This article is written by Niharika Agrawal, from IFIM Law School. This article deals with all the essentials of a valid rental agreement and its format.
This article has been published by Abanti Bose.
What is a rental agreement?
A rental agreement is an important legal document that needs to be signed by both the parties i.e., the landlord and the tenant, in order to regulate the tenancy. It contains all the detailed information about the parties and the terms and conditions related to the tenancy of the property on rent. It is binding upon both parties. It includes all basic factors such as rent, security deposit, information regarding the property, its size, address, type, and most importantly duration of the agreement. Since it is binding in nature, both parties are advised to go through it carefully before signing and agreeing to the clause. The agreement remains invalid until two witnesses or non-beneficiaries are present and sign the agreement as witnesses.
The rental agreement is mainly drafted by either of the parties with the consent of the other party and both the parties have to agree to the same. A rental agreement could be either oral, written, or implied. However, it is usually preferred to have a written agreement as that could be helpful as a piece of evidence for mutual consent of the parties. The terms and conditions of the agreement cannot be amended unless and until parties mutually agree to it.
Importance of a rental agreement
The rental agreement being a legal document plays a very important role. A Rental agreement safeguards the rights of both parties and saves them from future disputes. During the contract between landlord and tenant, there might arise some disputes between them. Such disputes could be resolved through the agreement. It provides security to the landlord for his property and also protects tenants from unlawful demands of the landlords.
The rental agreement also gives ownership of the property to the tenant for a specified period of time. Oral agreements are not enforced by law therefore it is always advised to execute a written agreement. Another important factor is it acts as a piece of legal evidence.
Duration of rental agreements
Rental agreements can be fixed for any duration as per the needs of the parties and can be renewed according to the terms of the agreement. However, in the case of a rental agreement, it’s generally for 11 months. This is to avoid the strict rental law which is applicable for the lease agreement up to 12 months. According to the Registration Act, 1908, any property that is leased out to the tenant for more than 11 months needs to be registered. Hence, the property that lasts only or for less than 11 months does not need registration.
In the case of a lease agreement, the parties need to pay stamp duty, registration charges, and other expenses. Therefore, to be exempt from such expenses, the parties in the rental agreements mutually execute the agreement for 11 months in which one month in the count of 12 months is considered as the month of the notice served by the owner.
Procedure for registering a rental agreement
Registration of rental agreements is not compulsory. However, it is useful in case of disputes as notarized agreements are not applicable in the court of law. Therefore, it is always better to be registered.
One can register the rent agreement by visiting the nearby sub-registrar’s office. It is important to note that the process of registration must be completed at least four months before the date of expiration of the deed. Therefore, one needs to keep track of the date and time when the deed was created. Once the deed expires, then a fresh deed needs to be created. After this, a fresh deed has to be created. Both the parties need to be present along with two witnesses for attestation. If only one of the parties is present and not both of them, then the present party must sign the Power of Attorney, granting the rights of agreement closure.
Documents required for a rental agreement
- Original proof of ownership of the property.
- Property papers such as tax receipts.
- Two passport photographs of each of the parties and one copy of each of the witnesses.
- Documents related to address proof of both the parties and witnesses.
- Route map of the property that needs to be rented.
There are no fixed registration charges in the entire country. It varies from state to state. It also includes stamp duty charges.
Important clauses of a rental agreement
Name of the occupants
Name of the occupants includes all the people living on the property. Such names specifically must be capable of taking responsibility for the property. These names could be useful in case any dispute arises. For example, if any tenant suddenly vacates the house without informing the owner. In such cases, the owner has the power to take legal actions against any of the tenants in absence of the other.
Duration of the tenancy
The parties have to mention the fixed period in the agreement. After the expiry of the duration, it can be renewed with the prescribed formality by mutual consent of the parties. Mentioning the duration of the tenancy in the rental agreement can keep the owner on the safer side. It also protects the tenant as the owner cannot force them to vacate the property before the due date.
The rental amount
The sum of the amount fixed for the rent must be specified in the rental agreement. It should also contain the amending terms. This clause also includes the mode of payment and the instalment system if any. The dates at which the rent needs to be paid, the fine for late payment, etc. also needs to be mentioned in the agreement. This clause protects the parties from the unlawful holding of the money or payment of the money.
Cost of period or maintenance
In some cases, the cost of the maintenance is paid either by the owner or the tenant. Such sum of payment and the person paying the amount must be mentioned specifically in the agreement. Not only the cost of maintenance but also any other expenses that might be major or minor such as repairs or electric bills, etc. should be covered within the rental agreement. This gives clarity about such factors to both parties during the tenancy period.
Cost of security deposit
The amount that needs to be paid by the tenant to the landlord must be mentioned in the rental agreement and must be signed by both parties. This saves both the parties from unlawful demand and allegations. The landlord can also be relieved in the case where the tenant vacates the property without making the payment of rent.
