UNLOCKING -L.i.P
- “LOCK – IN PERIOD” ( LiP ) is an expression often used by those dealings in Property It’s not part of a statue. The rental values of properties are high and so are the stakes, especially in commercial properties. So, what does it mean and what right does it secure ? Where does it fit in the legal framework.
- Generally, Leases, in Law , could be “month to month” “fixed term” or “perpetual leases”. The Law of Transfer of Property or any other law, does not define or explains away “Lock in Period ”. It is a nomenclature which has rather evolved by community of those dealing with business of property The need to have such concept has arisen from experiences in the property rental industry .
- A “lock in period ” in lease is typically understood as a “shorter fixed period” within the larger fixed period of It mandates a tenant to stay & pay for the rental property for a specified shorter period, even before expiry of fixed lease period.
- While the purpose of this clause is to secure rights of landlord and provide stability and predictability for both the landlord and the The question arises can lessee be burdened with the claim of rent for these periods and damages without being in use and occupation of the same.
- The concept can also be better understood with an illustration, where say ABC & Co enters into a Lease agreement on following terms :-
- Premises with, say a, Monthly rent of Rs 5 lac
- Fixed lease for period of 10
- Lock in period of 3
- Tenant proposes to walk out of premises during “lock in period” and vacates the premises after 1 year.
The Lessor obviously cannot physically force the Tenant to continue with the leaseIf dispute arises, all of that would be subject of outcome of process of adjudication. However where do the rights and obligations of the parties stand.
- While the “Lock-in” Clauses in lease agreements are understood and written down as if they are meant to be “non- determinable”. The expression “lock – in period ” as it may sound cannot make the contract “non- determinable” , howsoever strongly word it may be written .
- The issue is, what is it which follows if the Lessee breaches a “lock-in period ” clause of Obviously, the Lessee, who is choosing to walk out, cannot be forced to do. So the clause becomes meaningless so far as continuation of lease for “lock-in” period is concerned. Consequently, what survives is a claim of compensation/damages.
- The mandate under “lock in” to pay rent thus is enforceable only in the nature of a “ liquidated damages “.
Thus solution has to be found elsewhere than mere inclusion of “Lock-in “ protection clause.