Real estate is simply a piece of land plus any natural or artificial (man-made) improvements that are attached or have been added.
Examples of natural attachments to the land include trees, valuable mineral deposits and oil – anything that would normally be considered part of the land. Artificial improvements include buildings, sidewalks and fences
Real property is a less commonly used term and less commonly understood concept. Real property includes real estate, and it adds a bundle of rights. A bundle of rights is comprised of five different rights of the property owner: the rights to possess, control, enjoy, exclude and dispose.
- Residential Property:
- For Personal Use
- Emotions Attached
- No Income is produced
- Residential Property includes Apartments, Bungalows, Row Houses, Villas, Condos and Farm Houses
- Commercial Property:
- Property which produces income
- One can buy, sell or lease for rate of return
- Commercial Property includes Office, Retail, Industrial, Leisure, Healthcare and Multi Family Apartment
Commercial Properties can be classified as:
1. Real Estate Broker: A person who has expertise in leasing or selling process of real estate. A good broker will not only help you find a good space, but also help you in all aspects of transaction
2.IOD (Intimation of Disapproval): IOD is a permission given by the local government authority to the developers/builder after which a developer/builder can apply for CC
3. CC (Commencement Certificate): The certificate from the concerned authority allowing the builder for commencement of construction of the property (after ensuring that all set criteria have been met) is referred to as the certificate of commencement.
4. OC (Occupancy Certificate): A certificate of occupancy is a document issued by a local government agency or building department certifying a building's compliance with applicable building codes and other laws, and indicating it to be in a condition suitable for occupancy
5. BCC (Building Completion Certificate): The final certificate issued by the local development authority certifying that all necessary works have been completed and that the property is fit for occupation
6. Lease Length:
1. Lease Term/Period: Lease period in India are mostly for three years.However, Tenant has the option to renew the term for 2 more terms of three years each.
2. Lock-in Period: Period during which a tenant guarantees to stay in the leased property in known as lock-in period. If the tenant vacates the leased property before the expiry of the lock-in period, tenant is liable and accountable to pay the rent amount for the remaining lock-in period. Lock-in Period Ranges from 2 years to 3 years
3. Notice Period: Either a tenant or a property owner or provider can give the other person notice to end a tenancy, or there are certain rules and timelines that must be followed. Notice Period should be given 2 months to 6 months before the lock-in period expires.
7. Space Measurement/Calculation:
- Carpet Area: The usable area of an office, shop, showroom or an apartment enclosed within the walls. It is the actual usable area to lay the carpet. The area of the walls or thickness of the walls is not counted while calculating the carpet area.
- Built-up Area: Built-up area is the carpet area plus thickness of the walls and area of balcony.
- Super Built-up Area: Super built-up area is the built up area plus proportionate area of common areas such as the lobby, lifts shaft, stairs, etc. The plinth area along with a share of all common areas proportionately divided amongst all unit owners makes up the super built-up area.
- Efficiency: Efficiency is the Net Usable Area equivalent to the carpet area. It is approximately 60% to 80% of the Super Built-up area
- Rent Quoted: Rent of a commercial property is quoted on carpet area or Built-up area per square foot per month in Indian Currency. The quoted rent usually excludes maintenance and other operating costs.
- Rent Payable: Rent is payable monthly in advance or at the end of the month depends on the mutual understanding of tenant and owner.
- Advance Rent: Tenant pays the advance rent. Advance rent varies from 0-6 months and it is adjustable over the period of lease term. It attracts stamp duty charges in some states of India; hence it is not very much preferred.
- Rent Free Period: Here, Tenant enjoys the rent free period from Owner of the property for interior or any other necessary work in the leased premises. It is usually 1 to 3 months.
- Rent Escalation Percentage: Rent Escalation percentage is ranges from 12% to 20% after every three years or 4% to 10% each year. It is also agreed on inflation rate.
9. Maintenance Costs
- Common area maintenance, sanitorial services, building security services, etc. are some of the maintenance charges that landlord charges from the tenant
- Maintenance charges can range from INR 5–15 per square foot per month, depending on the building type and on services offered, such as central air conditioning for premises, 100% power back-up, etc.
- Services Tax: The state charges a statutory services tax on all sale transactions and leases, because it treats them as services.
- Municipal Taxes: The landlord or tenant pays any increases, depending on their agreement. The costs of municipal taxes may or may not be included in the rent.
- The tenant usually pays the cost of electric consumption within its space.
12. Fit-Out Space may be delivered in any of these conditions:
Bare Shell: This is a simple, plain cement structure with chilled water lines and common electric connection. The tenant must carry out interior fit-outs, electrical and plumbing work. In Mumbai, New Delhi, and elsewhere, the landlord normally delivers new space as a bare shell. The tenant does the fit-out.
Warm Shell: This includes AC ducting, basic electrical wiring and plumbing. In a warm shell lease, the client may decide to do the fit-out or ask the developer to do it.
Semi-Furnished Space: This comes with false ceiling, flooring, and restrooms, and the tenant does the rest.
Fully Furnished Space: This is a plug-and-play facility ready for tenant to move-in.
