The setting up of huge BPO and software development facilities in India is resulting in an unprecedented boom in the country’s real estate industry. These types of facilities require large space, often in excess of 100,000 square feet. This is also leading to a higher level of sophistication in commercial practices in the real estate industry in India.
Leasing out real estate in India is not necessarily easy. It requires some amount of sophistication to understand the numerous legal pitfalls and ambiguities in real estate law in India and the way it is practiced.
Understanding these issues is important for a company that wishes to protect its interests adequately while deriving maximum benefit from its real estate.
The first thing to understand is the local zoning regulations relating to usage of real estate. As a general rule, one cannot have a commercial operation in a residential area (though some states like Maharashtra, in an effort to attract investment, have permitted software operations to be set up in residential areas). This aspect of the law may not be followed strictly in some places. In Bangalore for instance, you have an area like Koramangala, where vast areas of land designated for residential purposes are used for software operations. It is rather confusing for a foreigner, who identifies a facility that appears to be perfect, is surrounded by commercial activity, was occupied by a reputable company, but the use of the land for software development is illegal.
For the tenant, the concerns are several. Firstly, the tenant may not want to do something that is not permitted by law. Secondly, the risks associated with doing this are difficult to evaluate. On one hand, the government may continue to turn a blind eye to all of this. On the other hand, it is possible that the government, concerned citizens through public interest litigation or a pro-active judge may sit up one day and take action. This leads to concerns over the stability and continuance of operations at that location.