In this blogpost, Haridya Iyenger, Student, Jindal Global Law School, Haryana writes about what is a lease agreement and what are the essential clauses of a lease agreement.

If not handled properly giving a house on rent could become a big problem. This problem can be avoided through rental agreements which is a common practice in the Western world but, surprisingly still not widely used in India.

 Why do we need a Written Lease Agreement?

 A written rental agreement is very vital in the modern age. It serves as a safeguard for both the lessor and lessee. The agreement is an important piece of evidence establishing the lessor as the owner of the property. On the other hand, it gives the lessee protection from unlawful financial demands. It also prevents lessee exclusive possession of the property for the term mentioned in the contract. In a scenario where the landlord is not taking any security deposit as advance, it prevents the tenant from claiming unlawful reimbursement.

 Difference between a Lease and a License

People get confused between a lease and license. To differentiate whether a document is a lease or license the following facts must be checked:

Lease

License

–  A Lessee has exclusive possession he can transfer his interest/right in property. – A Lease is transferable and heritable. Unless specified in the contract a sub-tenancy may be created. – Unless specified in the contract death does not terminate the lease. –   A lessee’s interest is protected even if the property is sold during his lease agreement. The prior interest holds. –   Alteration may be made to the property if allowed.

– No transfer of interest is possible in a license. A license only gives permission to either do or not do a certain act. –  Interest cannot be transferred, inherited or sub created in favour of another person. – The owner may terminate a license whenever he pleases. It is automatically terminated after the death of the licensee. – No right against a third party, even if the property has been damaged. The contract has to be renewed if the property is sold. – No alteration may be made unless it is a license to construct.

What should be Included in a Rental Agreement?

A rental agreement in India typically consists of the following:

1)     Full-Length Name

Mentioning the names of all the occupants is beneficial to both the lessor and the lessee. This can help the lessor to keep a track of the numbers and names of people staying in the property. On the other hand, it can help the lessees divide the responsibilities among themselves so that the group can be held collectively responsible. This also helps prevent sudden vacating of property by one of the lessee leaving the other solely responsible for the payment.

2)     Duration of Tenancy

The start and end date of the tenancy is mentioned here. This will ensure that the tenant does not stay longer than, the end date and the landlord does not vacate him before the end date.

3)     Rental Amount

The rental amount and payment procedures are mentioned here. The amount collected each month, date at which the rent is to be paid, penalty clause for any late payment, etc. This will ensure that neither party tries to claim unlawful financial demands and stick to the stipulations stated in the agreement.

4)     Maintenance

This section mentions maintenance amount paid by the tenant to the society. The recipient of the maintenance amount must be mentioned here. All extra charges such as major and minor repairs must also be mentioned here. The agreement should also ensure escalation of rent during the tenancy period.

5)     Rules of Practice

The contract should clearly state the treatment of the premise and the surroundings of the premise. This section should also mention whether or not alterations may be made. Further, it should specify whether subleasing is allowed or not. Finally, it should state the terms and conditions of using common amenities.

6)     Security Deposit

The contract should clearly mention whether a security deposit was paid in the rental agreement. It should also be mentioned that the security deposit must be fully refunded at the end of the rental agreement. A security deposit is usually 12 months of rent.

7)     Notice Period and Renewal Term

The agreement should contain details on the notice period that should be given before vacating the property. It should also include the period by which the lessee must inform lessor for extension of the lease.

8)     List of Amenities and Fixtures

If the apartment or house is either partially or fully furnished, it must contain a list of all fixtures. It might be a good idea to mention the condition of the fixtures to be on the safe side.

9)     Exit Clause

This section mentions whether there are any penalties for leaving before the duration of the tenancy.

10)  Signature and Date

At the end of the agreement, it should be signed by both the lessor and lessee. The date of the signing should be accompanied with the signature itself.

Police Verification

This process helps in the background check of the tenant. This is a mandatory procedure and not performing it would be punishable under section 188 of the Indian Penal Code. Apart from this, it is a good idea to visit the property from time to time. This is to see if the tenant is complying with the terms and conditions agreed upon.