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A rental agreement is signed between the owner of a property and the tenant (an official contract) who desires to take short-term (for a said period) possession of the property. A Residential rental agreement contains necessary details of the residential property, which is also called a rent deed and lease deed. The features included are- the renter (or tenant), owner of the property, the term of the rental, and the amount of the rent for the said term.
Dos and don'ts while drafting a rental agreement.
- A rent agreement is a document that seals the arrangement between a landlord and the tenant and is a potent instrument that can be used and misused. “The rent agreement, if formalized properly, helps the landlord and the tenant, and results in a good healthy relationship between the two. However, it should be formalized with all the provisions and necessary laws.”
- Rent agreements in the country are often made on notarized stamp papers. While this document becomes a legal contract, there are chances of violation from either party. Thus, the lease agreement must be registered at the local sub-registrar’s office. In the absence of registration, it can be misused by either side. Moreover, the lease agreement should have sound clauses and provisions that protect the interests of both parties.
Important clauses for tenants
Provisions relating to your tenure of stay (tenancy period), the frequency and date of rent payments, the time of renewal of your lease, and the provisions for repair and maintenance, should be mentioned in the agreement. In addition to these, the roles and responsibilities of the tenant and the landlord should be defined. “It is advisable to take the property on rent, after all repairs and maintenance. One should also check the wiring and plumbing, before occupying the flat. This way, the tenant will safeguard himself from unnecessary expenses that may crop up in the future,”
In general, the development charges are paid by the tenant. Sharma, after paying the current and pending dues, got the amount deducted from the rent.
Security deposit: Rental agreements should also clearly state the amount/consideration paid as booking amount (or security deposit) and as advance, in the agreement. The amount and the time by which it will be refunded to the tenant should be specified in the rent agreement. The new draft Model Tenancy Act, 2019, which takes forward what had been proposed in the Draft Model Tenancy Act, 2015, focuses on putting a cap on the security deposits at two months’ rent for housing.
The mention of an arbitration clause is also equally important. If your landlord is providing a furnished flat, it is in your interest to list the items, furniture, or goods in the house. Any loss or repair needed can then be easily established towards the end of your tenancy.
Payment of bills and other charges: Further, it is important to mention in the rent agreement, the charges for maintenance, electricity, water, etc., and if there is a separate utility connection and the basis on which the tenant must pay the bill or if a fixed monthly amount must be paid.
Important clauses for landlords
A landlord’s biggest worry is that the property can be usurped or illegally occupied by an errant tenant. For this reason, the rental agreement should be registered.
It is also important to sign the agreement, in the presence of two known witnesses. Due to the worsening law and order situation in metros, the police often insist on the verification of tenants. Landlords can also ask for a copy of the employment letter from the tenants’ employer. However, this should not be a yardstick of anyone’s character. Landlords should insist on police verification, for tenants who are foreign nationals or those who are not natives of that city.
Revision of rent: The Model Tenancy Law specifies that landlords cannot increase the rent in the middle of the term. They need to provide a written notice, three months in advance, before revising the rent. They can increase the rent if they have borne expenses due to improvement, addition, or structural alteration that does not include ‘repairs.
Eviction of tenants: Under the Model Tenancy Law, landlords have the right to approach the rent court, asking for the eviction of tenants if they fail to pay the rent for two months in a row.
To discourage tenants from staying in the property after the expiry of the rental agreement, the Model Tenancy Law states that tenants will be liable for paying double the rent for two months and four times the rent in the subsequent months.
The termination clause in the rental agreement
A rental agreement should also include a clause allowing the tenant to terminate the agreement. It binds the tenant and the landlord, to do what is mentioned in the contract. That is, if the document mentions that a notice period of two months should be served, then, both parties must adhere to it.
List of fixtures
Fixtures are attachments with the house that have become a part of the immovable property owing to the nature of attachments. The landlord has the right to prohibit the tenant from using such fixtures and can shift to the court in case of any violation.
Restrictions on subletting the property.
Though it is the right of the tenant to sublet his rented property, this right can be limited or prohibited if there is any specific clause in the rent agreement. In such cases, the tenant is debarred from subletting the property.
How can tenants and landlords frame the agreement?
· In general, most lawyers who assist in framing the rent agreement, have a ready template. This does not mean that you cannot change the provisions. You can also tailor the agreement to suit your needs, with clauses that are mutually acceptable to the tenant and the landlord.
· The Draft Model Tenancy Act, 2015 aims at balancing the rights and obligations of landlords and tenants through rental contracts. The main objectives of this act include mutually fixing and revising the rent between the landlord and tenant, unlocking existing properties to rent out, and addressing repossession issues.
· Presently, rent agreements are registered at the sub-registrar’s office. To ensure transparency and fairness, the Model Tenancy Act, 2019 proposes the setting up of a rent authority. The landlord and the tenant can prepare a written rent agreement, after mutually discussing and agreeing upon the terms and conditions. They should approach the authority to get the agreement registered. The authority will update the details of the registered agreement on its website. On June 2, 2021, the union cabinet approved the Draft Model Tenancy law.
In how much time the Rental Agreement should be prepared?
According to Model Tenancy Act 2021, the rental agreement should be finalized between the landlord and the tenant, signed and registered with the Rent Authority within two months of the rental deal. In case of any dispute arising between the two parties, they can approach the Rent Authority and the rental agreement signed between them will be referred to for solving the dispute. The Model Tenancy Act 2021 will not only minimize the points of friction between the landlord and the tenant by way of a properly registered rental agreement but will also unlock the potential of the rental property armlet in India.
