A shop rental contract is a standard contract to rent commercial space between a landlord and a tenant. If the renter intends to conduct business on the landlord’s property, this agreement enables both parties to formalize the rental and their relationship through a written contract. In contrast to a residential rental agreement, a shop rental agreement presumes the land is employed for commercial purposes. The rental property is a whole building, a brand-new restaurant, a straightforward office, a small independent shop, or even great storage for a manufacturing facility like a plant or warehouse.
Like most other legal arrangements, a commercial rental agreement should not be handled hastily. Because of this, while renting office space for the first time, it is crucial to “research” the market extensively and understand the many types of commercial rents offered in India.
How to execute a valid shop rent agreement?
As per the Registration Act of 1908, registering a rental agreement becomes mandatory when the duration of the agreement exceeds 12 months. However, if the agreement spans 12 months or less (even 11 months), there is no legal obligation to register it. In such cases, drafting and signing the agreement on a stamp paper is legally valid.
If the agreement’s duration falls within 12 months, the rental agreement should be drafted on a stamp paper obtained from the Sub-Registrar’s office located in the property’s vicinity. Once printed on the stamp paper, both the owner and tenant must affix their signatures at the bottom of each page. Additionally, two witnesses should also sign the agreement, providing their names and addresses, to validate it.
In situations where the agreement extends beyond 12 months, it must be documented on a stamp paper and registered with the Sub-Registrar’s office situated in the area where the rented property is located. The signing of the agreement should take place in the presence of the Registrar, with both the landlord and tenant adding their signatures at the bottom of each page of the stamp paper. Furthermore, two witnesses need to sign the stamp paper. Registration can be completed after paying the necessary fees.
Importance of shop rent agreement registration
All states are subject to the 1908 Registration Act. The term “lease” is defined under the legislation to cover all assets originating from the land, including residential and commercial property, undertakings rented out for hereditary allowances, cultivation, ferries, fisheries, freedoms to roads, lights, and any other advantage. If a tenant is renting out any of these properties for a duration longer than 11 months, they must all be registered. There is no need to write a lease for fewer than 11 months. It is also wise to note that even if not required, registering rent agreements with durations of less than a year is valuable and proactive.
In addition, numerous courts, including the Supreme Court of India, have heard cases involving the legality of 11-month rental agreements. In some of those cases, the 11-month contracts have been ruled to be inadmissible in court. Therefore, the savings on stamp duty and registration necessary to get a rent agreement recorded are not worth the potential future problems that could emerge at any time.
Types of agreement
Fixed-term lease agreement
As the name suggests, this agreement has a start and an end date for the tenant. Mostly agreements are for 11 months and more.
Month-to month lease agreement
This agreement is renewed every month.
Commercial lease agreement
This agreement is used when the commercial property like office space, retail stores etc. are let out on rent.
Sublease agreement
In this kind of agreement, a tenant can lease his portion of the rented property to a third person, with the approval of the landlord.
Room rental agreement
This kind of agreement is signed when a single room/ rooms out of an entire space is rented by a tenant. The common areas of this property is shared with other tenants.
Elements of shop rental agreement
This contract allows both parties to enter a legally binding agreement and formalises their rental arrangement. The following are the crucial components:
Landlord
The person who rents out the business property in exchange for money is the landlord.
Tenant
An individual responsible for paying the rent and running the business is the renter.
Term
The period is the length of time—in months or years—that the space will be required.
Demised assertion
The area that the tenant is renting out, along with a property map, is the demised premise. It also contains information on the size. The provision of services, including snow removal, landscaping, parking, cleaning, security, and air conditioning, is subject to certain conditions.
Real property
The whole shop of the landlord, including any shared common spaces, is the real property. It might also cover land areas that other tenants will use, like parking lots and walkways.
Minimum rent
The base rent is what you pay to rent the space for the first year or month.
Operation expenses
Landlords may request that renters contribute to the running costs of maintaining communal areas. Real estate taxes, utility charges, and all promotional expenses are included. In addition, a specified percentage based on the tenant’s footprint, store size, or a fixed flat charge is used to manage the entire building.
Security deposit
The security deposit is the funds given to the owner as a promise not to end the lease prematurely or harm the possession irreversibly and as proof of the tenant’s good faith and efforts.
Property and occupancy information
The property & occupancy information are those connected to both parties that can expressly state what is permitted and what is not in the leased area. These might include whether certain commercial activities, such as food services, are allowed in office buildings, the after-hours noise in communal areas, and the waste disposal location.
Developments
If the renter intends to run an eatery or other company that needs modifications, the lessor and lease should specify who is accountable for paying for and managing the project.
Benefits of shop renting agreements
Commercial rental agreements have several tangible benefits, including the following:
Encourages professional partnerships
A standard commercial rental agreement is crucial to maintaining the “landlord and tenant” benefits and their positive working relationship (landlord & tenant).
Legal protection
A contract involving such an enormous asset must have a legal security document in place if the other party takes any action that violates its conditions.
