Two pre-leased properties can carry the same price, the same tenant brand and the same yield. One can still be a far weaker investment. The difference is often one line in the lease: how many years are actually left.
The short answer
When you buy a pre-leased property, you are buying the rest of the lease, not the lease as it was first signed. What matters is the residual lease term (years left until the lease ends) and, more importantly, the residual lock-in (months left during which the tenant cannot exit). The shorter these are, the sooner your income depends on a renewal or a new tenant, and the more that risk should show up in the price.
There is no single "right" number of years. A useful habit is to work out how much rent is contractually protected, then ask whether the price makes sense if the tenant leaves the day that protection ends.
Why it matters
A listing usually says "9-year lease" or "lock-in 3 years". Those are the original terms. If the lease was signed six years ago, a 9-year lease has three years left, and the lock-in may already be over.
Once the lock-in ends, the tenant can usually leave by giving the notice the lease allows. The rent is still being paid, so the yield on paper looks the same. But the income is no longer committed. It is continuing by choice.
Fact: large institutional landlords track this closely. India's listed office REITs report WALE (weighted average lease expiry) as a headline portfolio metric, because the remaining term of leases is part of what investors are paying for.
Three numbers to pull from the lease
Read the registered lease deed itself, not a summary. Then note:
- Lease start date and total term. This gives you the residual lease term.
- Lock-in period and its end date. This gives you the residual lock-in.
- Notice period and renewal terms. After lock-in, how much notice must the tenant give? Is renewal at the tenant's option, and at what rent?
From these, calculate one simple figure:
Protected rent = monthly rent × months of lock-in left (plus the notice period, if the tenant must serve notice before leaving).
This is the income the tenant has committed to. Everything after it depends on the tenant choosing to stay, or on you finding a new tenant.
If you want a second view on a lease you are reviewing, our team can walk through it with you.
Illustrative example
The figures below are illustrative only. They do not describe any real property or transaction.
Two shops are offered at ₹8 crore each. Both have the same tenant brand and pay ₹4,50,000 a month. Both show a gross yield of 6.75%.
| Shop A | Shop B | |
|---|---|---|
| Original lease | 9 years, 3-year lock-in | 9 years, 3-year lock-in |
| Years already run | 1 | 7.5 |
| Residual lease term | 8 years | 1.5 years |
| Residual lock-in | 24 months | None |
| Protected rent (rent × lock-in months left) | ₹1.08 crore | ₹0 |
| Protected rent as % of price | 13.5% | 0% |
Same price. Same yield. Very different risk. With Shop B, the tenant could serve notice soon after you buy. If the shop then sat empty for six months, you would lose ₹27 lakh of rent, about 3.4% of the price, before counting brokerage, fit-out support or a lower rent from the next tenant.
Shop B is not automatically a bad buy. A short residual term can also be a chance to re-lease at a higher rent. But that is a different investment, and it should be priced as one.
How we look at it (the VRX lens)
Opinion: yield is not the investment thesis. Residual tenure sits inside the "lease" and "cash flow" parts of the full picture: tenant, lease, cash flow, asset, location, price and exit.
At VRX Capital, we usually read the lease dates before we look at the yield. A mistake we often see is an investor comparing two properties on yield alone, when one has years of committed rent left and the other is close to its renewal window.
A short residual term also affects your exit. A buyer five years from now will ask the same question you are asking today.
Common mistakes
- Treating the original lease term as the remaining term.
- Assuming a lock-in is still running without checking its end date.
- Ignoring the notice period that applies after lock-in.
- Paying a full "pre-leased" price for a property close to lease expiry.
- Not asking whether the tenant has signalled renewal or exit.
- Forgetting that escalations only help you for the years that are actually left.
Checklist before you commit
- Registered lease deed in hand, with start date and total term
- Lock-in end date written down
- Notice period and renewal terms read
- Protected rent calculated in rupees and as a % of price
- A view on what happens if the tenant leaves when lock-in ends: likely vacancy, re-leasing cost and new rent
- Price checked against that downside, not only against the current yield
- Any lease amendments or side letters reviewed
Lease terms, notice and renewal rights depend on the exact wording of each lease. Please verify how they apply to a specific property with a qualified lawyer.
FAQ
What is residual lease term?
It is the time left from today until the lease ends. If a 9-year lease started four years ago, the residual lease term is five years.
Is residual lease term the same as lock-in?
No. The lock-in is the part of the lease during which the tenant cannot exit. A lease can have several years left while its lock-in has already ended. The residual lock-in is usually the more important number, because it is the committed part of the income.
How many years should be left on a lease when I buy?
There is no fixed rule. Instead of a cut-off, calculate the protected rent and ask whether the price still works if the tenant leaves when the lock-in ends. A short residual term can be acceptable if the price reflects it.
Does a short residual lease mean the tenant will leave?
Not necessarily. Many tenants renew. But renewal is the tenant's decision, and renewal rent may be different. Treat it as a possibility, not a certainty.
Does the lease continue after I buy the property?
Generally, a sale does not end an existing lease, and the buyer steps into the landlord's position. The exact position depends on the lease and the sale documents, so confirm it with your lawyer. Read more on lock-in periods and what happens when a tenant vacates.
Talk to VRX Capital
Before you compare yields, compare what is left on each lease. If you are weighing a pre-leased property and want an independent read of its lease dates, lock-in and protected rent, we are happy to help. You can also see current listings or visit our investor page.
Call / WhatsApp: +91 9315368515 · Contact us
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