When the Tenant Is a Foreign Company: Special Clauses Landlords Must Add in Agreements

There is an increase in the number of foreign and cross-border businesses leasing office, warehousing and R&D space in India recently. A foreign business tenant is a source of handy revenue - and legal trouble. Landlords that treat a commercial lease to a foreign company as a standard domestic tenancy may end up with compliance gaps, delays in enforcement, FEMA pitfalls, GST/TDS traps and challenges in recovering dues. This article lists the practical and lawful provisions that landlords ought to include (and provides sample wording), the reasons why each is important, and points you to the official regulations which you should check with your lawyer or tax consultant.

Quick Checklist Before Renting to a Foreign Company

Check the incorporation of the foreign company (certificate, MoA/AoA), tax residency and audited financials.

A board resolution/authority or notarised PoA that indicates that the individual who signed is doing it on behalf of the company can bind the company.

Confirm payment of rent in the form of overseas payment or by an Indian branch and also whether RBI/FEMA or local bank formalities are required.

1: Corporate Verification & Authorised Signatory Clause

Why: A foreign corporation is able to sign by means of a local representative that is not necessarily authorised. Documents also verify identity for KYC and AML.

What to ask for (documents): Certificate of incorporation, MoA/AoA, directors list, most recent annual report / audited financials, corporate KYC of authorised signatory (passport, address), board resolution or PoA authorising lease, tax residency certificate (if claiming treaty benefits).

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2: Currency of Payment, Route and FEMA / RBI Compliance Clause

Why: Cross-border payments may be the subject of FEMA/regulatory action and banks may demand purpose codes; inward remittances must be under RBI regulations and may require routing through authorised dealers. State the way the money will be received (INR to an Indian bank account versus foreign currency remittance) to eliminate payment disputes and compliance risk.

Key points to include:

• Rent should be payable in the Indian Rupees (INR) into a named Indian bank account unless parties specifically agree contrary and take any necessary approvals.
• Tenants have to pay any bank charges, conversion costs, taxes or delays on cross-border transfers.
• All regulatory approvals (where applicable) must be obtained by the tenant, and provide remittances receipts / SWIFT advices on demand.

3: GST & Indirect Tax Clause (commercial leases)

Why: Renting commercial property generally attracts GST (18%). New CBIC/GST announcements have demystified reverse charge and liability in certain situations; unregistered landlords and non-resident parties concern on registration and RCM. The question upon who pays GST and its representation in invoices should be agreed upon by landlords and tenants.

Practical drafting points:

• Indicate exclusivity or inclusiveness of rent with respect to GST.
• In case tenant is supposed to pay GST in a given circumstance under Reverse Charge Mechanism (RCM), write that and demand prompt payment and evidence.
• In case the tenant is non-resident taxable person (has no fixed place of business in India), he may still need registration obligations of GST-wise- registration- proof of registration/exemption documents.

Read More: Why Tenant Police Verification & Background Checks Are Essential

4: Security Deposit, Guarantees and Bank Guarantee Clause

Why: A foreign corporate tenant may be more difficult and expensive to recover dues. Quickly enforcing alternative options are provided by a Performance Bank Guarantee (PBG) or a parent/company guarantee. Foreign bank guarantees should be used with caution- RBI/FEMA regulations and local enforceability may arise as a complicated issue. Where possible, have an Indian bank guarantee or state that the foreign bank guarantee should be guaranteed by an Indian branch (or be supported by an Indian counter-guarantee).

Drafting checklist:

• Amount / form of security (INR deposit, escrow, PBG).
• Invocation process and claim period (explicit, short periods).
• Clause on stamp duty on guarantees (in order to make them enforceable).
• If accepting a foreign guarantee, then have the Tenant meet any RBI regularisation expenses, and obtain the prior written consent of the Landlord.

5: Use, Sub-letting and Change of Control Clause

Why: Foreign corporations usually reorganize, establish subsidiaries, or relocate. Prevent illegal sub-letting or transmission of the premises. Requirement of prior written consent before assignment, change of control or sub-leasing; have predetermined conditions to consent (credit worthiness, permitted use).

Read More: How to Make Rental Agreements Legally Stronger with Digital Contracts

6: Termination, Exit and Security of Interest Clause

Why: Early exit and cross border disagreements prove to be more difficult to redress. Determine explicit default occurrences, immediate termination conditions (non-payment, illegal use), and surrender and damages procedure. Make security retention to pay up outstanding amounts and expenses.

Sample clause highlights:

• Notice periods for default and opportunity to cure.
• Break fees or liquidated damages (pre-calculated formula).
• Reletting costs recovery and the right to re-enter.