13. Restoration: Providing the premises to its normal or original condition is restoration, subject to normal wear and tear.
14. Security Deposit and Guarantees
The tenant pays the lessor a security deposit, which is non-interest bearing and refundable upon termination of the lease agreement. The security deposit can range from 6–9 months’ rent regardless of the credit strength of the tenant. Security is negotiable along with rent and other business terms, and often exceeds the amount needed to protect against tenant default. To determine if the amount is reasonable, it is necessary to consider the terms of the entire agreement, in addition to the tenant’s creditworthiness.
Landlords use security deposits:
To cover the landlord’s costs if a tenant gives notice before landlord’s costs have been amortized. To protect the landlord against tenant default.
15. Car Parking
Tenants pay extra for parking in any business district. The standard ratio is one space per 1000 sq. ft. leased. Some developers provide one space per 700 sq. ft. Tenants may get extra space for parking at additional costs.16. TRANSACTION COSTS Agency Fees New Lease: The brokerage/commission or fee norm for real estate brokers in India is one to two month’s rent from the tenant and one to two month’s rent from the landlord, depends on the period of lease and is negotiable. When two different agents represent the tenant and the landlord, each broker typically receives brokerage from the party it represents.
Lease Renewal: A broker is generally involved at the time of renewal of the agreement.
Lease Termination: Generally, a broker is not involved. If a tenant uses a broker, the fee is negotiable.
Sublease: The sub landlord pays one month to its broker or to the tenant’s broker or to both, subject to negotiations.
Registration of Lease and Stamp Duty: A lease agreement exceeding 11 months must be registered. It is valid in a court of law only if it is registered and the stamp duty is duly paid on it. An unregistered lease document may expose a tenant to risk in the event of a dispute. The tenant pays the stamp duty and lease document registration charges. These charges vary from state to state in India.
India Generally: The range is 4–12% of the average annual rent.
16. OTHER LEASE PROVISIONS
A lease (of immovable property), as defined under Section 105 of Transfer of Property Act, 1882, is a transfer of a right to enjoy such property for a certain time or in perpetuity on consideration to be rendered periodically or on specified occasions.
Leave & License, as defined in Section 52 of the Indian Easement Act, 1882, creates no interest in the premises in favor of the licensee except the right to use and occupy the premises for a limited duration.
Letter of Intent: It is a written documents signed by both i.e. landlord and the tenant before the final contract/agreement is executed. It can be binding or non binding
17. Standard Lease Contract Standard leases are very rare. Contracts vary from one landlord to another because of different terms and conditions.
18. Right to Sublet Subleasing is rare and requires landlord approval. The original tenant is liable for rent payment to landlord.
19. Option to Expand It is usually negotiable.
20. Right of First Refusal
Right of first refusal (ROFR or RFR) is a contractual right that gives its holder the option to enter a business transaction with the owner of the property, according to specified terms, before the owner is entitled to enter into that transaction with a third party.
21. Holdover by Tenant
If a tenant exceeds use of the premises or occupies the premises after lease expiration without renewing the lease contract, the tenant is liable to pay the rent ranging from 2–5 times the rent just before expiration. The amount of penalty is mentioned in the lease contract.
22. Signage and Naming of Building A tenant leasing the space may get the right to affix signs, nameplates or advertisements inside and outside.
23. Office Building Classification There is no formal system to classify office commercial building, following terms are used informally:
Grade A Buildings: Grade A space is centrally air conditioned, with dedicated parking, security and common property management (also called common area management). Grade A buildings have large floor plates, big lobbies, air conditioning, professional facility management services and quality construction.
Grade B Buildings: These have fewer facilities than Grade A. Construction quality is also lower than Grade A buildings
Grade C Buildings: Grade C buildings have minimum facilities and services.
24. Property Types
1. Freehold Property:
In case of a freehold property (plot or flat), the owner’s right over the property is full and unconditional (within the provisions of the laws of the land). The title paramount (the President of India acting through the land-owning agency) has conveyed the property in favour of the purchaser by conveyance or sale deed. There are no restrictions on the rights of the latter to further sell and transfer the ownership of that property.
In case of a standalone property, the owner owns the property as well as the land on which it stands. In case of a multi-level property, land ownership is usually divided in proportion to the floor area of each owner. The ownership of a freehold property is transferred to another buyer through registration of sale deed.
2. Leasehold Property: Leasehold is a form of land tenure or property tenure where one party buys the right to occupy land or a building for a given length of time. As lease is a legal estate, leasehold estate can be bought and sold on the open market.
3. Power of Attorney (POA): A legal document transferring the legal right to the attorney or agent to manage the property or properties of an individual who is unable to do so themselves.
25. Market Types:
1.Central Business District (CBD): A central business district (CBD) is the commercial and business centre of a city. It is usually the center of the transportation networks and other necessary requirements.
2.Secondary Business District (SBD): The Secondary Business District (SBD) is one, which has been developed gradually over a period of time, with the growing of population within the city. An SBD is characterized by a good mix of retailers, office spaces, the stores are nearly smaller than those in the CBD and public transportation is sufficient