Liquidity
The lessor can use it rationally to obtain cash without investing money in the asset (engagement of funds for capital needs).
Suitability
Renting is known to be more straightforward in comparison when used to finance fixed assets. Additionally, there is no requirement for a mortgage or hypothecation. Long-term borrowing from financial institutions escapes and mostly avoids the restrictions that come with them. Renting is far more affordable than loans from banking organizations, which involve numerous formalities.
Direct impact
The asset that is being rented out for business purposes can be used right away without losing time waiting for permission, authorization, etc., after applying for a mortgage, loan, or credit. Contrary to other rental agreements, there are not many legal requirements to be met.
Protecting unplanned occurrences
A shop rental agreement benefits the landlord and the tenant by covering unforeseen costs.
Decent relationships
The business rental agreement strengthens the relationship between the landlord and the tenant because all the advantages and disadvantages are clearly outlined.
Shop rent agreement: Documents required
- Any government-issued ID proof, such as an Aadhaar card or a receipt,
- if not an Indian passport, submit the original.
- If an ID shows another person for the registration, a power of attorney must be presented.
- Proof and the type of business establishment
- original copy of the title to the landlord’s property
- if any government endorsements
- two recently taken passport-size pictures.
- Print the commercial rental agreement on stamp paper with the suggested value.
- if there are any articles of association, the memorandum of affiliation
- association of the individual’s comprehension, if any
- bonds and, if applicable, dealership proofs
- agreements regarding shareholders and listing, if any
How to cancel a shop rent agreement?
An agreement’s cancellation is just as crucial as its creation. When you encounter a similar circumstance in the future, having a better grasp of what termination is and how to handle it can be helpful.
- It is crucial to read the rental agreement’s termination clause carefully. The owner and the tenant are contractually obligated to follow the terms of the provision.
- Your rental agreement’s clause states that if the notice period for termination is two months, either the renter or the owner must give two months’ notice before terminating the lease.
- If the tenant cannot wait until the notice term is over, even if he does not remain in the rented home, he will be required to pay rent for the notice period.
- It is suggested that both parties give written notice to clear up any misunderstandings.
- There are probably no hazards if both parties—the owner and the tenant—have no objections to ending the lease.
- The tenant is obligated to pay any additional fees or rent that the agreement requires the owner requests and, should they be requested.
Shop Rent Agreement Format
This indenture of a lease is made at _________ this day___ of _______ 20__, between
____________________, Son of ____________________ resident of ____________________, address ____________________ ____________________, (hereinafter called “the landlord,” which expression shall, unless repugnant to the context and meaning, include his heirs, successors, administrators, and assigns) of the ONE PART and
____________________, Son of ____________________ resident of ____________________ ____________________ ____________________
(The term “the tenant” shall include its successors and assigns unless the context and meaning indicate otherwise.) of the other part.
Whereas the landlord is absolutely seized and possessed or otherwise well and sufficiently entitled to the premises at ____________________, ____________________ with a total area of _______ square feet.
Moreover, at the tenant’s request, the landlord has agreed to grant a lease in respect of the demolished premises for a term of __ months in the manner from now on.
Now, this deed witnesses as follows:
- In accordance with the terms of the said agreement, and in exchange for the rent hereby reserved, the covenants, conditions, and stipulations that will be included herein and that the tenant is required to pay, observe, and perform, THE LANDLORD HEREBY DEMISES TO THE TENANT ALL THAT THE SHOP LOCATED AT ____________________ ____________________ ____________________ and hereinafter called as the demised premises, TOGETHER WITH ALL the fixtures and fitting therein, TOGETHER WITH the electrical installations and together with the right for the less, its employees, servants, agents, customers and persons authorized by the landlord to use the entrances, doorways, entrance hall, staircases, landings and passages in the demised premises for the purpose of ingress thereto, TO HOLD the demised premises unto the tenant for the period of ____________ only commencing from the ______ and determined on _________ but determinable earlier as hereinafter provided PAYING therefore unto the landlord during the said term monthly rent of Rs. ______Per month payable by the __ day off of each succeeding calendar month to which it relates.
- The renter makes the following commitments to the landlord:
- to make the required rent payments on the dates and specified manner.
- must pay the electricity bills for the electricity used to operate computers, air conditioners, fans, and other electrical appliances inside the leased space and light the area.
- Without the landlord’s prior written consent, you may not enter or alter the demised premises structurally, nor may you change or add to the exterior look of any component of the demised premises.
- to use the leased space for the tenant’s business activities.
- Not to do or allow to be done anything that would be or constitute a nuisance or annoyance to the landlord or other tenants and occupiers of the said property in any way while on the demised premises or different sections of the said building in common with other people.
- Not to maintain or allow to be kept on the demised premises any obnoxious, dangerous, highly flammable, explosive material or other item or things that could endanger, annoy, or be a nuisance to the owners or occupants of the demised or adjacent premises.
