A rent agreement is an essential document in order to let out your property for a short period of time. It is important to have a signed rental agreement in order to ensure safety for both the owner of the property and the tenant. It gives the tenant the security of residing peacefully in the premises for a stipulated period of time and the owner has the assurance that the property will be taken care of and if there are any damages, the owner shall be duly compensated by the Tenant. It is a legally binding document on both the parties of the agreement. Rent agreements can be for either residential or commercial use.
Essentials of a Rent Agreement
A rent agreement is governed as per the Rent Control Act (Rules) of a particular state. For instance, the rental agreements in Delhi are governed the Delhi Rent Act of 1995. It lays down that a rent agreement needs to be registered as per the Transfer of Property Act, 1882. It has to contain the terms of the agreement in writing and presented to the Registration Officer.
There are certain elements that should be essentially mentioned in the Rental Agreement, which are as follows:
- The mutually agreed on terms of the agreement should be explicitly written and signed by both the parties.
- The rent needs to be affixed as per the Fair Market Rate and an owner cannot charge a tenant beyond this rate of rent.
- The rent agreement needs to contain the complete details of the owner along with address and contact details.
- It should contain the address of the property to be rented along the description of the property as a whole.
- It should contain the complete name, details and address of the tenant along with details of Identity Proof. The Identity Proof should be a government ID, i.e., PAN, Aadhar, Drivers License, Passport, etc.
- It should further state the duration of the rental period. The standard duration of the rental period will be 12 months which shall be extendable at the option of both the owner at the tenant.
- The Rent Agreement shall mention the rent payable for the duration of the contract and should include the increase in rent, if any.
- It should also include clauses for delayed payment, late charges or the grace period available for payment of rent.
- The owner of the property transfers physical possession of the property to the tenant. Such transfer of possession creates some duties for the tenant that include maintenance of the property (not to be confused with maintenance charges), electricity charges, water charges, IGL (gas) charges and/or any other expenses that occur during the pendency of the stay of the tenants.
- It is also the responsibility of the Owner to assure the premises are habitable and in consonance with fire safety regulations and/or any other regulations that are mandatory to comply with.
- The Owner shall also be responsible for House Tax or any other taxes that arise by way of ownership of immovable property.
- The mode of payment of rent as well as bank account details of the owner need to be explicitly mentioned in the Rental Agreement
- It is also an essential and standard ingredient of the rental agreement to include the amount of security to be deposited and the conditions for its return.
- The Agreement must include grounds for termination exercisable by both the parties.
- As per the Model Tenancy Laws which are yet to be notified, the maximum-security deposit will be capped at 2 months’ rent.
- The Rent Agreement shall enlist all the furnishings and facilities provided by the Owner.
- It is pertinent apart from the Rent Agreement to obtain a police verification to ensure the safety of both the Tenant and the Owner.
- An Owner can also add in a lock in clause that ensures that the Tenants cannot leave the rented premises before the expiry of the time agreed on in the rental period.
- The Rent Agreement can be terminated by giving one months’ advance notice by either party, i.e. the owner and the tenant.
- The most essential ingredient/clause of the Rent Agreement is the registration of the agreement to solidify the legal relationship between the Owner and the Tenant.
DIFFERENCE BETWEEN A RENTAL AGREEMENT AND A LEASE DEED
| Clause | Lease Deed | Rental Agreement |
| Meaning | This is a contract defined under Section 105 of the Transfer of Property Act, 1882. They are for a longer period of time. | This does not greatly differ from the Lease Deed in terms of features and clauses. They are for a shorter period of time. |
| Term | A standard lease is for a period of 11 months. | A rental agreement is usually on month to month basis. |
| Renewal | A lease is renewed with mutual consent and a new deed is registered to the same effect. | A rental is an automatic renewal on payment of monthly rent. |
| Terminology | A lease is entered into between Lessee and Lessor. | A rental agreement is between a Landlord and Tenant. |
| Maintenance | It is the responsibility of the Lessee to maintain the property. | It is the responsibility of the Tenant to maintain the property. |
| Tax | All taxes are payable by the Lessor. | All taxes are payable by the Landlord. |
| Amendments | No amendments can be made after the deed is signed. | Changes can be made anytime the Landlord chooses |
It is usually preferred to go in for a lease rather than a rental agreement because it offers the stability of rent for a period of 11 months and gives an option to the owner of a property to increase the rent by 10% upon expiry of the lease. Even prospective tenants prefer a lease since it does not lead to any fluctuations in rent during the pendency of the lease deed. It needs to be registered as per the mandates under the Registration Act.
Whereas, Section 17 of the Registration Act mandates the registration of a rental agreement of 11 months or more. These agreements are an important document for both parties involved in execution of such agreements. Therefore, having such a document in place not only protects the tenants from any overburdened liability, it also protects the rights of the owners to get regular payments in lieu of their property.
These agreements have made the process of rentals easier but there are miles to go, hence, the Government of India has notified the Draft Model Tenancy Laws, 2019 to lay down rules in terms of rentals with as much clarity as possible. It will lay proper guidelines for maximum rent, procedure and all other aspects that are blurred across all the present laws. It shall make the entire process seamless and reduce the amount of civil litigation arising out of rental disputes.
List of important documents for a rent agreement/ lease deed:
- Identity Proof of the Owner of the property
- Identity Proof of the Tenant/s
- List of fittings, furnishings of the property to be rented
- Passport Size Photographs
- Non-Judicial Stamp
- Police verification Form
Also Read: EVICTION–RIGHTS AND REMEDIES OF TENANTS AND HOMEOWNERS& THE COVID-19 SCENARIO