Rent­ing a place? What’s a lock-in pe­riod?

A lease deed that can­not be ter­mi­nated for a spec­i­fied time pe­riod has its ad­van­tages

HT Estates - - Front Page - Su­nil Tyagi

Nu­mer­ous lease trans­ac­tions for both res­i­den­tial and com­mer­cial properties th­ese days have a lock-in pe­riod clause. This en­sures that nei­ther the owner (lessor) nor the lessee (lessee) is en­ti­tled to uni­lat­er­ally ter­mi­nate the lease be­fore ex­piry of the lock-in pe­riod, ex­cept in cer­tain spec­i­fied events. The du­ra­tion of the lock-in pe­riod can range from as lit­tle as one year to five years or more. For a lessor, the ad­van­tage of a lock-in pe­riod clause is that a steady in­come is as­sured from monthly rent for a def­i­nite pe­riod. He or she can, thus, make in­vest­ment plans. The lessee on his or her part can en­joy peace­ful pos­ses­sion of the premises for a def­i­nite pe­riod.

Now the ques­tion is, what hap­pens if the lessee wants to ter­mi­nate the lease dur­ing the lock-in pe­riod? Clauses in most lease deeds state that in case he ter­mi­nates the lease dur­ing the lock-in pe­riod the lessee shall be li­able to pay rent for the re­main­ing lock-in pe­riod. For in­stance, if a two-year lease is to be ter­mi­nated af­ter one year, the clause might stip­u­late that the lessee would be li­able to pay rent for the re­main­ing pe­riod. How­ever, sim­ply hav­ing such a clause does not make a lessee li­able to pay rent for the en­tire pe­riod. How much he or she pays de­pends on nu­mer­ous facts and cir­cum­stances unique to each case.

The fol­low­ing fac­tors can be taken into con­sid­er­a­tion for de­ter­min­ing whether the lessor’s de­mand for pay­ment of rent by lessee for the un­ex­pired lock-in pe­riod is jus­ti­fi­able and legally ten­able:

(i) Whether the lock-in pe­riod clause rep­re­sents gen­uine pre-es­ti­mate of dam­ages or it is in the na­ture of penalty has to be judged by the facts in each case and in the back­ground of rel­e­vant fac­tors which are case-spe­cific.

(ii) Whether the lessor had made the premises avail­able to the lessee as per the lessees’ unique re­quire­ments (for ex­am­ple, if lessor had in­curred ex­pen­di­ture on in­fra­struc­ture, fix­tures and fit­tings specif­i­cally for the lessee’s use). In such cases, court may eval­u­ate whether the lockin pe­riod was a rea­son­able clause to avoid du­pli­ca­tion of such ex­pen­di­ture.

(iii) Even if the lessee has ter­mi­nated the lease dur­ing lock-in pe­riod, the land­lord may have to prove that he took rea­son­able steps to min­imise the loss suf­fered by him. For ex­am­ple, if a lessee has ter­mi­nated the lease af­ter only one year of the lease, even though the lock-in pe­riod is for two years, the lessor might be re­quired to prove in court whether or not he had made all rea­son­able at­tempts to lease the premises to a new lessee as soon as pos­si­ble.

Par­ties to a lease must en­sure the lock-in pe­riod clause is drafted care­fully. They may in­cor­po­rate ex­cep­tional cir­cum­stances un­der which the lease may be ter­mi­nated validly by ei­ther party. How­ever, whether or not a lessor can claim rent from lessee for ter­mi­na­tion of lease dur­ing lock-in pe­riod may de­pend on the above fac­tors from case to case.

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