- You must not sublet, assign, transfer, or give away your right to possession of the demised premises or any portion of them.
- To provide the landlord, his servants, employees, or agents who have been allowed adequately by his access to the deeded property at all reasonable times to inspect the property’s condition or perform any necessary maintenance, repairs, or upgrades.
- To transfer peaceful possession of the leased property along with all of the landlord’s fixtures and fittings after the specified term or as soon as possible, except for everyday wear and tear, damage from fire, acts of God, riots, or other civil unrest, war, enemy action, and other circumstances beyond the tenant’s control.
- Not to block or allow to be stopped in the lobby, entrances, doorways, hallways, staircases, or elevators.
- To replace all damaged fixtures and fittings with better or equivalent replacements.
- To maintain coverage for loss or fire damage at the leased property with an insurance provider that has been approved in writing by the landlord for a sum that shall not be less than
- The landlord, at this moment, makes the following promises to the tenant:
- Upon the timely payment of the rent following the terms and conditions outlined in this agreement, as well as compliance with and performance of the terms and conditions. The tenant shall hold, possess, and comply with the terms and conditions herein quietly and peaceably. Enjoy the demised property throughout the time without interference from the landlord or any other legitimate person, claim, or demand.
- To preserve the demised premises’ interior, exterior, and drainage in decent, useable repair and condition.
- To maintain, at his own expense, the entry, doorways, entrance halls, staircases, lobbies, and tunnels in the building as mentioned above leading to the demised premises.
- To pay all rates, taxes, assessments, charges, cess, impositions, outgoings, or burdens of any kind that may be levied against the demised premises at any time or periodically throughout the tenure herein created.
- It is at this moment agreed and declared that these presents are on the express condition that if the rent or any portion of the rent that is payable in respect of the demised premises shall be in arrears for a period of [two months] or by if the tenant shall fail to perform or observe any covenants or conditions on the tenant’s part herein contained, If the tenant fails to pay the rent or fails to fulfill or keep the covenant or condition within [one month] of receiving notice from the landlord, the landlord may re-enter the demised premises. At that point, this demise and all tenant rights hereunder shall be determined.
- This leasing agreement must be signed in duplicate. The landlord must keep the original, while the tenant must keep the copy.
- The catchphrases and marginal remarks are merely included for the convenience of reference and should not be used in any manner to understand the content of this document.
The parties at this moment expressly agree as follows:
- The tenant shall be entitled to erect fittings, fixtures, wooden partitions, cabins, or make any such additions or alterations as may be necessary for the tenant’s use of the premises; provided, however, that the tenant shall remove the said fittings, fixtures, wooden partitions, cabins, additions, or alterations and return the leased premises to the landlord on the expiration of the term of earlier determination of the lease if the
- If the landlord fails to make the required repairs and other work as outlined in this agreement or fails to pay the taxes, charges, or assessments that are due to him, the tenant may pay, discharge, and carry out the same at its own cost after giving the landlord a _ month written notice. In addition, the tenant may deduct the same from the rent due under the terms of the present agreement.
IN WITNESS, the tenant has caused its common seal to be affixed hereunder and a duplicate hereof on the day, month, and year first herein above stated, and the landlord has placed its hands to these presents and a copy hereof.
Witness
FAQs
Is a lease agreement required? Is it lawful?
Yes, continuing to pay rent on a property is acceptable without creating a formal written renting agreement. However, if there is no written lease, it is assumed that there is an implicit agreement/contract if the landlord is regularly collecting the rent.
Can you sign a rental agreement for a commercial shop online?
Yes, most websites that offer online lease agreements allow users to sign the document electronically. After both parties have signed the agreement and paid for the service, portals typically request their signatures. After that, there is an option to send the agreement to both parties for a digital signature. The online rental agreement can be downloaded once both parties have signed it.
What is the bare minimal lock-in term in a lease?
A 24-month lock-in period is permitted by law and makes sense in a rental agreement. No one is allowed to leave the lock-in period clause in the rental agreement before the initial safety in the time specified in the rental agreement has expired. The clause is binding on the parties.
Is it possible to end a business rental contract early?
Yes, there are instances where a commercial leasing arrangement may be cancelled early. For example, the landlord may terminate the agreement if the tenant violates the commercial lease's terms and conditions. Although it is typically ideal that the two parties seek a resolution to the issue jointly, the landlord is not required to do so. A lease can also be terminated if both parties agree to do so.
Can a rental contract be terminated?
According to the circumstances, the landlord, the tenant, or both parties may terminate a lease agreement.
With 16+ years of experience in various sectors, of which more than ten years in real estate, Anuradha Ramamirtham excels in tracking property trends and simplifying housing-related topics such as Rera, housing lottery, etc. Her diverse background includes roles at Times Property, Tech Target India, Indiantelevision.com and ITNation. Anuradha holds a PG Diploma degree in Journalism from KC College and has done BSc (IT) from SIES. In her leisure time, she enjoys singing and travelling.
Email: [email protected]
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