Watch the Video:
Business Conducting Agreements – Are they recommended for commercial restaurant property rental deals? My answer is probably no.
In several cases, it has been observed that the owner of the commercial property and operator of a restaurant tend to enter into business conducting agreements, which may be for three years, five years or even more. Such agreements tend to style the restaurant venture as a joint business venture or a restaurant food venture without even registering the same.
Such agreements tend to run afoul of the law because in pith and substance they are a basically an unregistered ‘leave and license’ agreement which the law does not recognize unless it is registered. Any agreement or instrument or document which purports to transfer any interest in immovable property for 12 months or more must be registered under Section 17 of the Registration Act, 1908. If left unregistered, it will not be receivable as evidence in a court of law.
Therefore, if a business conducting agreement, which is essentially a leave and the license, is signed between a property owner and restaurant operator and it is not registered then the parties may not be able to claim rights in the agreement. If a dispute arises and the landlord wants to evict the restaurant tenant, he will face extreme difficulty because his agreement will not be receivable in evidence. Therefore, it is extremely important that owners of properties avoid entering into unregistered business conducting agreements and instead simply execute a registered leave and license contract by which premises can be let out to a restaurant for the purpose of the operation.
Furthermore, in business conducting agreements property owners and restaurant operators tend to be joint applicants for license and permits.
This is a slightly risky proposition for property owners because tomorrow in case of fire breaks out or any incident happens, then even the property owners can be held liable or for that matter be held personally liable for any loss which may be occasioned to the people going there.
Therefore, in a good leave and license contract for a restaurant, the onus for obtaining statutory approvals and permits must rest with the restaurant operators; while the landlord or the owner should simply let out the premises, take the rent and when the period expires to take the premises back. This will ensure a clear division of rights and responsibilities with the parties and will reduce the possibility of disputes and litigation in the future.