In this article, Aishwarya Sujay Kantawala pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses the Major Legal Issues in Corporate Leasing.

Accommodation/Housing are one of the pressing issues in this decade. An increased growth in people has demonstrated the urgent need not for land but housing, wherein a large influx of the population has moved into urban or metropolitan areas for job prospects. Housing means to roof people which can be stretched to the definition of a business or enterprise. The cycle behind a higher population is that it demands more jobs, on such happening more investments occur in businesses, corporates and enterprises. These businesses, corporates and enterprises require SPACE i.e. physical area. Many start-up companies or large franchises cannot afford to invest high amount of money into real estate. Purchasing power is relatively stagnant and immovable property is a less appreciating asset, this has resulted in astronomical prices. Real estate has become a potent part of any business, where India is yet warming up to virtual entities and might take longer.

Simply, every business or enterprise, profession or consultancy requires an office space. A space depending on the nature of business, type and requirements. For instance, a lawyer’s office would need space for conferences, storage of papers, computers, reception, personal cabins, pantry, associate desks, files, etc. This office would require enough space to accommodate people as well as the enormous paperwork that comes with duty calls. On the other hand, a doctor’s clinic would require space for storage, medical checks, apparatus, medicines, equipment, records etc. Further, a business being a retail entity would mainly require less office space and more storage space. Hence, it would be easier to term any kind of space required for commercial and not personal purposes as commercial space. This essay will ponder about primarily corporate leasing of real estate/property, the major legal issues while corporate leasing, as well as an interesting angle to corporate leasing of movable property such as vehicles, machinery etc.

Firstly, it is important to understand corporate leasing from renting, borrowing etc. In common parlance, we initiate a leave and license agreement for tenants or as tenants when we rent immovable property residentially for a short period of time. The difference between leave and license and lease is that a license agreement results in no transfer of ownership or possession of the property to the licensee, whereas a lease agreement causes the lessee to have exclusive possession of the property. License agreements do not directly make an interest in favor of the licensees. Now, the amount payable for such leave and license is known as rent, the amount payable for lease is called as consideration/lease amount. In relation to corporate leasing, which is more of a commercial characteristic of letting property, it would be more efficacious for a lease agreement as one would have exclusive possession of the property instead of a leave and license. The general outlook for a lease period depends anytime between 12 months onwards. Although, commercial entities when leasing a space would rent for nothing less than 3 years as they would be functioning out of there, basing their commercial address, visiting cards, clientele, orders from that location. One must not forget that corporate leasing involves expenditure in interiors, maintenance as the premises has to be in accordance with the function it is being leased for. Hence, for shops they would require shelves, storage space, mirrors, vents, air conditioners, demonstration tables, changing rooms etc.  On research, I came across this company Jones Lang LaSalle which mentioned how corporate leasing is about long-term tenant relationships. This helps bring a deeper meaning as to the purpose of such kinds of transfers of immovable property.[1]

Shortly, one can term Corporate Leasing as the following

Corporate Leasing is a part of the rental industry, this kind of leasing could be commercial as well as residential. Corporate lease is also known as Commercial Lease, Commercial Lease Agreement, Business Lease and Industrial Lease. A Corporate lease is initiated by way of a Corporate Lease Agreement. This agreement is essentially a legal contract structured when renting immovable property to or from a corporate when renting business property. This could be residential or commercial. Further, corporate leasing also involves the lease of assets such as vehicles, machinery etc. A commercial lease would entail the owner/ landlord of the property also legally known as the lessor’s details and specifications and the lessee’s desire and purpose of such corporate leasing. Seldom, a lease would require a guarantor who would stand as a guarantee for such non-payment of the lease amount. The agreement also contains the lease amount payable, duration of the lease, any such information required at the discretion of the parties. Corporate leasing is often availed by companies to put a roof over their employees’ heads, especially when transferring from a hometown or previous location. This would save a major chunk on accommodation overheads in hotels, guest houses etc. The same ideology can be used for commuting individuals who spend weekends in different cities.[2]

