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Realty Guide: Give on Lease - Commercial

 
 
 
BUDGETING
  • While budgeting for leasing a property it becomes necessary to understand various ways a lease transactions are structured. There are broadly three different structures for a lease transaction
  • Monthly Rentals : In such transaction a lessee needs to pay the rentals every month. Depending on the agreed terms the rent may be paid either in advance or and the end of respective month.
  • Deposit and Rentals : In this type lessee need to pay certain amount to the lessor as security deposit in addition to the monthly rent that one has to pay. The amount of deposit is generally calculated as multiples of rentals. In most of the cases the deposit amounts to 6 to 12 months rent. However the deposit amount would depend on the city and the location where the apartment is situated. As and when the lessee vacates the premises the deposit is refunded by the lessor.
  • Advance Rentals : The lessee pays upfront rent for the entire term.
The obvious question now would be, how does one get to know the prevailing rates of properties at different locations. It is possible to get a rough estimate of the rates prevailing through weeklies like the Accommodation times, other real estate journals.  The rentals are usually quoted per sq. ft per month. One need to first ascertain the area of the premises to be leased.

IDENTIFICATION OF PROPERTY

 
  • While locating a property, one has to consider whether that area has sufficient infrastructure (i.e. access roads, power, water supply, shopping areas, hospitals, bus stations, recreational facilities, etc.) to efficiently support that sectorial population.
  • Real Estate Agents could also be an alternative for identifying a property. However, caution needs to be exercised when it comes to selecting an agent.
VALUATION
 
  • Rental value of the premises is generally a function of capital value of the premises. Generally a lessor expects a returns of around 6% to 10% of the capital value of the premises. Thus to ascertain the rental value of premises one needs to find out the market rate in the locality.

    Some of these factors that would affect the valuation of a property are mentioned below –
  • Age of the building – As a normal market norm , new buildings would fetch higher rental values in comparison to older properties at a given location.
  • Upkeep & maintenance of building – The upkeep and maintenance of the building would determine the marketability and the prevailing market value of the premises in which the building is situated. Needless to say, better and fairly well maintained buildings would fetch a better rent.
  • Upkeep and condition of the premises – The condition and the internal maintenance of the premises would again play an important role in determining the rentals for the property.
  • Layout of premises – The layout of the premises in terms of optimum space utilisation in an efficient manner help the premises to score points. The number of toilets, vehicle parking spaces available with the premises would also play an important role in determining the rental value of the premises.
LEGALITIES
 
  • (Please note that the legal documents mentioned and described below are generally used documents. The description of these documents may not be a legally accurate description as the intention is to merely give an overview of the documents and hence it is suggested that one should approach a solicitor to verify the legalities. PMI undertakes no responsibility of determining the applicability of these documents in each case)

    The lessee needs to ensure that lessor has title of the property and also has obtained necessary permissions to lease the premises. Following documents can help lessee in that regard.
  • Society share certificate or equivalent – Lessee should verify the society share certificate in order to ensure that the lessor has the title to the property. This becomes necessary as in most of the transactions the lessee is expected to pay security deposit to the lessor.
  • Permission to lease from the society : The lessor needs to take permission from the society or the governing authority of the building. Also the lessee has to understand the terms and conditions under which such permission is granted.
LEASE AGREEMENT


On finalization of the terms the lessee and the lessor enter into a lease agreement. The agreement would list along with other terms, the term of lease, deposit amount and monthly rentals. It is also necessary to specify as to who would bear the monthly outgoings (i.e. society charges). In some of the cases there may be a separate agreement for the deposit amount.

TECHNICAL ASPECTS PERTAINING TO CONSTRUCTION

  • Condition of the premises: It would be important to inspect the premises especially for the leakage's in the premises if any. Usually in case there is any leakage he lessee should ensure that it is rectified or the permission for the same is obtained by the lessor. This would be necessary because it may be difficult to the lessee to obtain such permissions from the society.
  • Electrification of the premises: Electrification is another important aspect in the premises that needs to be checked. In case any improvements are required, it should be listed and immediately attended to. In case new circuit board is to be installed the necessary permissions need to be obtained.
POSSESSION
 
  • Taking possession of the premises would involve ensuring the following:
  • Inspect the premises thoroughly before taking possession
  • Take a letter from the seller confirming that the seller is handing over vacant and peaceful possession of the premises
  • Normally in lease transactions the lessor will keep one set of keys and handover the second set to the lessee
  • In case the premises is furnished, inspect and ensure good condition of the furnishings.
 
By vayaM CS