Lease Rental Discounting

Facility size	₹20–150 crore
Funding	75–90% of the present value of lease rentals
Tenor	Typically matched to the lease, often 9–15 years
Indicative pricing	9.5–12.5% p.a. Processing fees 0.5–2%. Indicative market ranges, July 2026.
Lenders	Banks primarily; NBFCs for non-standard cases such as shorter leases, unrated tenants, or partly leased assets
Security	Mortgage of the property plus escrow of rent, with the lease assigned to the lender
Repayment	Serviced directly from rent through an escrow account
Timeline	Market standard is 4–12 weeks. Clean mandates have moved from first conversation to disbursement in as little as 2–10 days.

Why LRD is usually the cheapest large-ticket money a property owner can raise

Every loan is priced against the risk of the repayment source. In a normal term loan or loan against property, that source is your business: lenders underwrite revenue, margins, and the possibility that both fall. In lease rental discounting, the repayment source is a signed lease with a creditworthy tenant, and the money never passes through your operating account. Rent lands in an escrow, the instalment is deducted, the balance flows to you.

That structure removes two things lenders charge for. The first is performance risk — the loan is serviced whether or not your business has a good year. The second is diversion risk — the escrow makes it mechanically difficult for rent to be used elsewhere. What remains is tenant credit risk and re-leasing risk, both of which are visible and can be documented.

The result is pricing closer to the bank's benchmark than to unsecured or business-cash-flow debt, and a repayment profile that is self-liquidating: the facility amortises over the lease, funded by the lease. A grade-A office asset leased to a listed or multinational tenant on a ten-year lease with a lock-in is one of the most bankable pieces of collateral in the Indian market.

It also releases capital without selling. Owners commonly use LRD to fund a new project, retire costlier debt, buy out a partner, or free up equity locked in a completed, leased asset — which is why developers often pair it with construction finance on the next project.

What lenders look at

Sizing follows the rent stream, not the market value of the building. These are the variables that move both the amount and the rate.

• Tenant credit quality. Multinational, listed, and large domestic corporate tenants price best. A single unrated tenant, or a tenant in a stressed sector, tightens both the loan-to-value and the rate.
• Remaining lease term and lock-in. Lenders discount only the rent they can rely on. A long residual term with a hard lock-in is worth materially more than the same rent on a lease about to expire.
• Rent escalation clauses. Contracted escalations, typically 5% a year or 15% every three years, are usually built into the cash flow the lender discounts, and can increase the facility.
• A registered lease deed. Unregistered agreements and informal arrangements are the most common reason a good asset cannot be funded. Registration and stamping must be in order.
• Property title and approvals. A clean title chain, sanctioned plan, and land-use approvals, supported by a legal search report and a valuation from the lender's empanelled valuer.
• Occupancy certificate. Lenders want the completed-and-approved status confirmed. Its absence pushes the deal towards NBFCs and structured lenders.
• Existing charges. Any current mortgage, construction loan, or lien on the asset, and whether the incoming lender takes an exclusive first charge on disbursement.
• Rent receipt history. Twelve months of rent credited into a bank account, matching the lease, with TDS and GST consistent with what the lease says.

LRD vs loan against property

Both are secured by the same asset, and owners of leased property can usually raise either. The honest difference is what the lender is underwriting and what you give up in flexibility.

Point	Lease rental discounting	Loan against property
What is underwritten	The lease and the tenant's credit	The property value and your business cash flows
Sizing	75–90% of the present value of lease rentals	Typically 55–75% of market value
Indicative pricing	9.5–12.5% p.a.	Higher, and wider, depending on lender and profile
Repayment	Self-liquidating from rent through an escrow	From your own cash flows
Tenor	Tied to the lease, often 9–15 years	Typically 10–15 years, not tied to a tenant
End use	Usually specified and monitored	More flexible
Needs a tenant	Yes, and tenant quality drives the terms	No

In practice: if the asset is leased to a strong tenant on a long lease, LRD is cheaper and cleaner. If the property is vacant, self-occupied, partly leased to weaker tenants, or if you need genuinely unrestricted end use, loan against property is the better instrument. Some owners run both — LRD against the leased floors, LAP against the rest. It is worth pricing both before committing, since the gap over a ten-year facility is usually larger than any difference in processing fees.

