India's commercial property sector has changed significantly in recent years. More businesses now rent commercial spaces instead of buying them. Startups and big tech companies seem to like this trend. According to a report by Money Control, office leasing forecasts in the top nine cities are 14% higher. They might even reach a record 70 million sq ft.

Commercial property leasing happens when businesses rent properties to run their operations. This leads to a formal agreement between the property owner (the landlord) and the business (the tenant). The tenant pays to use the property.

Commercial leases are different from residential leases. Properties can be:

1. Office spaces
2. Retail outlets
3. Warehouses

In 2024 commercial leasing in India is changing, as more companies adopt hybrid work models. Flexible office spaces are in higher demand since 12.7% of full-time employees in India work from home, while 28.2% have hybrid work arrangements.

Before getting into the details of commercial lease agreements, it would be appropriate to look at the larger context of leasing in India, its changed economic policies, regulatory frameworks, and market dynamics.

Key Legal Frameworks Governing Commercial Leasing in India

Leasing is fast emerging as a transformational financing tool in India, enabling businesses and individuals to use high-value assets without the full financial burden of ownership. Though at a relatively nascent stage compared with global peers like the United States and the United Kingdom, India's leasing industry is increasing in size. In this section, some of the key regulatory frameworks shaping the leasing landscape in India are considered.

Commercial leasing in India is governed by various laws so that the transactions are legally sound and the interests of both landlords and tenants are protected. The main laws include the Transfer of Property Act, 1882; the Real Estate (Regulation and Development) Act (RERA); state-specific rent control laws; and other substantive regulations that together create a holistic legal framework for secure and transparent property dealings in the country.

1. Indian Contract Act, 1872
   The Indian Contract Act, 1872, is the law that controls the formation and performance of contracts, which include contracts relating to real estate transactions. The Act puts down the prerequisites of a valid contract, including offer, acceptance, and intention to create legal relations, consideration, and free consent. A lease agreement as far as the terms of agreements are concerned has to fulfill these conditions in order to be binding. The provisions under this Act form the basis for landlords and tenants to enter into binding agreements and for the resolution of disputes.
    
2. Registration Act, 1908 and Indian Stamp Act, 1899
   Under the Registration Act, 1908, a lease for more than 12 months is compulsorily registrable. Until and unless it is registered, the lessor cannot get any benefit of a contract in the court of law. Section 17 provides for compulsory registration of the leases of immovable property for a term of more than one year. The on the other hand, Indian Stamp Act, 1899, stipulates that the instrument of a lease must bear a stamp duty depending upon the rent or the market value of the property whichever is higher without which an instrument has no status as an admissible piece of evidence in a court of law.
    
3. Indian Succession Act 1925
   The Indian Succession Act, 1925, deals with the succession of property in case the owner of the property dies testate with a will. In the case of commercial properties, this Act would determine how ownership rights would be transferred or a lease assigned upon death. In the event of the death of the landlord, if a lease agreement does not provide terms and conditions of succession, the said Act provides a legal framework to transfer rights to heirs or legal representatives.
    
4. Foreign Exchange Management Act (FEMA), 1999
   The Foreign Exchange Management Act (FEMA), 1999, controls the inflow of foreign investment in the Indian real estate sector. It dictates the rules of acquiring property and investing by a foreign entity or NRIs. Under FEMA, foreign individuals and entities have been prohibited from directly acquiring property, subject to fulfillment of certain criteria by them. The Act ensures that all foreign investments in the economy are in conformity with the laws of the economy and foreign exchange regulations, free from distortions in the market.
    
5. Land Acquisition Act, 2013
   The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation, and Resettlement Act, 2013, provides framework to the government to acquire land for public purposes, such as the development of commercial real estate projects. This law guarantees the landowner just compensation and proper rehabilitation in case his/her land is acquired by the government. The Act protects commercial tenants in case the acquisition by the government leads to displacement of businesses or tenants. Further, it requires compensation to people being displaced, including financial and rehabilitation costs. People who are entitled to compensation because the acquisition of land affects them include tenants and businesses whose relocation and operations are disrupted.
    
6. Real Estate (Regulation and Development) Act, 2016 (RERA)
   The Real Estate (Regulation and Development) Act, 2016, is a landmark legislation intended to bring transparency, accountability, and efficiency into the real estate sector. RERA applies to residential and commercial properties and impacts leasing arrangements in several ways, applicability of which is discussed in the succeeding paragraphs. Developers and property owners must register their projects with RERA, and commercial properties must comply with the disclosures required by the Act. Under RERA, property owners are mandated to hold a clear title to the property and maintain the quality of amenities promised to the allottees. Further, RERA provides heavy penalties for non-compliance of timelines so that allottees do not suffer due to any delay or misrepresentation. The Act also provides for allottees to have the right to approach RERA for redress in case of disputes relating to a real estate transaction or arising out of non-compliance by a property developer.
    
7. Transfer of Property Act, 1882
   Transfer of Property Act, 1882 is one of the most important laws in the Essay. This Act regulates the transfer of immovable property leasing. According to Section 105 of the act, a lease is defined as a transfer of the right to enjoy immovable property for a limited time in consideration of rent. This Act describes the rights and duties of landlords and tenants with respect to tenancy duration, terms of renewal, and stipulations in respect to the process of termination. Some salient features under this Act provide for the tenants' exemption from summary eviction that needs to be put into effect when a landlord intends to Evict. Generally, this position regulates the renewal of tenancies, the setting of rents, and the responsibility of the owner to maintain or maintain the premises.
    
