Types of Lease in Real Estate 2025

Real estate in India is one of the fastest-growing sectors, and the way people use or transfer property often depends on the legal structure of agreements. Understanding the different types of lease agreements available is crucial for both lessors and lessees.

One of the most common ways to give property rights without full ownership is through a lease.

This system is widely used for residential houses, office spaces, shops, industrial land, and even government properties.

In India, the law relating to leases mainly comes from the Transfer of Property Act 1882, and the Registration Act 1908, which governs registration procedures.

Two people are always involved in a lease: the lessee, who takes the property on lease, and the lessor, who owns the property.

What is a Lease?

A lease is a contractual contract in which the landowner (lessor) grants the lessee the right to use the land or structure for a predetermined amount of time in exchange for money.

This payment is generally called rent or ground rent. A lease creates a legal interest in the property for the lessee, which means the tenant enjoys stronger rights compared to a simple rental agreement.

The lease may be short-term or long-term. In many cases in India, leases extend for 30 years, 60 years, or even 99 years.

In government or institutional land allotments, 99-year leases are common because they give long-term security. At the end of the lease, the property usually returns to the lessor, unless both parties renew the agreement.

Difference Between Lease and Rent

Although people often use the words lease and rent interchangeably, they are not the same.

A lease usually runs for a longer duration, such as 12 months or more, while rent is normally for shorter terms like 11 months.

A lease gives the tenant a legal right in the property, while rent only allows temporary use without creating ownership-like rights.

In India, rental agreements are often signed for 11 months to avoid the requirement of registration, while leases longer than a year must be registered with the government.

Termination is also different. A lease cannot be ended before the term expires unless both parties agree or there is a violation of conditions.

Rent agreements, on the other hand, can be easily terminated by giving short notice.

This is why leases are common in commercial and large residential projects, while rental agreements are more popular for individuals seeking temporary housing.

Types of Lease in India

Different types of leases exist in India, and they vary depending on the purpose, duration, and conditions. Each type is explained below in simple terms.

Building Lease

A building lease is very common in India. Under this arrangement, the lessee is granted open ground by the lessor to build a structure.

The lease period often extends for 40 years, 60 years, or 99 years. Sometimes, the period is even longer, creating what is called a lease in perpetuity. The lessee pays ground rent to the lessor and earns income from the building.

At times, the lessor also charges a premium, which is an advance payment made at the beginning or renewal of the lease.

The lessee must return the building and the land to the lessor at the end of the lease term if it is not renewed.

Occupational Lease

An occupational lease covers both the structure and the land. Typically, its duration is shorter, like three, five, or 10 years. This lease usually has a provision for rent reviews and renewals.

They are common in residential flats or office spaces where tenants want flexibility but also need stability.

Sub-Lease

A sub-lease happens when the original lessee, who has taken property on lease from the lessor, leases it further to another person.

Every sublease has a shorter term than the primary lease. Although the original lessee may get increased rent from the sub-tenant, they are still accountable to the lessor.

Lease for Life

A life lease lasts till the lessee passes away. When the lessee passes away, the lease automatically ends. This type is rare today but still exists in some agricultural or traditional contexts.

Fixed-Term Lease

A fixed-term lease is granted for a specific duration such as three years, ten years, or more. The lease ends automatically once the period is over. Renewal requires agreement between both parties.

Periodic Lease

Month-to-month or year-to-year are examples of repeating periods for which a periodic lease is in effect. It continues automatically until either party decides to end it by giving notice.

Perpetual Lease

A perpetual lease continues indefinitely unless terminated due to breach of terms. It is often used by government authorities when they allot land, giving the lessee near-permanent rights.

Conditional Lease

A conditional lease places restrictions on the tenant. For example, the property may only be used for residential purposes, or sub-letting may not be allowed. If these conditions are violated, the lease can be cancelled.

Finance Lease

A finance lease works like financing. The tenant frequently has the opportunity to purchase the property in the end, and they pay almost the whole value in installments. Such leases are common in infrastructure projects.

Operating Lease

An operating lease is short-term and cancellable. It is common in office and co-working spaces. In this case, the landlord bears most of the risks and costs.

Gross Lease and Net Lease

Only rent is paid by the tenant under a gross lease; the landlord is responsible for maintenance, insurance, and taxes.

In a net lease, the tenant pays rent plus other expenses. Net leases can be single net, double net, or triple net, depending on how many costs the tenant covers.

Ground Lease

A ground lease is an arrangement where only land is leased, and the lessee is allowed to build on it.

The lessor receives both the building and the land back at the end of the lease. This type is often used for malls, hotels, and large commercial projects.

Short-Term Lease

Short-term leases usually last less than one year. They are popular among students, professionals, and families needing temporary accommodation. Most are not registered because of their short duration.

Key Terms and Conditions of a Lease

The value of a leasehold property and the rights of both lessor and lessee depend heavily on the terms of the lease deed. The deed specifies the lease period, the renewal clause, the rent amount, and how often rent may be revised.

It also specifies each party’s obligations. Lessees typically pay building taxes, insurance, and maintenance, while lessors pay land taxes.  The deed may grant or restrict the right to sublease or transfer leasehold rights.

Many government leases allow assignment of rights only by paying a premium, which is a share in the increase in land value.

Some deeds include a restrictive covenant that prevents the lessee from changing the use of land or altering the building. A vesting back clause is also common, ensuring that the land and sometimes the building return to the lessor when the lease ends.

These conditions not only define the relationship between landlord and tenant but also affect the financial value of the leasehold property.

Valuation of Leasehold Interests

A lease also has financial value, and it is divided between the lessor and the lessee. The right to reclaim the property after the lease and the rent receivable are included in the lessor’s interest.

The lessee’s interest comes from the net income earned after paying expenses and from the value of improvements made to the property.

For example, a lessor once leased land for 99 years at a rent of ₹1,000 per month, while the lessee built flats and earned ₹5,500 per month. After deducting expenses, the lessee’s net return was ₹27,600 a year. When valued, the lessor’s interest was about ₹1.71 lakh, and the lessee’s interest was ₹3.45 lakh. This shows how the leasehold value is shared between both parties.

Importance of Leases in India

Leases play a vital role in Indian real estate. They allow people and businesses to use land and buildings without buying them outright.

They also let governments and institutions control land use while promoting development. Long-term leases like 99-year leases provide security to individuals and companies and are often treated almost like ownership by banks when giving loans.

At the same time, leases create income for landlords and stability for tenants. For investors and banks, leasehold properties provide a strong financial base. In this way, leases balance the interests of owners and users and help the real estate sector grow.

Conclusion

Leases in India come in many forms, from short-term residential agreements to long-term ground leases of 99 years. Each type of lease has unique features, and the lease deed defines the rights, duties, and restrictions of both parties.

By understanding these arrangements, people can make better decisions, whether they are landlords, tenants, or investors.

In India’s expanding real estate market, a lease is more than a legal document. It is a tool that secures property rights, distributes financial value, and supports long-term development.

FAQ (Types of Lease)