How to Execute a Valid Rental Agreement?
- According to the Registration Act of 1908, the registration of a rent agreement is mandatory if the duration of the rental agreement is more than 12 months. However, if the duration of the rental agreement is within 12 months or 11 months, there is no requirement to register the agreement. In such a case, drafting and signing the agreement on the stamp paper will be valid as per law.
- In case the agreement duration is within 12 months, the rental agreement needs to be printed on stamp paper obtained from the Sub-Registrar’s office of the place where the property is situated. After the rental agreement is printed on the stamp paper, each page of the stamp paper must be signed at the bottom by both the owner and tenant. Two witnesses must also sign the agreement along with their names and addresses to make the agreement valid.
- In case the agreement duration is 12 months or more, the rental agreement needs to be printed on stamp paper and it needs to be registered with the Sub-Registrar’s office of the area where the rented property is situated. The landlord and tenant must be present at the Sub-registrar’s office to execute the agreement. They must sign at the bottom of each page of the stamp paper on which the agreement is printed in the presence of the Registrar. Two witnesses must also sign the stamp paper and it should be registered after paying the required fees.
Documents Required for Registration of Rental Agreement
The documents that must be submitted by the landlord, tenant, and witnesses for registration of the rental agreement are as follows:
- The proof or evidence of ownership of the rented property (title deeds of the property having the name of the landlord)
- Property documents such as tax receipts of the property to be rented out.
- Passport-sized photographs of each of the parties and the witnesses
- Address proof of both parties and witnesses (Passport, Aadhar card, Ration card, Bank passbook, or driving license)
- Route map of the property to be rented out.
Traditional Stamp Papers
Procuring a non-judicial Stamp Paper would require you to find a licensed Stamp vendor to pay the duty for it. The contents of the deed and the details of executants are then written on to the document.
There are some disadvantages to using physical Stamp Paper, they are-
- The procedure to procure one can be time-consuming. Locating and approaching a licensed Stamp vendor can take quite a bit of time.
- Not all Stamp vendors will have stock of Stamp papers of all denominations. Some keep Stamp papers of very low value alone.
- The above two points often leave people with no choice but to approach non-licensed Stamp vendors which puts them at risk of purchasing counterfeit Stamp papers.
- E-Stamp Paper and Rental Agreements
- E-Stamping was the Indian Government’s solution to tackling counterfeit Stamp papers. In the early 2000s, the Indian Govt. appointed the Stock Holding Corporation of India Ltd (SHCIL) to implement and oversee e-Stamping operations. The SHCIL has also been given the duty of keeping a record of all e-Stamp papers issued in the country.
- If you wish to use e-Stamp paper for your rental agreements, the first thing you will need to do is verify whether your state facilitates this. This should be simple; all you need to do is log on to the website of SHCIL and check if your state is included in the list. As of now, the states that allow e-Stamping include Assam, Gujarat, Himachal Pradesh, Karnataka, Maharashtra, Delhi-NCR, Tamil Nadu, Uttarakhand, and Uttar Pradesh.
- To get a rental agreement printed on e-Stamp paper, you will first have to purchase an e-Stamp paper from allotted centers in your city (That is right, you cannot purchase them online from SHCIL or their distributors!). Once you have the e-Stamp paper, write/print your prepared rental deed on it, following which, the executants, namely the tenant and the proprietor, must place their signatures at designated places along with the signatures of two witnesses. This makes the contract, legally binding.
E-Stamp Paper and Rental Agreements
E-Stamping was the Indian Government’s solution to tackle counterfeit Stamp papers. In early 2000’s, the Indian Govt. appointed the Stock Holding Corporation of India Ltd (SHCIL) to implement and oversee e-Stamping operations. The SHCIL has also been given the duty of keeping record of all e-Stamp papers issued in the country.
If you wish to use e-Stamp paper for your rental agreements, the first thing you will need to do is verify whether your state facilitates this. This should be simple; all you need to do is log on to the website of SHCIL and check if your state is included in the list. As of now, the states that allow e-Stamping include Assam, Gujarat, Himachal Pradesh, Karnataka, Maharashtra, Delhi-NCR, Tamil Nadu, Uttarakhand, and Uttar Pradesh.
To get a rental agreement printed on e-Stamp paper, you will first have to purchase an e-Stamp paper from allotted centers in your city (That is right, you cannot purchase them online from SHCIL or their distributors!). Once you have the e-Stamp paper, write/print your prepared rental deed on it, following which, the executants, namely the tenant and the proprietor, must place their signatures at designated places along with the signatures of two witnesses. This makes the contract, legally binding.
How we can help?
Drafting and Reviewing: We can draft a rental agreement that protects the interests of both the landlord and the tenant, while ensuring compliance with relevant laws and regulations. We also review an existing agreement to identify any potential legal issues or loopholes that may need to be addressed.
Interpretation: We can help interpret the language of the rental agreement to ensure that both parties understand their rights and responsibilities under the agreement. We clarify any confusing or ambiguous terms and guide on how to handle disputes that may arise.
Mediation: If a dispute does arise between the landlord and tenant, we can help mediate the situation to reach a fair and mutually acceptable resolution. We also advise on the best course of action if the dispute cannot be resolved through mediation and legal action needs to be taken.
Compliance: we can ensure that the rental agreement complies with all relevant local, state, and federal laws and regulations. This includes ensuring that the agreement adheres to fair housing laws, rent control laws, and other relevant regulations.