Skip to main content

Long-term lease versus short-term ‘leave and licence’

Long-term lease versus short-term 'leave and licence' — a guide to renting out your commercial property

Investors in real estate, especially in commercial property, are always concerned about rentals. But there are a number of other factors they should look into.

To start with, they have to decide the period for which the property must be let out — a shorter term of three-five years or a longer duration of 20 years. "Most tenants prefer a short term lease. But some, such as banks, prefer longer duration terms," a real estate consultant says.

Determining the lease period is important, as this decides the legal protection you get. If the property is leased for up to five years, the agreement is termed as a 'leave and licence'.

Property experts say in case the tenant does not vacate the premises after the expiry of the term, he must pay you double the actual rent for any extra period. Also, you can approach the court and get an eviction order. Since the tenant is not protected by the Rent Control Act, he cannot contest the order. If he does not cooperate, you can approach the police and get the possession of your property within six months.

However, if the agreement period exceeds five years, it is termed as a 'lease'. In this case, the tenant is protected under the Rent Control Act. And, if he/she does not hand over the premises at the end of the term period, your only option is to seek a legal recourse. "You may face problems in getting back the property under a lease agreement. Legal proceedings are time-consuming and not feasible.

The stamp duty payable for registering your agreement would also be different in both circumstances. For instance, for a leave and licence agreement, it would depend on the sum of the annual rent and deposit.

The maximum duty payable will not exceed `50,000. In case of a lease agreement, it is linked to the market value (MV) of the property. So, for a five- to 10year lease, it would stand at 25 per cent of MV, and for a 10to 29-year lease, it would be as high as 50 per cent. "The difference in the stamp duty is quite large. Tenants prefer the leave and licence option as the duty is borne by them," says Mehta.

Legally, a short-term lease is amore viable option, but a long term lease comes with its own share of benefits. Tenants invest in the furniture and fittings of the place. They want to amortise these costs during the lease tenure. Therefore, a lease of say three years is not preferred.

For you, a long term lease will ensure your property does not stay vacant for even a day and you don't have to search for a new tenant after regular intervals. Also, a property with an ongoing lease is highly liquid. "The longer the lease, the better it is for a buyer. He can recover his/her capital faster," explains Mehta.

However, in such cases, the rent will be slightly lower than the market rate. Also, even after escalation (the revision in rent after a stipulated period), it may be lower than the existing rate.

Therefore, a middle path is advised. A nine-year lease with a lock-in of three years is the best. Just be sure to word it right. A lock-in is a period when the agreement is not revoked by either party. You can make a mention in the agreement that extensions will be effected through separate agreements after the lock-in. And, the stamp duty will be paid on the same. Or, make an agreement for three-five year period and sign a 'side letter' for the extension. The document is not legally binding, but it is a moral agreement between the two parties.

Tenure Advantages Disadvantages

Short-term (3-5 years) If tenant doesn't vacate premises after Process of searching for new tenant leave and licence term expiry, get property back in six can be cumbersome and costly agreement months by approaching authorities Stamp duty relatively lower, capped Can lose revenue if unable to find a at `50,000 tenant for longer durations Can plan to use property after Expensive to maintain vacant tenure ends property Long term Don't have to search for new tenants If tenant doesn't vacate premises (15-20 years) frequently after expiry of term, only option to lease agreement seek legal recourse No loss of revenue due to vacancy Stamp duty can be upto 50 per cent of property's market value Easy to sell off property with Rent lower than market rate ongoing lease

 

Popular posts from this blog

Axis Mutual Fund NFO - Axis Fixed Term Plan Series 18

Axis MF has announced that the NFO period of Axis Fixed Term Plan Series 18 (15 Months) under Axis Fixed Term Plan Series 17 19 has been preponded from February 27 to February 24.        --------------------------------------------- Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.   Invest Tax Saving Mutual Funds Online Tax Saving Mutual Funds Online These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)   Download Tax Saving Mutual Fund Application Forms from all AMCs Download Tax Saving Mutual Fund Applications   These Application Forms can be used for buying regular mutual funds also   Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds ) HDFC TaxSaver ICICI Prudential Tax Plan DSP BlackRock Tax Saver Fund Birla Sun Life Tax Relief '96 Reliance Tax Saver (ELSS) Fund IDFC Tax Advantage (ELSS) Fund SBI Magnum Tax Gain Schem...

Budget 2014 Highlights for Saving

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   The new finance minister Arun Jaitley has just presented his first budget. What measures does the budget contain that will specifically impact savers and investors? Here they are: 1. Housing loans exemption for self-occupied properties increased to Rs2 lakh: Earlier this amount was Rs1.5 lakhs. This move barely keeps pace with the inflation in asset values.   2. Investment limit under 80 (C) increased to Rs1.5 lakh: This is a good move again and offers some relief to taxpayers.   3. IT exemption increased to Rs2.5 lakh, Rs3 lakh for senior citizens. This comes as a minor relief for taxpayers.   4. Annual PPF ceiling to be enhanced to Rs1.5 lakh, from Rs1 lakh: This is in tune with the change in 80C.   5. Long term capital gains tax for debt funds has been rai...

Franklin India Taxshield

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   This fund maintains a quality portfolio of large-cap orientation. The fund manager adheres to a bottom-up investment approach and looks for companies whose current market price does not reflect future growth prospects. Investments are in companies that can drive future earnings growth. Stocks are selected based on the company's financial strength, management's expertise, growth potential within the industry, and the industry's growth potential.   The portfolio is well-diversified across sectors and market capitalisation and follows a blend of value and growth style of investing. The fund follows a predominantly large-cap allocation of over 70 per cent, with small-cap allocation never exceeding 10 per cent since inception.   Performance The fund doesn't dev...

ELSS Funds for different Risk Profile

Match your Goals Risk Profile With ELSS Investment   DIFFERENT TRACKS Unlike funds with a clearly defined investment universe -- large-cap, mid-cap or multi-cap - Tax Saving Schemes do not specify investment focus If you are looking for an equity Linked Savings Scheme (ELSS) to pare your tax burden, the plethora of options may confuse you. Many investors simply opt for ELSS funds , also called tax saving schemes with the best return over a certain time period. However, this may not yield the best results. There are several types of ELSS funds and it requires a nuanced approach to pick the right one. DIFFERENT RISK PROFILES Unlike funds with a clearly defined investment universe -- large-cap, midcap or even multi-cap schemes in the ELSS category do not specify their investment focus. While these schemes have the flexibility to invest anywhere, most tend to follow a defined template. For instance, some funds take a distinct large-cap tilt with a limited exposure to mid or small-cap st...

Reliance Tax Saver Fund Online

Invest in Reliance Tax Saver Fund Online   ----------------------------------------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saving Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in india for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Franklin India TaxShield 4. ICICI Prudential Long Term Equity Fund 5. IDFC Tax Advantage (ELSS) Fund 6. Birla Sun Life Tax Relief 96 7. DSP BlackRock Tax Saver Fund 8. Reliance Tax Saver (ELSS) Fund 9. Religare Tax Plan 10. Birla Sun Life Tax Plan Invest in Best Performing 2016 Tax Saver Mutual Funds Online Invest Online Download Application Forms For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call --------------------------------------------- Leave your comment with mail ID and we will answer them OR You can write to us at PrajnaCapital [at] Gmail [dot] Com OR Leave a mis...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now