Key Clauses Every Occupier Must Know in Indian Commercial Leases

Indian commercial lease agreements have evolved significantly over the past decade, driven by the professionalisation of landlords, the entry of institutional investors, and increasing occupier sophistication. But many corporate tenants — particularly those whose real estate decisions are managed by finance or administration teams rather than dedicated real estate professionals — still sign leases without fully understanding the implications of key clauses that can cost crores over the lease term.

The lock-in clause is the single most consequential provision in any Indian commercial lease. Lock-in periods — typically 3–5 years in a 5–9 year lease — prevent early termination and expose the tenant to significant financial liability if business circumstances change. In practice, the market standard varies significantly: in Grade-A parks in Bengaluru and Hyderabad, where landlords have market power, lock-in periods of 5 years in a 9-year lease are common. In secondary buildings or markets with higher vacancy, lock-in periods of 2–3 years in 5-year leases are achievable. Every lease should specify the lock-in exit penalty clearly — typically six months' rent — rather than leaving it ambiguous.

Escalation clauses determine how rent increases over the lease term. The Indian market standard is 15% escalation every 3 years — slightly above CPI inflation historically but considered acceptable by most occupiers. Tenants negotiating large leases should push for CPI-linked escalation or fixed percentage annual escalation (4–5% per annum) rather than lump 15% step-ups, which create significant cost spikes.

Common Area Maintenance (CAM) charges in Indian commercial leases are an area of frequent dispute. CAM — which covers the cost of maintaining common areas, security, lifts, and shared amenities — is typically charged at ₹15–₹40 per sq ft per month in Grade-A properties. Leases should specify exactly which costs are included in CAM, cap CAM escalation at a defined percentage per annum, and provide audit rights allowing the tenant to verify CAM calculations.

Sub-letting and assignment rights determine whether a tenant can transfer lease obligations to a third party — critical in M&A situations or if the occupier needs to rationalise space. Many Indian leases restrict sub-letting to affiliates only, which can significantly complicate corporate restructuring. Tenants should negotiate for broader sub-letting rights with landlord consent (not to be unreasonably withheld) from the outset.