7: Jurisdiction & Dispute Resolution (arbitration) clause

Why: Arbitration clauses are common, but the seat of arbitration matters. When the parties opt to arbitrate outside India it may be more complicated to enforce an award in India and receive interim relief. The Arbitration and Conciliation Act (Part I is applicable where the seat is in India) is the authority to oversee local arbitrations (a seat located in India is preferred by most landlords to make enforcement easier by Indian law).

Drafting options (pick one):

• Indian seat, Indian law: The Indian law governs this Agreement. Any conflict would be subject to arbitration in [city, India] as per the Arbitration and Conciliation Act, 1996 — simplest to enforce in the short term and to have provisional solutions.
• International seat: Be careful; it may be easier to enforce abroad, but interim enforcement in India may require additional steps.

8: Compliance and Local Permits Provision

Why: The tenant can conduct business which needs licences, or local municipal permission or pollution clearance or labour authorisation. Indemnify the landlord of any contraventions and make Tenant responsible for obtaining and maintaining all licences.

Read More: Understanding the Model Tenancy Act

9: Data, IP, Confidentiality & Local Representative Clause

Why: In case the tenant will operate R&D, personal or IP within the premises, including data protection, IP ownership, and a clause in which he/she must have a local authorised representative to accept notices and service. In the case of GDPR-style protections, mandate conformity to relevant data protection requirements and flowdown to vendors. (Write this with your counsel in case the tenant processes EU/other personal data).

10: Tax, Withholding and Accounting Clause (practical guidance)

Notable practical notes (tax matters are fact sensitive):

GST: Commercial rent: Typically 18% GST (tenant or the landlord is liable to GST based on registration / RCM). Registration requirements in case of a non-resident are found in CBIC guidance and GST portal.

TDS (Income Tax): Paying rent by an Indian resident entity/person can be taxable in terms of deduction of TDS under Section 194-I / provisions (rates and limits vary; refer to current Income-tax rules). When the payer is a foreign company (non-resident), the same rules do not necessarily work, cross-border tax and withholding depends on facts, tax residency and DTAAs. Obtain the advice of a chartered accountant for the specific fact pattern.

Practical Negotiation Tips for Landlords

• Indian security instruments (INR deposit, PBG of Indian bank, corporate guarantee of an Indian-domiciled parent) should be preferred to minimize FEMA/enforcement friction.
• Demand audited financials and bank references and take into consideration a third-party credit report or international KYC check.
• Restrict assignment rights and require your approval and of your landlord to examine the finances of the proposed assignee.
• Spell out invoicing requirements (tax invoices, GST numbers) and frequency of rent review (CPI/PLN formula).
• Require an Indian correspondent or local agent, who will receive service of process and obtain quick remedies.

Final Cautions & Next Steps

This article is a practical guidance, not a replacement of legal/tax advice. Cross-border leases are subject to tax, FEMA/RBI regulations and banking practices which alter - require a lawyer and a chartered accountant to be involved prior to finalising a lease.

The GoodTenent App can also facilitate the task of landlords by providing them with tenant background checks, dispute resolution, and digital agreement verification. It assists landlords with in-built compliance tools to rent out without fear even when the tenant is a foreign company.

Frequently Asked Questions (FAQs)

1. Can a foreign company rent property in India?

Ans: Yes. India allows foreign companies to lease commercial and residential properties in India on a condition they adhere to the Indian laws, FEMA laws and RBI guidelines. The registered Indian entity (subsidiary, branch or liaison office) should generally be in place so that the company can enter into enforceable agreements.

2. Can TDS apply to rent made by a foreign company?

Ans: Yes. Section 195 of the Income Tax Act, provides that foreign companies will deduct 30 percent Tax Deducted at Source (TDS) on rental income paid to landlords unless a lower/nil deduction certificate is issued by the Income Tax Department.

3. Is a RBI or FEMA approval required for a rental agreement with a foreign company?

Ans: Not for all cases. When the rent is paid in Indian Rupees to an Indian bank account, which is owned by the landlord, there is no approval normally needed. But in case the company intends to remit money in a foreign country, then it might require RBI and FEMA compliance and payments must go through authorised dealers in foreign exchange.

4. Do Rent Control Acts apply when leasing to a foreign company?

Ans: Mostly, Rent Control Acts do not affect the properties that are rented out to international or corporate tenants. This provides landlords with freedom in setting of rent, deposit, eviction and escalation terms.

5. Is it necessary to digitally stamp rental agreements with foreign companies starting from July 2025?

Ans: Yes. From July 1, 2025 all rental contracts, including those with foreign companies, should be digitally stamped. Failure to do so can lead to Rs 5,000 penalty and even create potential issues in enforceability.