This article has been written by Kamakshi Verma pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho and has been edited by Oishika Banerji (Team Lawsikho).
It has been published by Rachit Garg.
Table of Contents
Introduction
Lease, defined under Section 105 of the Transfer of Property Act, 1882, is an agreement which could be implied (by the conduct of the parties) or written with formulated conditions, by which a lessor accepts to let out his/her property for usage by the lessee. The one who lets out the property is the lessor and the one who uses the property is the lessee. The agreement contains promises for both lessor and the lessee. Lessee uses the property for an agreed period of time while the lessor is assured a certain consistent/periodic payment over that agreed period of time. Both lessor and lessee are bound by the terms of the contract, and they would face the consequences if either of them failed to meet the contractual obligations. The lessor is the legal owner of the property, and only vests the lessee with the right to use or occupy the property for a specific period. The right of ownership is retained when the lessor itself receives periodic payments based on their contract from the lessee. The lessor must be compensated for any losses incurred during the contract due to damage or misuse of the property let out.
Whenever an agreement is in place, it is advisable to be considerate about the issues that surround the same. On a similar note, when it comes to a lease agreement, the specific clauses that are inserted enumerating the rights and obligations of both the lessor and the lessee serves as the platform to raise contentions by either of the parties, in times of conflict. While the lease is in place, the lessee would be responsible for taking care of the property and conducting its regular maintenance. Pertinently, if the subject matter of the lease is a house, the lessee must not indulge in making any structural changes in it without the prior permission of the lessor. Any damages done to the property in question must be repaired before the expiry of the lease deed. If the lessee failed to make the repairs or failed to replace any broken fixtures, the lessor would have the right to charge the amount of the repairs or replacement to the lessee as per the lease deed.
Important clauses in a lease agreement
When it comes to a lease agreement, clauses such as tenancy period, time of renewal of your lease, the date of payment of rent, arbitration clauses as a medium to resolve disputes, and provisions surrounding maintenance and repair of the leased premise, hold the most relevance. A rent agreement serves as ensuring evidence for you to take legal recourse in the future if need calls for, in cases of dispute with the landlord. This builds as the prime reason for clauses included in the rent agreement being important and to be careful of. The importance of clauses differs between tenant and landlord with a common purpose of not prejudicing each other’s rights in relation to the leased premise. The important clauses when it comes to tenants have been provided hereunder:
- The clause dealing with payment of bills and other charges: Payment of bills becomes one of the major concerns for tenants when they enter into a rental relationship with the landlord. This instead of not being carefully dealt with backfires on the tenant himself. The laid down time period and associated regulations governing the payment of bills and charges should be put focused on.
- The clause dealing with security deposit: While this comes as an addition to the previous point, a security deposit denotes a fixed amount of money which the landlord generally takes (equal to rent of the first two months) from the tenant for the latter’s period of stay. The tenant should clearly know the amount to be paid as a security deposit alongside all other charges (including electricity, water, and maintenance), that he needs to pay.
- The clause relating to frequency and date of rent payments: The essence of a rent agreement is the consideration in form of rent paid by the tenant to his landlord. For a tenant to avoid hassles in terms of living in the rented property, communications concerning rent payment must be made with the landlord for the ball in this matter lies completely in the latter’s court.
- Clauses dealing with lease renewal: A prime clause in itself, renewal of the lease is a matter of concern for the tenant when the plan to reside is longer. Often leading to conflicts between the tenant and the landlord, terms and conditions for lease renewal must be expressly communicated between the parties to the rent agreement and ensuring the same is the burden of the tenant.
- Clauses in relation to maintenance of leased property: A self-explanatory point in itself, tenants must be careful about the charges and conditions associated with maintenance of the rented property, for this becomes a source of dispute often.
When it comes to the landlords, the following clauses hold relevance in a tenancy agreement:
- The clause specifying revision of rent after a specified period of time: As has been stated previously, when it comes to payment of rent, the landlord has control over his tenant. Owing to the same, the burden of collecting timely rent, within the period agreed upon by the parties to the agreement, rests on the landlord.
- The clause dealing with the eviction of tenant: This clause has been mentioned for it gives rise to several issues between the landlord and the tenant. Grounds for eviction of the tenant have to be reasoned and rational on the landlord’s part because it is the landlord who has to prove that the eviction of the tenant was made on justified grounds.
