There are various types of office space leases with different terms and conditions. While some of you may know exactly what you need and don’t need in your office lease but there’s always a first time for every one of us and understanding the ramifications of some of these terms and conditions can be of great help while looking out for a commercial space. Here I am outlining the broad concepts that go into making the framework (body) of a lease/rent agreement between the tenant and the land lord.
Rent Escalation clause for the Office Space. A clause usually covered under article 3 that covers the landlord against inflation over the term of a lease by provisioning a stipulated percentage of increase in rent after a certain months or years. Escalation clause can trigger as early as 11 months in some leases while could take as long as 5-7 years in exceptional cases. Most leases in Delhi have a 3 year escalation clause that could vary between 10-15% depending on various factors. While escalation clause is a legitimate and widely accepted mean for property owners to cover increases in operating expenses over a 10- or 15-year lease term, thing to keep in mind is to look out of past trends in the neighboring markets and a short to medium economic outlook of the country.
Renewal Option. Spelled under article 3 in a lease agreement, provides the tenant the first right to renew the lease under the original base rent with agreed stipulated escalation in rent or in case of land lord a right to refuse after the initial lock in period has finished.
Maintenance on the Office Space. Covered under article 4 of a lease agreement, it covers who will be responsible for the work and cost of keeping the demised area in good condition and also outlines who will be responsible for fixing any damages whether intentional or accidental. Often overlooked at the time of signing an agreement and this could mean serious headache for both tenant and land lord. Its important to look out for unique scenarios that could come up along the term of the lease at the demised premise other than the usual, who will fix any wear and tear or a broken window etc of responsibilities are not keep the place up and running over the term of the lease. Best policy is to avoid any vague terms and squarely put responsibility of each area on respective party after negotiations. For tenants its best to pay a little extra in maintenance cost, if the owner is willing to own this baby especially, if it’s a stand along property and not a large building managed by professionals.
Security Deposit: Covered in Article 3, it is the money kept by the property owner as a security for any damages that may occur during the lease period or if the tenant walks out before fulfilling the full term or a default in rent payment. Usually varies between 2-10 month rent. Depending on the “market good faith” your firm commands, you could try and negotiate this considerably. Purpose of deposit is basically in the interest of landlord to ensure that money will be available if the tenant doesn’t rent or make other payments due under the lease or to compensate for any wear and tear caused by the tenant to the premise, and is refundable at the end of the term of the lease. However, often times the lessee either gets only part deposit back or there are unnecessary delays in refund process. Paying close attention to vague covenants like “Vacate the dwelling in good condition, normal wear and tear excepted “ could save you a lot of grief and headaches at the end of term of the lease when dealing with the refund of your security deposit especially if you had rented a large fully furnished premise that have several owners.
Delivery regulations and restriction of use concerning the Office Space: If you move into a multi-tenant Office Space building, it is possible that the management company of the office space will have rules regarding hours in which you may actually move into the office space and specific doors and elevators which you must use to do so. The lease should also spell out in clear terms any restrictions for use within the demised premise and the office building it self .For instance the property owner may restrict use of certain type of equipment within the Office Space. Especially important to watch out for companies that receive samples from vendors that could be of different shapes and size. In addition, there may be restrictions on times and types of deliveries to your office space once you have moved into your new office space.
Warehousing Space for stocking. If you require a warehousing space, it would be best to determine if the owner has any such area available and the costs associated with its use pertaining to your particular Office Space. This could be covered in article 8 under mutually agreed terms
Subletting: Covered in article 6, subletting rights allow the tenant to lease out space to any third party without the consent of owner for the term of their lease. It is always a good idea to introduce a subletting clause in your lease, just in case you don’t need an extra corner of the office or simply outgrow yourself and a term is still remaining with the current lease. It’s also advisable to from the point of view of assigning space to your own subsidiaries, sister concern in the process of diversifying as a corporate company. Subletting is It may be okay to assign the lease to your own partners, subsidiaries or anyone with whom you merge, but you may not be allowed to sublet to anyone else outside your business without the landlord’s consent.
Power back up and HVAC in the Office Space: Covered in article 4, its pertinent to understand the power situation if your companies working hours may be outside of the usual 9-6 routine and have a 365 days 24/7 set up. Power back up and air conditioning — Is this a 24-hour service or between business hours only? What the charge/unit for the backup meter, usually couple of rupees/unit more than usual commercial meter. If the services are interrupted, does the lease define the remedies available to the tenant, money damages, rent abatement, or lease cancellation? Are the holidays when the services are not provided specifically listed?
Taxes: Especially important if you are using an industrial premise as commercial space or a space on a commercial notified road. Both industrial and commercially notified road require the owner to pay yearly taxes to respective municipal bodies. Usually, these are paid by the owner, unless specified in the lease terms.
Parking: Covered under article 8, parking needs to be addressed comprehensively especially if it’s a high street property with multiple tenants parking on the front and peripheral porch of the premise. — Is there any complimentary parking with the space you are hiring? Usually, there is 1 car park with every 1000 sq ft space. What is the charge for paid parking? Is there any parking available by municipal bodies like DDA, MCD, NDMC that is a more viable option.
Exclusivity clause: Mostly used by retailers and niche tenants who would not want their competitor to take up space in the same premise/mall.
Termination of Lease for Office Space. Covered in article 12, there could be many reasons why you may want to terminate the lease as a tenant and you should have a legal recourse weaved in the lease contract in case such a situation arises. This may not be of great significance to the land lord however, as a tenant you can be in fix if you want to further expand or your business did not do well.
Other items to consider
If it were left to lawyers, there would be no end to the number of covenants that can be incorporated in a lease agreement. However, there are few basic ones, that may seem frivolous and unimaginable scenarios but could prove quite handy in dire situations such as, An escape clause could be very handy in the event you become disabled, specifications for signs, including where you may put them, “use clause” or if the landlord tries to force you out in the wake of a partial damage to the premise. These may include details about options for first refusal if more space becomes available, building rules, specifications for signs, including where you may put them, damage and destruction and what happens if the building is condemned, who has the obligation to restore etc. A commercial real estate broker with their experience can help you negotiate the terms of lease better; however, commercial leases covenants could be tricky to read, it is strongly suggested that you involve a real estate law expert’s opinion for reading between the lines to secure the best interest of your company.
In case your company is looking to lease/rent commercial space in Delhi or just doing some looking around to see if you can save some money by moving out to a cheaper and better location, feel free to write to us at admin AT delhirealestateblog.com or just send us a message via whats your requirement!