For most small businesses, the lease is the single largest financial commitment after inventory — and the document founders read least carefully. Landlord-drafted leases are written to protect the landlord. This guide covers the clauses that matter, what is negotiable in the Indian market, and the traps that surface only when you try to exit or renew.
Lock-in period: the clause that binds you
A lock-in means you must pay rent for that entire period even if you shut down. Landlords commonly ask for two to three years; for an unproven business that is dangerous. Negotiate the shortest lock-in you can — many landlords accept 11–12 months — or a staggered structure where the lock-in applies only to the first year. Never accept a lock-in longer than your realistic survival runway.
Rent escalation and renewal
- Standard escalation in India is 5% annually or 15% every three years — treat anything higher as negotiable
- Get a renewal option in writing: same premises, defined escalation, your right to renew
- Avoid "rent to be mutually decided at renewal" — that is no protection at all
- For longer commitments, ask for a rent-free fit-out period of 15–45 days; it is commonly granted
Security deposit: cap it and paper it
Deposits vary widely — commonly three to six months' rent in most cities, more in prime markets. Negotiate the number down and the terms tight: the deed should state the exact refund timeline after handover (30–60 days), permitted deductions, and interest if the landlord delays. Photograph the premises at possession and at exit; most deposit disputes are about "damages" that were pre-existing.
Registration and stamp duty
A lease for more than 11 months must be registered to be fully enforceable, with stamp duty varying by state. Many parties sign 11-month leave-and-licence agreements to avoid this — acceptable for small setups, but risky where you are investing heavily in fit-out, because an unregistered arrangement gives you weaker standing if the landlord resiles. If you are spending serious money on interiors, register a proper lease with a term that protects that investment.
Your interiors may cost more than a year's rent. The lease must give you a term (lock-in on the landlord's side) long enough to amortise that investment, plus the right to remove your fittings at exit.
Clauses founders forget to check
- Permitted use: the deed must state your actual activity — a "office use only" clause can block your trade licence or FSSAI application
- Signage rights, and who pays municipal signage tax
- Electricity load and the right to enhance it at your cost
- Subletting/assignment — vital if you may bring a partner or franchisee
- Landlord NOC for licences: bake into the deed that the landlord will sign NOCs required for your registrations
- Force majeure: rent relief when the premises are unusable
Exit: negotiate the divorce before the marriage
The exit clause decides how bad a failed location hurts. Negotiate a notice period of one to three months after lock-in, a clear handover condition ("broom-clean" rather than "original condition", which can be abused), and deposit refund tied to handover, not to the landlord finding a new tenant. If the landlord insists on a heavy lock-in, counter with a replacement-tenant clause: you may exit early if you produce a comparable tenant.
How Aidwish helps
Aidwish reviews and negotiates commercial leases as part of its site selection stage — verifying title and permitted use, benchmarking rent, tightening lock-in, deposit and exit clauses, and ensuring the deed supports every licence your business will need at that address.