On scuttling to the meaning of a lease, it is important to make it clear that commercial leasing of property is of immovable property as well as moveable property. It can be argued that, tangible as well as intangible property can be leased. However, for the sake of clarity, at the instant immovable property leases will be defined. The General Clauses Act, 1897 defines “immovable property” as shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth;[3]

Hence, land, building or apartment are immovable property. Leasing of this property in India requires the execution of a lease deed. Further, the person leasing the property has to be the true owner of such leased property. Lease can be defined as the transfer of interest, such interest in an immovable property. Such transfer of interest is subject to conditions set out and agreed upon between parties in a lease deed. The person leasing or giving the immovable property who is the owner or acting on behalf of the owner is known as lessor, he also receives the consideration amounting from such lease. The lessee is the individual who obtains possession of the immovable property and pays consideration to the lessor. The main factor between leases and other forms of renting or letting is that the former creates an interest in the property. [4]

At the instant, the premise of this essay deals with the major issues with corporate leasing in India. India as a huge republic and regional based laws conferred by the Indian Constitution lays down certain powers in Union Lists, State Lists and Concurrent Lists. Transfer of Property Act, is a Central Legislation, however, States have the power to enact provisions relating to Stamp duty, taxes, rents etc. Maharashtra has various laws such as The Maharashtra Rent Control Act, 1999[5], The Maharashtra Tenancy And Agricultural Lands Act, 1948[6], The Real Estate (Regulation And Development) Act, 2016[7] (RERA) etc. Now, why is it that many foreign or inter-state corporates are adversely repulsed to invest in property by way of leasing?

Further, I will be discussing Legal Issues as well as Non-Legal issues which contribute to setting back Corporate Leasing, reasons being  as follows-

1.Demand

The demand for immovable property outweighs its supply inevitably. Corporates look to invest in large commercial areas with a variety of facilities and maintainable conditions and are often struck by the overwhelming demand that already exists. Real estate in itself is and has become a competition due to the exponential demand for leasing. The investments in India are multiplying with our current flexible investment policies. This has illustrated the booming welcome to corporates from every curve of Earth to invest in India. Needless to say, every corporate needs adequate space to function especially close to its business operations or customers. Most businesses come to either of the metropolitan cities and generally have headquarters close to where financial intuitions are present and functional. A mainstream example of H&M and ZARA shopping companies which effectively only leased premises in the most congested and busy places in Mumbai such as Fort, Lower Parel and in Delhi. The core reason behind this is the demand generated by the public vis a vis the demand in property. On locking down leases here, it has become easier for the company to function. On the other hand, smaller enterprises which are not million-dollar capital backed companies cannot afford to lease premises in such highly demanded areas. Also, it is worth wondering why would a corporate lease in areas not in demand? They wouldn’t.

2. Expenditure

Real estate in Mumbai, Delhi, Bangalore, Chennai is extremely expensive. Being the hub of activity for business, manufacturing, services, tourism, professions etc. these cities are pressurized by the large influx of population and with it the demand of more branches of the company arises. Now real estate can be expensive especially when compared to the ready reckoner rate for the property wherein such property is expensive. This colludes a restraint in the minds of investors especially where capital and budgetary allowances are at a minimal. The expenditure incurred when leasing is astronomical. One of the main reasons is land or buildings or apartments to be leased commercially or otherwise will always be in commercial areas or the central business districts. For Example- In Fort, every bank from HSBC, Standard Chartered, HDFC, State Bank of India, Central Bank of India etc. have leased gigantic premises. This can be incurred by such entities however what about startups and small or micro business entities. They wouldn’t be able to afford a spot of this property. Now, it is often argued that investment of big entities is enough rather than concentrating on smaller shops/industries or businesses i.e. the business generated from these large corporates is more beneficial. At the end of the day, on viewing the spectrum of entities in India everybody corporate matters. Needn’t it be, that one can neglect smaller companies as they cannot afford such expensive corporate leasing.  Expenses, costs and such lease overheads are a huge impediment to corporate leasing in India.

