Most office spaces leases are drawn up in a standard format however, each covenant of a lease can construe a different meaning in a very subtle way from another by the virtue of how it’s worded. Most landlords are very versed with lease terms and negotiating tactics as they are used to going through the process with different tenants. Therefore, its important for tenants to dig in deep and ask anything about a certain clause/condition that might be detrimental to their stay in the future at the property. Here are a few terms that can you get started and ask the right questions while renting office in Delhi.
Rent/sq ft – Rent for Commercial office space are charged on a per sq ft basis rather than a lump sum monthly rent. The reason why you want to know your per sq ft cost is because, different building may have different usable area depending on what is called “building efficiency”. It’s often termed as super area vs carpet area ratio. Rent in commercial leases is always payable on the super area.
Super Area and Carpet area: As mentioned above, it the rent per sq ft what determines your rent in commercial lease transaction and not the actual usable space that you may end up getting. You may be shown a 1500 sq ft office space and when you actually get down to measure it with an inch tape, it could very turn out to be only 1000 sq ft or even lesser. So in this case 1500 sq ft is what is called as super area and the actual measured space between walls is the carpet area. And the difference between super area and carpet area is often termed as loading or wastage. It’s not very un-common to see a very high loading/wastage in newer commercial office buildings that offer multiple common areas such as massive entrance lobbies, wide corridors and elevators, common gym and cafes, etc. Most old buildings in DDA local commercial complexes usually have 0 to 20% loading while new grade A buildings such as Birla tower, Red fort capital in CP are at around 40%.
CAM Charge – Common area maintenance charge. It is a fixed monthly charge per sq ft which will be charged on top of rent for use of any area of the building such as lobby, parking lots, corridors, common cafeteria, washrooms etc which is used for the non-exclusive use for all of the tenants in the building. The charge also usually covers facilities like upkeep of elevators, centralized air conditioning, firefighting equipment’s, power back up gensets etc. However, one should always re confirm what all charges are covered. Find out if chiller cost for centralized air conditioning is included in the charge as it may be a substantial amount. CAM charges are very common in commercial lease transactions and can vary between Rs 5 /sq ft to as high as Rs 40/sq ft depending on the facilities and building quality across various commercial office space locations in Delhi.
Power Back up Cost and hours: This is charge the tenant has to pay for running cost of generator for keeping the power running in the building premise. Remember, this cost is not for the upkeep of generator but for running cost. Upkeep cost is already covered in CAM charges in case the building provides the back up facility. Usually the running cost is either split between all tenants of the building or is pegged at a fixed hourly charge. It’s always better to negotiate this at a fixed “reasonable” hourly cost rather than having to split between tenants because the entire liability may come on you in case of an exodus of tenants from the building. Arrive on fixed reasonable cost and put the figure down on the lease agreement. Secondly, also find out what will be the charge in case you want to use power back facility after usual business hours or on a non-working or Sunday.
Security Deposit: This is a usually a fixed lump sum amount that a tenant pays to the property owner at the time of take the premise on lease. Usually anywhere between 0 to 8 months and is interest free. As the name suggests, this amount is basically gives the landlord a certain degree to surety incase tenant defaults on payments or causes and damage to the property. The amount of security deposit a company has to shell out mainly depends of their reputation, a well know company like google or Apple will have to usually pay no deposit versus if it was for a lesser known brand or a startup. For vanilla companies, the usual trend in Delhi is around 4-8 months for a furnished space and 2-4 months for a bare shell office space.
Security deposit is forfeited by landlord incase the lease is ended before the certain specified term known as “lock in term”. The tenant gets the security deposit back (without any interest) at the end of the lease term.
Lease Term: This is the total number of years for which the lease agreement is valid for and stamp duty is paid for at the local registrar office. A 2% stamp duty has to be paid on average annual rent in case the lease term is equal to or less than 5 years. If the lease is greater than 5 years 3% duty is charged. Keeping a longer lease term gives you as tenant a certain negotiating advantage with landlords. If you are a reputed company, you may always want to negotiate an open ended lease term which essentially means, tenant can terminate the lease at any time during the term of lease after serving a certain number of months’ notice period however the landlord cannot ask you to vacate the premise before the end of the entire lease term. The usual lease term in Delhi is a 9 year lease with 3 year “lock in period”.
Lock in Period: This is the minimum number of years that a tenant commits to landlord before having an option of terminating the lease. Usually a must have clause for spaces which are furnished by landlords, for them to be able to recover the cost of furnishing. However, being a blue chip companies can always be an exception to the rule for the kind of sense of stability that they can bring about for property owners. It’s a good option to exercise in case you are a stable company and a tentative idea of where your company will be in next 3-5 year term from a space need prospective, because it can give you significant negotiating room on the base rent.
Escalation: As tenant you can expect to have around 3-5% annual increase in the rent. This escalation of rent could be factored annually or after every 3 three years through the term of the lease. There different ways this escalation clause could be flavored in the lease agreement however the most common practice in Delhi region is around 12-18% increase after every 3 year term. Escalation
Service Tax: Even though it’s not really a part of the lease terms per se, but it’s important to mention as many people tend to overlook this cost as service tax is not liable on residential leases. In case of commercial leases, one needs to pay up service tax of 15% on total per sq ft rental and cam charges except for a few exceptions like in case the tenant is a religious body, school, hospital, autonomous govt body and a few others. By and large any, for profit commercial establishment has to bear this cost too.
Although, the above mentioned terms are the most common and important, they are not the only ones, one should go over each covenant in great detail before signing an office lease.
Delhi has some of the best office space options for every ones business needs. One just needs to look at the right places, be it from a budget or strategic point view. If you are looking for a commercial office space in Delhi and would like to know about different types of office space options available across Delhi area, click on the link to view detailed post.