A Brief Overview on Rental Agreement

Ashish M. Shaji

19 Nov, 2020

Introduction

If a person is planning to rent out a property or if someone is planning to let out a property on lease, then they must have an understanding of the rent agreement. A rental agreement is an important document containing the terms and conditions of the contract between the owner of the property and a person who is willing to have temporary possession of the property. It is highly recommended to have a legally binding contract like a rent agreement in order to secure one’s property-related rights and interests.  In this article, we shall have a basic understanding of rent agreement, its importance, and the essential inclusions in a rental agreement.

Meaning of Rental Agreement

A rent agreement is a legally binding in writing contract between the owner of the property called the Landlord and the person who desires to take possession of the property for a temporary period called the Tenant. The rent agreement lays down the terms and conditions upon which the property is given. The agreement has legal importance, and both the parties would be bind to the agreement once the document is signed. A rent agreement must be closely scrutinised and properly read before signing the document. The rules and the clauses in the document should be carefully read in order to avoid any future conflict.

The rental agreement identifies the parties to the contract, the property, the term, and the amount of rent. It is usually for a period of 11 months. The terms of the agreement are managed and regulated under the contract law. The reason for renting a property could be for various purposes like for residence, storage space, property for business purposes, or any other commercial purposes, government use, etc.

Importance of Rental Agreement

Many of us may have faced some kind of friction when we have either rented a property or taken a property on rent. It may sometimes affect the relationship between the parties. Therefore having a rental agreement beforehand can make things much simpler. A rent agreement is of prime value as it fosters the relationship between the landlord and the tenant, and most importantly, it protects the rights and interests of the parties. A rental agreement is beneficial to landlord in terms of protection to the property, and it is also vital for the tenant as it will protect the tenant from the unlawful demands of the landlord.

A rent agreement also plays the role of informing others regarding the ownership of the property. It is like legal evidence that can safeguard the landlord from future legal disputes. The owner of a property may require a legal document that protects him in case of a dispute from the other party, especially when dealing with a large asset like a house. One important thing to note while making a rental agreement is that one must not settle for an oral rent agreement because such an agreement is not bound by the law. Hence one must always look to insist on a written agreement.

What are the contents of a Rental Agreement?

Some of the common inclusions in a rent agreement are provided below:

• Occupants name

The name of the occupants of the agreement must be mentioned clearly in the rent agreement. It gives clarity regarding the person involved in the agreement and avoids any unnecessary issues.

• Term of the tenancy

The term of the tenancy is also a vital aspect of a rent agreement. It ensures that the person occupying the property vacates the place within the due time period or to prevent them from unlawfully taking possession of the property. Mentioning the duration of tenancy ensures that the landlord of a property doesn’t unlawfully force the tenants to vacate the place before the time period mentioned in the rent agreement. Therefore, it benefits both the landlord as well as the tenant.

• Rent Amount

The agreement should also mention the rent amount. The amount of the rent and the due date for payment must also be specified. It may also mention the grace period for making payments and penalties for late payment of the amount specified in the agreement. It will ensure that both the parties follow the stipulations expressed, and none of the parties try to make unlawful money demands.

• Details with respect to maintenance cost

The agreement should contain the details regarding the cost of maintenance during the tenancy period. The tenant or the landlord may bear the expenses related to the maintenance.

• Explicit permissions and restrictions

The agreement must lay down the access and the restrictions to the facilities on the premises. It must mention the details about the facilities that can be used by the tenant like the swimming pools, security system etc. Things like leasing and restrictions must be mentioned clearly.

• Termination of the agreement

The rental agreement should mention the methods of terminating the agreement before the expiry date or the term of the agreement. It may also contain charges for the same, if any.

• Security Deposit

The security deposit should be mentioned in the rental agreement, and it must be signed by both the parties, thereby assenting to the clauses specified in the agreement. In this way, both parties will be protected. The tenant will be protected from the unlawful financial demands of the landlord, and the landlord can be protected by way of security deposit in case the tenant leaves the property without paying off the rent amount. The details of the account where the security deposit is held should also be specified.