3. Inter-State Legislation

The reasons will be discussed further on however, one primary issue is the inter-state legislations that stem as an immense challenge. The legality of leases in Maharashtra would be different from Delhi, Bangalore would be different from Chennai. Due to the lack of uniformity in inter-state legislations, body corporates are likely to be revolted and repelled from investing in India. A noteworthy point is that due to inter-state legislations and various jurisdictions vested in High Courts in India, in case of disputes the cause of action varies by location. This essentially results in a tug of war when litigation is initiated in any of the forums. Hence, there is lack of much clarity on where, which and how many legal forums are to be approached in case of a major deadlock or disagreement of a lease.

4. Stamp Duty

One of the major legal concerns of body corporates is the paying of stamp duty on leases. The stamp duty varies from place to place, time to time. Further, Stamp duty can be a very expensive phenomenon especially in Mumbai. Often, legal practitioners in the field of property or civil law are well aware of the procedural requirements of corporate leasing, this entails hiring of a property lawyer. Over and above, stamp duty is payable generally by the lessee of the property. In case of queries on stamp duty, an RTI (Right to Information) can be drafted to the appropriate authority which would in effective time share the details of the amount to be paid by the entity. This can indeed be a long-drawn process for body corporates who are on deadlines to commence business in India.

5. Political Instability

One can view this as a legal issue or otherwise, but political instability is one main reason for the lack of any investment in India. Now it is worthwhile to think that corporate leasing would be for a minimum of 36 months onwards, this being a long period of time is a huge risk entangled with legal obligations. In the event of any political instability, much less legal issues but more safety issues would be a priority. India due to its vibrant politics results in economic losses recurrently. No entity in its right mind would want to risk such instability in India where the environment can turn hostile and less efficacious. Now leasing can be highly affected due to this kind of patterns wherein legality would be rudimentary to the game of politics.

6. Forum Shopping

Litigation can be extremely commercial and marketable for practitioners who intern become con-artists. They often guide such big corporates to initiate proceedings in various forums unnecessarily. Forum-Shopping is a core legal issue for corporate leasing as this results in string being tied in litigation for long periods of time in various forums unnecessarily. A frivolous complaint can be filed in the Consumer Dispute Forum against the lessor or lessee, a complaint can be filed in the Debt Recovery Tribunal which would end up tying the assets of the lessor and the lessee being unaware of this non-debt free immoveable property would lose out on its heavily paid lease. This becomes highly inconvenient; besides one can never dig out current litigations against entities these days. It is easy to fool and be fooled.

7. Legislations

India has over 60 acts/statutes only dedicated to property by way of transfers such as rent, gift, lease, leave license etc. Now, for a body corporate to adhere to ample procedural ties and sustain in the market with the updating nature of legislations comes as a severe disinteresting enigma.

8. Registration

The duration requirement for a lease has to be for a bare minimum for 12 months onwards which upto 36 months requires registration. Now, this provides as a safety measure for many individuals who wouldn’t want to take up the precarious and tenacious and tedious procedure of registration. This requires photographs, affidavits, proof of citizenship if not a citizen then a letter from the government or consulate, in case of foreign body corporates the procedure is extremely complex and often foreign funds are under strict regulation of the Indian Government. Further, registration might require certain permissions from departments as well as witnesses. This ordeal for every lease agreement coupled with security checks serves as a major setback for corporate leasing procedures.

9. Fraud

Often, when a body corporate leases property it does so through brokers, agencies or based on word of mouth. Fraud occurs more often than one can imagine, everyday someone gets cheated for leasing property that either does NOT exist or that exists in descriptions appears different. Sometimes, people lease out property that does not belong to them or is owned otherwise by another individual. It is not uncommon to hear that there are multiple lessees for the same property i.e. cheating tenants. In such a case, institution of a suit is the only remedy where the body corporate would get tangled with various investigations etc.

