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Industrial Lease Agreements in India: Key Clauses Explained

Signing an industrial lease agreement is a significant commitment for any manufacturing business. Unlike residential leases, industrial leases tend to be longer, more complex, and involve larger financial exposures. Understanding the key clauses before you sign can save you from costly disputes and unexpected liabilities.

1. Lease Term and Lock-In Period

The lease term is the total duration of the agreement. The lock-in period is the minimum period during which neither party can terminate. For industrial leases in India, typical arrangements include:

• Total lease term: 1 to 10 years
• Lock-in period: 1 to 3 years for the tenant (you cannot exit without penalty during this period)
• Landlord lock-in: Also negotiable — ensures the landlord cannot ask you to vacate during the lock-in

Always negotiate mutual lock-in periods. A one-sided lock-in that only binds the tenant is unfair and exposes your business to risk.

2. Rent and Escalation

The lease should clearly state the base rent and the escalation mechanism. Common structures:

• Fixed rent for 3 years, then 5–10% escalation every 3 years
• Annual escalation at a fixed percentage (e.g., 5% per year)
• Market-linked escalation tied to CPI or WPI indices

Negotiate for the lowest possible escalation rate and longest fixed periods. Even a 2% difference in annual escalation compounds significantly over a 5-year lease.

3. Security Deposit

Industrial leases in India typically require a security deposit of 3 to 6 months rent. The agreement should specify:

• The exact deposit amount
• Whether it earns interest (rare in practice)
• The exact conditions under which it can be forfeited
• The timeline for refund after lease expiry (30 to 90 days is standard)

4. Structural Modification Rights

Manufacturing businesses often need to modify buildings — adding electrical panels, machine foundations, ventilation systems, overhead cranes, mezzanines, or effluent drainage. The lease must address:

• What modifications are permitted without landlord consent
• What requires written consent
• Whether you must restore the building to its original condition at lease end

5. Subletting and Assignment

Your business may change — you may want to sublet part of the space, or you may need to assign the lease to a new entity if you restructure the company. The agreement should ideally permit subletting with landlord consent (which cannot be unreasonably withheld).

6. Maintenance and Repair Responsibilities

A clear maintenance clause prevents disputes. Standard practice in Indian industrial leases:

• Landlord responsible: Structural repairs (roof, walls, columns, foundations), external drainage, common road maintenance
• Tenant responsible: Internal maintenance, electrical fittings, plumbing within the unit, doors and shutters

7. Termination and Exit Provisions

Outside the lock-in period, both parties should have the right to terminate with adequate notice (typically 1–3 months). Ensure the agreement includes:

• Notice period required for termination
• Procedure for handing over the premises
• Conditions for early exit penalty (if applicable)

8. Registration of the Lease

Under the Registration Act, 1908, leases exceeding 11 months must be registered with the Sub-Registrar's office. Unregistered leases are not admissible as evidence in court and provide weaker legal protection. Always register your industrial lease agreement, even if the landlord suggests otherwise.

Leasing at Vedanth Industrial Zone

We offer transparent, well-structured lease agreements with 1 to 10-year terms, mutual lock-in periods, and clear maintenance schedules. Our rates start at ₹700/cent for land and ₹12/sqft for factory buildings, with no hidden charges.