Commercial Lease Agreements: Lock-In, Escalation and the Registration Requirement

The registration rule

Section 17 of the Registration Act requires registration of leases of immovable property from year to year, or for a term exceeding one year, or reserving a yearly rent. Section 49 then provides that an unregistered document required to be registered cannot be received as evidence of any transaction affecting the property.

An unregistered two-year lease can be used in limited ways — as evidence of a collateral transaction, or of part performance — but not to prove the lease terms themselves, which is usually the entire point of producing it.

Lock-in and notice

A lock-in period binds the tenant to pay rent for a minimum term even if they vacate earlier. Landlords routinely propose one-sided lock-ins; a reciprocal lock-in, preventing the landlord terminating during the same period, is a reasonable counter.

Separate the lock-in from the notice period. A three-year lease with a one-year lock-in and a three-month notice means the tenant may exit after fifteen months, not after twelve.

Escalation and deposit

Escalation of five per cent annually or fifteen per cent every three years is conventional, and the choice matters over a long term. Specify whether escalation applies to the deposit as well — many agreements are silent, and landlords later claim a top-up.

Security deposits of six to twelve months' rent are common for commercial premises. Specify the refund timeline, what may be deducted, and whether interest accrues.

The clauses tenants forget

• Who bears property tax, maintenance and society charges.
• Permitted use, and whether a change of business requires consent.
• Rights to sublet or assign, particularly on a group restructuring.
• Responsibility for structural repairs as against routine maintenance.
• Fit-out rights and what must be restored on exit.
• What happens if the landlord sells the property during the term.

Frequently asked questions

### Why are rent agreements for 11 months?

Because leases for a year or more must be registered under Section 17 of the Registration Act. An eleven-month term avoids compulsory registration and the stamp duty and process that accompany it.

### Is an unregistered lease valid?

It is not void, but Section 49 of the Registration Act makes it inadmissible to prove the terms of the lease. It may be used for limited collateral purposes, which is rarely what a party needs when a dispute arises.

### What is a lock-in period?

A minimum term during which the tenant must pay rent even if they vacate. It is distinct from the notice period, and both apply: a one-year lock-in with three months' notice means the earliest exit is fifteen months.