10. Execution of Projects

Projects leased often take longer to execute than to negotiate, the reason being that generally the culture of execution is lax and laidback. This forms a chain of slipshod foundations wherein the execution is poor and time consuming wherein body corporates hard pressed on time lose interest.

11. Discrimination

Our Multi-cultural, Secular, Democratic country pays way too much heed to religious sentiments than moralistic values. In the process, discrimination is avid and prevalent. Often, attractive properties do not get leased due to various sentiments of people as they prefer body corporates owned, managed or run by favored castes. Yes, this is prevalent in India, vegetarians prefer leasing commercial as well as residential property to only vegetarians. The same for castes. This absurd phenomenon despicable as it is causes a major setback leading to outright discrimination towards corporates. Further, as no courts would like to intertwine in personal right issues, this major and most important legal hostility lie unnoticed and unsolved.

Movable Corporate Leases

According to the General Clauses Act, “Movable Property” shall mean property of every description, except immovable property.[8] Examples of movable property is vehicles, furniture, machines etc. Unlike the Western culture of leasing, Indians believe in buying new and avoiding second hand items. Concurrently, firms are looking at leasing moveable property such as vehicle, machinery and other assets. This offers as a more feasible option than to be flooded with outstanding dues, payments and nightmare generating EMIs. Consumers should have the flexibility to recycle their desires, and should be able to invest partially and generate on use. The mentality of ownership is disappearing and interest is rising. [9]

Also, people are making money steadily, revenue is being generated and companies require space. Space has to be created. A potential next United States of America, India is booming in IT, engineering, manufacturing, pharmaceutical, e-commerce, retail, research etc. This requires commercial space to grow and expand. Encouraging corporate leasing is important for functionality of the nation. Body corporates will always have been averse to purchasing property, leasing being the only option has to be thrived. And why should it only be that Multinational corporations should occupy the highest stake in the corporate leasing market. [10]

Bibliography 

1. “Agency Leasing.” JLL. N.p., n.d. Web. <http://www.jll.co.in/india/en-gb/services/investors-and-developers/agency-leasing>.
2. Schmidt, Diana. “Is Corporate Housing the Right Choice for Your Move?” The Spruce. N.p., n.d. Web. <https://www.thespruce.com/what-is-corporate-housing-2436015>.
3. General Clauses Act, 1897
4. “Leases – Understanding the Concepts.” Net Lawman. N.p., n.d. Web. <https://www.netlawman.co.in/ia/lease-understanding-concepts>.
5. The Maharashtra Rent Control Act, 1999
6. The Maharashtra Tenancy and Agricultural Lands Act, 1948
7. The Real Estate (Regulation and Development) Act, 2016
8. “Leasing for Corporate Customers at Sixt.” Corporate Leasing. N.p., n.d. Web. https://www.sixt-leasing.com/corporateleasing
9. Goyal, Malini. “How a Boom in Corporate Office Leasing Reflects India’s Solid Economic Base.” The Economic Times. Economic Times, 24 Jan. 2016. Web. <http://economictimes.indiatimes.com/news/company/corporate-trends/how-a-boom-in-corporate-office-leasing-reflects-indias-solid-economic-base/articleshow/50700291.cms>.

Citations

[1] http://www.jll.co.in/india/en-gb/services/investors-and-developers/agency-leasing

[2] https://www.thespruce.com/what-is-corporate-housing-2436015

[3] Section 3 (26) of The General Clauses Act, 1897

[4] https://www.netlawman.co.in/ia/lease-understanding-concepts

[5] The Maharashtra Rent Control Act, 1999

[6] The Maharashtra Tenancy And Agricultural Lands Act, 1948

[7] The Real Estate (Regulation and Development) Act, 2016

[8] Section 3 (36) of The General Clauses Act, 1897

[9] https://www.sixt-leasing.com/corporateleasing

[10]http://economictimes.indiatimes.com/news/company/corporate-trends/how-a-boom-in-corporate-office-leasing-reflects-indias-solid-economic-base/articleshow/50700291.cms