The Ultimate Guide to Residential and Commercial Lease Agreements in India

Whether you are a property owner looking to monetize an asset or a tenant searching for a new space, the foundation of a smooth relationship is a watertight contract. In this guide, we will fully explain how to draft a valid residential and commercial lease agreement that protects both parties.

1. Understanding the Residential and Commercial Lease Agreement

Before drafting, you must distinguish between the two. The legal requirements for a residential contract differ significantly from a commercial one, yet both fall under the umbrella of property law.

Residential Agreements

• Purpose: Strictly for living purposes (family or bachelor accommodation).

• Term: Usually 11 months to avoid mandatory registration.

• Structure: A standard residential and commercial lease agreement will differ here; residential leases focus on furniture and daily maintenance, whereas commercial ones focus on business operations.

  

  A conceptual split-screen image visually contrasting the two types of properties tied together by a contract.

Commercial (Shop/Office) Agreements

• Purpose: For business, retail, or industrial use.

• Term: Often longer (3–9 years) with a "lock-in" period.

• Complexity: Includes complex clauses like GST applicability and signage rights.

2. Lease vs. Rent Agreement: The Legal Distinction

When creating a residential and commercial lease agreement, you must decide if it's a "Rent Agreement" (License) or a "Lease Deed."

• Rent Agreement (Leave and License): Typically valid for 11 months. It gives the tenant the "license" to use the property but not "possession" rights.

• Lease Agreement: Valid for 12 months or more. Under the Registration Act, 1908, any lease exceeding 12 months must be registered.

3. How to Make a Proper Residential and Commercial Lease Agreement

Follow this structure to create a format that stands up in court.

Step 1: Draft the Core Clauses

Every valid residential and commercial lease agreement must include:

• Parties: Full names and Aadhaar/PAN details.

• Property Description: Complete address and list of fixtures.

• Financials: Monthly rent amount and security deposit details.

Step 2: Add Specific Protective Clauses

• Rent Escalation: Percentage increase (e.g., 5-10%) upon renewal.

• Lock-in Period: A period during which neither party can terminate the contract.

Step 3: Stamp Duty & Notarization

• Stamp Paper: Value depends on your state (e.g., ₹100 or ₹500).

• Registration: Mandatory for leases >11 months.

  

  Action-oriented shot focusing on the moment the deal is finalized, emphasizing partnership and agreement.

4. Essential Clauses You Must Not Skip

To ensure your residential and commercial lease agreement is fool-proof, include:

1. Maintenance Charges: Clearly define who pays the Society fees.

2. Subletting Clause: Strictly prohibit renting to third parties.

3. Dispute Resolution: Mention local jurisdiction courts.

A specific image highlighting the legal and financial realities of Indian rental agreements (Stamp duty and currency).

5. Frequently Asked Questions (FAQs)

Is police verification mandatory?

Yes, for any residential and commercial lease agreement, landlords are often required to submit tenant details to the local police to avoid fines under Section 188 IPC.

Who pays for the agreement registration?

Usually, the tenant bears the cost, though some commercial deals share it 50-50.

What is the TDS rate on rent?

For commercial rent >₹2.4 Lakhs/year, 10% TDS applies. For residential rent >₹50,000/month by individuals, 5% TDS applies.

Conclusion

Drafting a solid residential and commercial lease agreement requires attention to detail. By following this guide and ensuring you abide by the Registration Act, you protect your property and your peace of mind.