8. State-Specific Rent Control Acts
   Other than central laws, Indian states have their own rent control acts for controlling the rental and lease agreements of commercial properties. Such laws are mainly undertaken to save tenants from any kind of exploitation because of the urbanizing cities. In most cases, state-specific rent control laws prescribe maximum rates of rent, procedures for increasing rent, and the protection of tenants from arbitrary eviction. Such legislations are, for instance, Delhi's in Delhi Rent Control Act, 1958, or the Maharashtra Rent Control Act, 1999 for Maharashtra, applicable to commercial leases. The Acts also provide alternative dispute resolution avenues for tenants against exorbitant rental increases and forced evictions without sufficient notice or cause.

The legal frameworks governing commercial leasing in India are quite complex and designed to strike a balance between the interests of landlords and tenants. With such laws as the Indian Contract Act, the Transfer of Property Act, RERA, and state-specific rent control regulations, both parties are assured of a fair and transparent process. These provide the much-needed legal support to every lease agreement and allow for resolving any disputes and other forms of exploitation and coercive practices in the commercial real estate market. For this reason, both landlords and tenants needed to develop an understanding of the laws governing commercial leasing, to protect their interests and comply with the law.

Registration Requirement for Lease Agreements in Light of the Provisions of Real Estate (Regulation and Development) Act

The legal battles unfolding today are revolving around whether these are further covered by the RERA or not. While the Act does define terms such as "apartment" and "building" (Section 2e and 2j) in a manner that includes commercial properties, such as offices, shops, and warehouses, some builders have found a way to circumvent their provisions by labeling their transaction as a lease, albeit it is actually selling properties upon completion.

Two Basic Attitudes Have Emerged Concerning This Question:

1. RERA for Sale Transactions Only: It is contended that the Act is meant to govern the sale of real estate projects and has no application to leasing transactions.
2. Long-Term Leases Should Fall Under RERA: The second school of thought is that long-term lease, such as 99-year leases, would amount to sales of property because tenants take hold of important rights over the property.

Lease versus Sale: The Legal Difference
A lease may be understood as the transfer of certain rights to enjoy an immovable property for a definite time, either express or implied, in consideration of a payment, which may consist of rent, service, or anything of value as per section 105 of the Transfer of Property Act, 1882. The Act describes a lease as a contract of conveyance that never confers title; hence, a lease is considered a lesser right in personal property.

On the other hand, sale as per section 54 of the Transfer of Property act is the transfer of ownership in the exchange of price paid or promised or part paid or promised. Thus is a complete transfer of property along with all the ancillary rights and not just the right of enjoyment of property.

However, with regards to the long term lease, the Madras High Court in the case Archaka Sundara Raju Dikshatutu v. Arehaka Seshadri Dikshatulu (1928) 54 MLJ 76, held that a lease for a long period (like 99 years) for a huge premium may be regarded as an alienation of the nature of a sale or mortgage. The court observed that the use of the word "lease" does not make the agreement a lease if it contains terms similar to a sale.

Judicial Precedents and RERA's Applicability:

In Lavasa Corporation Ltd. v. Jitendra Jagdish Tulsiani (2018 SCC Online Bom 2074), the Bombay High Court dealt with the question whether long-term leases could be covered under RERA. The court noted that RERA is meant to bring transparency and accountability into the real estate sector since the industry was unregulated.

The court noted that RERA aims at bringing transparency, consumer protection, and professionalism, especially for consumers and promoters in the real estate sector. It noted the registration requirement for real estate projects and obligations imposed on developers and real estate agents under Section 3 of the Act.

Though characterized as "lease agreements," the substance of these agreements, according to the court, closely resembled that of sale agreements, especially through the huge up-front payments, like 80%, and very long-term, 999 years, nature of the leases, which showed characteristics of a sale in nature.

The Bombay High Court denied the argument that these lease agreements, by their wording, were outside the purview of RERA. Relying on the Act's interpretation in a manner that coincided with its legislative intent of protecting consumers and ensuring timely completion of real estate projects, the Court cited Heydon's Rule of Suppression of Mischief by which the Act should be construed to further its remedial purposes, including the regulation of long-term lease transactions little different from sales.

The holistic interpretation of RERA provided by the judicial rulings, including the one rendered by the Bombay High Court, has taken into account the legislative intention and consumer protection. This interpretation allows certain long-term leases that run contrary to their express letter as compare to sale transactions, to bypass the provisions of RERA, thereby bringing about symmetry in real estate transactions and resulting in a situation in which the interests of stakeholders are properly protected.

Conclusion:
Ultimately, we conclude that the Indian commercial leasing landscape is changing under the combined influence of economic, regulatory, and market forces. Increasing urbanization, FDI, and the emergence of hybrid working models have skewed the size of the market towards leasing in a paradigmatic shift from ownership to leasing. Yet the complex, heavily regulated environment calls for a detailed understanding of the various laws and regulatory frameworks in India, including the Transfer of Property Act, RERA, and state rent control laws.

The RERA undoubtedly ushered in transparency and with it an element of protection to the consumer, but the actual extent of its application, especially when it comes to long-term leasing, is still out in the open for legal disputes. In this fast-evolving and growing commercial leasing market, everybody being a stakeholder should be kept in the loop to comply with the changing regulations, understand market fluctuations, and keep tabs on judicial precedents to best mitigate risks.

Thus, the future of commercial leasing in India looks bright, dotted with limitless opportunities for businesses, while at the same time posing challenges for companies to calibrate their course in light of increasing complexities and greater regulations.