Terms and conditions
The agreement must include how the property and its surroundings must be treated. Factors such as subletting, alteration in the premises, allowing of the pets, etc must be cleared in the agreement.
Renewal and notice period
The renewal and notice periods should be properly mentioned in the agreement for the sake of prior knowledge. It includes the date of renewal of the agreement and the notice period and how it needs to be performed.
Amenities attached with the property
It includes all the other amenities that are attached to the property. This needs to be mentioned in the agreement for the security of the landlord and his property. It also includes the latest condition of the property for future reference. This helps the landlord to avoid any damages or the financial settlement of any repairs during the tenancy period.
This clause includes clearance of any other penalties before the termination of the agreement or before the leaving of the property must be resolved.
Signature and date
This is the most important clause of the rental agreement. In this, both the tenant and the landlord agree to all the terms and conditions of the agreement and accept the agreement by signing this document. It also assures that failure in compliance with the agreement led to face legal penalties by either of the parties. Before signing the agreement it is very important to read every clause of the agreement carefully.
The major aspect of any rental agreement is the police verification of the tenant. This includes a background check of the tenant to avoid any kind of unlawful activity from using the property. It not only ensures the safety and security of the property but also the neighbourhood. Non-compliance with this clause of the agreement is punishable under Section 188 of the Indian Penal Code.
Common mistakes in a rental agreement
It is usually observed that the parties make the following mistakes in the rental agreement:
- Do not mention the terms which may lead to the eviction of the tenant.
- Does not specify the lock-in period and termination. Lock-in period i.e. the minimum period till which the tenant cannot vacate the property. The tenant should also specify priorly the notice period which needs to be submitted before terminating the agreement.
- Ignores to specify the sum of money that needs to be paid as rent, repairing charges, and the mode of payment.
- Ignore the clause relating to subletting of the property.
- Does not mention the details related to the Power of Attorney.
This is the basic format of the rental agreement.
This rent agreement is made on………(date) between……………..(name of the landlord) S/o…………..(father’s name of the landlord), Address…………………. (residential address of the landlord). Hereinafter referred to as the landlord or the first party.
………………. (Name of tenant), hereinafter referred to as the tenant, or the second party, address…………………….(residential address of the tenant)
The term Landlord and the tenant shall mean and also include their legal heirs, successors, assigns, representatives, etc.
Whereas the first party is the owner and in the possession of the property No:………………………. (address of the rented property) and has agreed to let out the said property to the second party for a monthly rent of Rs. ………../- (in words) per month.
Now this rent agreement is witnessed under:
- The tenancy is according to the English calendar and the agreement is commencing from………..(date of commencement of agreement)
- The rent agreement is granted for the period of 11 (eleven-month) starting from……..(date of commencement), and the contract can be extended further with the mutual consent of the parties.
- The purpose of the tenancy is purely for residential purposes and shall not be used for any other purpose.
- The second party will have to pay Rs. ……../- (in words) as monthly rent, which should be paid between 1st to 5th day of every month, and if the tenant continues to stay after 11 months from the commencing date, the rent will be increased.
- The second shall pay the electricity and water charges separately according to their consumption to the first party.
- The second party should not sublease the property to the sub-tenant under any circumstances without the consent of the landlord.
- The second party shall adhere to all the rules and regulations, by-laws set by the local authorities in respect of the leased property and will not get involved or do illegal activities in the leased property.
- The second party shall not do any construction or make any alteration in the rented premises either major or minor without the permission of the landlord.
- The second party will have to allow the landlord or his authorized agent to enter into rented premises for its inspection or general checking for any repair work if needed.
- The second party shall bear the cost of day-to-day minor repairs.
- This agreement could be revoked or terminated before the expiry of this tenancy period by serving a one-month prior notice.
- Both the parties have read and understood this agreement and have agreed to sign the same without any pressure from any side.
In WITNESS WHEREOF the landlord and the tenant have hereunto subscribed their hand at ______ (place) on this the _____________ (date of rent agreement) year first above mentioned in the presence of the following witnesses.
___________ (name of the landlord) _________________ (name of the tenant)
Model Tenancy Act, 2021
To provide a uniform regulation in India in terms of rental housing, the Model Tenancy Act, 2021, was enacted by the central government. The main objective of this Act is to govern the rental housing market, like residential and commercial premises, by establishing guidelines for tenancy, rights, and duties of the landlords and tenants and resolutions for the disputes arising out of the tenancy. This Act applies to the whole of India including all the states and union territories. According to this Act, the agreement should be in written form and both the parties should sign the agreement. The rental agreement should include all the relevant terms and conditions which would be binding on both parties.
The existing rent agreement will remain outside the purview of the model tenancy law, as it is still progressive and will not have a retrospective effect. This Act considers all the rental agreements that involve renting residential and commercial properties. However, the agreement drafted must be for more than 11 months. An agreement of up to 11 months is not covered under this Act. This ultimately means that the landlord and the tenant cannot seek resolution under the rules of the Act in case of any disputes.
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