, the tenant or lessee is responsible for all costs associated with the repair and maintenance of any common area. This form of lease is most frequently used for commercial office standalone buildings and retail space.||Any commercial space, industrial space, institutional space or retail area|
|Fixed/Gross Lease||A fully serviced lease where the property owner pays all or most of the expenses associated with the property. Very often, the costs are passed onto the tenants in rent in what is referred to as a load factor. Gross leases are usually used in office properties and warehouse spaces, but can be used in retail leases as well.||Often used by startup and industrial tenants for short term projects to avoid initial set up cost|
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