A lease is a contract where one party grants a right to use a property or land to another party in return for monetary compensation. Section 105 of the Transfer of Property Act 1882 defines that a lease agreement can be both a registered deed and an oral agreement. However, having a signed document is necessary so that both the lessor and the lessee can avoid legal complications that may arise in the future.
Read on to know the features, types and format of a lease, what is a sublease and how is a lease different from a rental agreement.
Here are the notable features of a lease financing contract:
There can be several types of leases depending on their nature, conditions and methods. Here are the classifications based on different parameters:
A lease agreement is legal documentation that clarifies all the details, terms & conditions regarding rules and regulations which both the lessor and the lessee must follow.
A lease must be on stamp paper and notarised. It is a detailed document that lays out the following information in its structure:
These are some common and important pointers that a lease structure generally includes. But, of course, there can be variations in this structure from one property to another.
Generally, the procedure of drafting a lease agreement in India involves the following steps:
Step 1: Draft a lease agreement, including all pointers, with consent from both parties.
Step 2: The agreement has to be printed on stamp paper.
Step 3: The lessor and lessee have to sign the agreement in front of two eyewitnesses.
Step 4: Two witnesses must sign the document afterwards, attesting to the same.
Step 5: Get the document registered at the nearest Sub-Registrar’s Office and pay applicable charges.
Leasing offers the following advantages, which are available for both parties.
Lease contracts have multiple advantages, but they also have their demerits. Here are the disadvantages of a lease:
A sublease is a legal agreement between a tenant and a sub-tenant for renting a commercial or residential property for a certain duration.
In a sublease, the owner of a property rents out his property to a tenant who wants to vacate the premises without violating any rule of the contract and pay rent. A tenant can rent out the property to a sub-tenant under a sublease agreement. All property owners might not allow subleasing their property.
Leases are legal contracts between two parties that set forth terms and conditions regarding renting out commercial or personal property. These agreements include duties and obligations for each party to maintain. For example, a residential property lease agreement typically includes the following contents:
A sublease works by allowing a tenant to rent out a property to a sub-tenant. A subtenant addresses all property-related issues to the original tenant and not to the owner of the property. However, these laws might vary from one place to another.
On the surface, a lease and rental agreement might seem similar to many. But they have significant differences. Look at the table below for their detailed comparison:
Parameters | Lease | Rental Agreement |
Duration | A lease agreement stays valid for a longer duration. | A rental agreement is valid for a shorter period. |
Participants | Lessor and lessee | Landlord and tenant |
Payment frequency | Monthly instalments | Monthly or quarterly instalments |
Maintenance | Lessee carries the responsibility | Tenant carries the responsibility |
Accounting standards | Lease agreements follow Accounting Standards 19. | No particular accounting standard is followed for rental agreements |
Ownership | On expiration of agreement, lessor might ask the lessee to purchase the property or asset. | A landlord doesn’t make any such offer to a tenant upon expiry of a rental agreement. |
Change in agreement | There can be no changes after both parties sign the agreement for that particular period. | A landlord can make changes in the agreement anytime they want. |
A lease agreement in India typically consists of the following clauses:
Renting properties and apartments by developing appropriate lease agreements is a cost-effective way of utilising assets for a lessor. On the other hand, it also offers the lessee the chance to own a property temporarily while incurring limited liabilities. While there can be many types of leases, some are more common in India than others. Make sure to go through the details of a lease before signing the agreement.
Ans: Some of the most common types of violations of lease agreements are – unauthorised pets, long-term guests, damage to property, commercial use of the residential property and due rent.
Ans: An operating lease for vehicles is an agreement between the leasing company and the lessor providing a permit to utilise its vehicle for the company and its employees. The lease term is usually for 1 to 5 years. After the expiration of the contract, the lessee returns the vehicles to the leasing company.
Ans: Registering an agreement is necessary if its validity is of 12 months and more. However, it is optional to register a deed of 11 months even though it stays legally valid.
Ans: In India, most lease agreements are for 99 years or longer duration. This is done keeping in mind the control of land transfer and its uses. This duration seems safe as it will cover the lifespan of the lessee.
Ans: There is usually a notice period between 1 and 3 months for early termination of a rent agreement which is applicable for both parties. However, the agreement should clearly mention this, considering the mutual consent of both parties.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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