• Notice period and Renewal

The notice period and the renewal must be specified in the agreement along with the date, and it should be signed by both the parties.

• Details of the amenities

The agreement may contain the details of all amenities in the property, just be on the safe side. It may be mentioned with the conditions in order to prevent any financial loss or damage.

• Signature

The parties to the agreement must sign the rental agreement, in the end, stating that they accept all the clauses mentioned in the agreement failing which it may lead to legal action and penalties.

 The above-mentioned clauses must be included in every rent agreement. One must carefully go through the rent agreement before signing it. Both parties must be fully aware of the minutes of the document.

What are the rights of the parties involved in a Rental Agreement?

The parties to the agreement have certain rights that can be exercised by them during the continuation of the agreement. A tenant has the right to complete privacy within the rented area. The tenant has the right to reside in the property, and he or she cannot be removed unless there has been any contravention to the terms and conditions mentioned in the agreement. Apart from this, there are a few countries where the landlord must put the security deposit in a bank account and must provide the interest on such amount to the tenant.

The landlord or the owner of the property also has some rights, restraining the tenant from accessing certain premises of the property and can set out conditions for using loud music, smoke, etc. in the area. The landlord may or may not allow pets in his or her property.

Why are most Rental Agreements of 11 months?

You may have noted that most of the rent agreements are for 11 months period. Did you ever wonder why is it so? Sometimes even the landlord or the tenant may also not know the reason. The rent agreements are usually signed for 11 months to avoid stamp duty and other charges. The registration of the lease agreement is compulsory in case the leasing period is for more than 12 months, according to the Registration Act, 1908. Stamp duty and registration fee must be paid if an agreement is registered. So in order to avoid payment of such charges, most tenants and landlords agree mutually to not register the rent agreements. If one wants to register a lease, then, in that case, both the parties can agree to share the costs associated with it.

Points to note in a Rental Agreement

The following things must be kept a check on in a rent agreement:

• In case your rent agreement is not negotiable, then one must check a clause in the agreement that may have a lock-in period, which means that the tenant shall not be allowed to vacate the premises before the mentioned time period. It can be checked for in the agreement if you don’t want to get stuck.
• If a person wants to rent out his house further, then it is advised to check the subletting clause as every landlord may not allow for the same.
• A tenant must carefully read the clause mentioning the maintenance costs and other charges. This must be done to prevent the landlord from fooling the tenant to pay additional maintenance money.
• An agreement must be checked for the smallest detail, like the mode of payment and the rate of increase in the rent amount very carefully. It is the basic yet fundamental part of an agreement.
• The clause mentioning repair work to the property must be carefully read in order to avoid spending money on repair works.
• Another important aspect of a rent agreement is the verification of the tenant. Before a landlord rents out his property to a tenant, police verification must be conducted of the tenant in order to check the background of the tenant. It shall prevent any unlawful activity in the property. It is not only important to safeguard one’s property but also to ensure the safety of the neighbours. This is mandatory, and if proper verification is not conducted, then it may lead to criminal liabilities under relevant sections of the Indian Penal Code.

How is a Rent Agreement executed?

The following conditions are fulfilled in order to execute a rental agreement validly:

1. The legal document should be printed on a stamp paper of relevant value.
2. The agreement must be signed by both landlord and the tenant.
3. The document should be attested by two witnesses with their names and place of residence.
4. In case the duration of the agreement extends beyond 11 months, then the rent agreement must be registered at the office of the sub-registrar after paying the registration fee.

Rental Regulations

Laws on rent control have been passed by the Indian state Governments to deter the landlords from charging excessively from the tenants and also to safeguard them from sudden evictions. Various laws have been proposed by the government that will state a particular rent that would be charged by the landlords. To keep a check on arbitrary hikes, the state governments shall be empowered to put a cap on rent rates. Currently, the laws provide for the maximum rental rate and lays down the circumstances in which the tenant can be evicted. 

Conclusion