Documents you will need

Files that are complete on day one close in a fraction of the time. Two sets are needed: the property and lease file, and the standard borrower file.

• Registered lease deed or leave-and-licence agreement, with all amendments and the escalation schedule
• Rent receipts and twelve months of bank credits showing rent actually received
• Tenant details, and the tenant's financials or credit rating where available
• Title deed chain and prior conveyance documents
• Occupancy certificate
• Approved building plan and land-use or change-of-land-use approvals
• Property tax receipts, maintenance and society records, and utility bills
• Existing sanction letters, statements, and foreclosure or no-objection letters where the property is already mortgaged
• Company financials: audited accounts for three years, current-year provisionals, income tax returns, GST returns for twelve months, and bank statements for twelve months
• KYC of the company, promoters, and any co-owners of the property

Where the property sits in an SPV or a partnership, add the constitutional documents, shareholding pattern, and board or partner resolutions authorising the borrowing.

How the process works

1. Assessment. A short conversation on the asset, the lease, the tenant, and what you are raising money for. We tell you what the rent stream will realistically support, through which lender pool, at what pricing — before any file is submitted.
2. File preparation. The lease, title, and financial documents are assembled into one lender-ready package, with the rent cash flow modelled over the residual lease term. Gaps are fixed here, not after a lender has raised a query.
3. Lender process. The file goes to a matched set of banks and NBFCs in parallel rather than one after another. Competing term sheets are what move rate, loan-to-value, and covenants; we compare them on total cost, not headline rate.
4. Sanction and diligence. The chosen lender issues a sanction letter, then runs legal search, technical valuation, and personal discussion. Conditions precedent are negotiated at this stage, when there is still leverage.
5. Escrow, security, and disbursement. The mortgage is created, the lease is assigned, and an escrow account is opened with the tenant instructed to credit rent into it. Any existing loan is repaid and its charge released. Disbursement follows, and the first instalment is serviced out of the escrow.

Common questions

Can I do LRD if the property already has a loan?

Yes. Most large LRD transactions in India are takeovers. The new lender repays the existing loan, releases the old charge, and sanctions a fresh facility against the same rent stream — often with a top-up if the rent supports more than the outstanding amount. The existing lender issues a foreclosure letter and list of documents, and the charge transfers on disbursement. Check prepayment charges on the old facility before starting.

What happens if the tenant leaves?

Lenders build for it rather than assume it away. Protection usually comes from a lock-in period in the lease, a debt service reserve of one to three months of instalments held in escrow, and a covenant requiring the property to be re-leased within a defined window. If rent stops, you service the loan from other sources until a new tenant is in place. Re-leasing risk is priced into the rate and into how much of the rent stream a lender will fund.

Can I raise LRD on a partly leased building?

Yes. Lenders fund against the leased portion and ignore vacant floors for sizing, though the whole property is usually mortgaged. As floors are leased, the facility can be enhanced against the additional rent, so it is worth structuring the first sanction with an enhancement clause. Some lenders will also consider a loan against property on the vacant area alongside the LRD, priced higher.

Rent pe loan kaise milta hai?

Agar aapki commercial property kisi acche tenant ko rent pe di hai, toh us future rent ke against loan milta hai — ise Lease Rental Discounting kehte hain. Lender lease ki baaki period ka rent dekhta hai aur uski present value ka 75–90% tak fund karta hai. Rent seedha escrow account mein aata hai aur wahin se instalment kat-ti hai. Registered lease deed, 12 mahine ke rent credits, title papers aur occupancy certificate zaroori hain. Indicative rate 9.5–12.5% p.a.

More on sizing, timelines, and what advisories charge is in the FAQ. If a bank has already declined the file, the reason usually points to a different lender pool rather than a dead end — see what to do after a bank rejection.

Pacewell Capital is a debt advisory and arranger, not a lender. All loans and facilities described here are provided by RBI-regulated banks, NBFCs, and funds, subject to their own credit approval, diligence, and documentation. Interest rates, loan-to-value ratios, and timelines stated on this page are indicative market ranges as of July 2026 and are not offers or commitments.