General issues surrounding the lease
Primarily, lease agreements should receive a thorough review so as to ensure that there are no issues in the coming future. Nevertheless, some of the many issues that occur during leases have been provided hereunder:
Maintenance and repair
It is extremely important to mention in your lease deeds who would be responsible for maintenance and repair work. Determining who is responsible for the work as well as the cost of keeping the property in a good condition is mandatory. Further, always determine who is responsible for fixing “normal wear and tear” and for other types of damage, whether intentional or accidental. Ceiling damage like cracks, leakage, water tanks, pipes, etc usually it is the lessor who is pointed finger at for not sealing the roof properly and so on. Generally, it is the landlord who is responsible for the exterior as well as the structural portions of the leased property. Parties are always arguing as to “who” caused the problem and want that the defaulting party should rectify the same. However, they don’t reach an amicable solution most of the time. Therefore, it is important for detailed discussions and negotiation before executing the lease deed to know who shall maintain which part of the leased premises.
Common Area Maintenance (“CAM”) charges
This is in reference to commercial leases. These charges include the expenses incurred for maintaining the common spaces that tenants share in a commercial property. It is the practice of billing the tenants for the landlord’s cost in order to maintain the common areas. If the lessor gets any work done on the property he/she usually asks the lessee to pay for the same. For instance, if the lessor would like to hire a security guard or redoes the entrance pavement then he puts these charges for the lessee to pay. The issue arises because a lot of the time the lessees do not want to pay for the same as it increases their budget. Therefore, detailed discussion and negotiation before entering into a contract would help to know what would come under “Common Area” as well as what would be the CAM charges associated with it.
Unauthorised structure/misuse of the property
When the tenants alter the leased property without the consent of the landlords, issues do arise. In Seethalakshmi Ammal vs Nabeesath Beevi (2003), the Kerala High Court cited the Apex Court’s judgment on Vipin Kumar vs Roshan Lal Anand (1993) wherein the Court held:
“ In Vipin Kumar vs. Roshan Lal Anand (1993) also the same view was taken by the Apex Court. Here, even against the injunction order from the court, the tenants had done everything without the consent of the landlords and the building has been completely altered. According to the landlord, the value of the building has been decreased even though according to an outsider, its value might have been increased. The Court agreed with the landlords’ contentions and therefore, allowed the petition and eviction was ordered under Section 11(4)(ii). Unlike minor alterations which will not diminish the value of the building, a tenant is not entitled to change or alter the building and structure completely and act as if he is the owner. Here alterations made by the tenants are not disputed. But it is contended that the value has only increased and not decreased. But such alterations changing the flooring, walls, doors and roof are tantamount to the reconstruction of the building. In fact, a new structure has been built in the place of the old tenanted building and tenants have gone beyond their rights as tenants and acted as though they are the owners themselves. As held by the Apex Court, looked from the viewpoint of the landlords, the value of the building has diminished, though in the opinion of others, value has only enhanced. According to us, having regard to the material alterations effected by the tenants herein, the landlord is fully justified in thinking that the tenants have transgressed the limits provided under Section 11(4)(ii) of the Act. In the above view, we are of the opinion that ingredients of Section 11(4)(ii) are satisfied and tenants are liable to be evicted from the building.”
Withholding rent
Sometimes, tenants withhold rent. As a general rule, tenants should not withhold rent and be at risk for eviction. If tenants have a genuine reason for withholding for any charges like repair cost then also the tenants should deposit the rent for the property in a separate escrow account in the same timely manner as per lease terms and inform the landlord that he/she has done this in good faith.
Tenant’s refusal to vacate
Sometimes the tenants refuse to vacate the property and this results in losses for the landlords. In such cases, the landlord can seek eviction from the court. The right and process of eviction varies from state to state. The landlord must give proper notice to the tenant before approaching the court. The notice supplied can make the tenant vacate sometimes rather than undergo the court process of eviction.
Assignment
An assignment is the tenant’s right to transfer his/her leasehold interest in the property to another tenant. When an assignment takes place the new tenant becomes the one responsible to pay the rent to the landlord. Everyone wants flexibility and for this reason, this clause must be negotiated thoroughly before the lease is signed. If the lease deed is not properly drafted then the tenant may be unable to assign its lease and would be financially obligated for the rest of the lease term.
Landlords try to put limitations or restrictions in tenants’ assignment rights. The landlords wish to ensure that the new tenants/assignees are creditworthy and have financial strength. This a lot of times require the submission of numerous documents from the assignees. The assignment clause should indicate how much advance notice is required to assign a lease; limitations on a landlord’s right to reject an assignment; and whether an assignment relieves the assigning tenant of all of its obligations under the lease.
Conclusion
A lease agreement contains all the terms and conditions for the use and occupation of the leased property. It may be written or oral, however, people mostly wish to have a written agreement. It must be very well discussed, and negotiated and must be detailed covering all the “Ifs and but” scenarios to the best possible way. This would avoid any potential dispute in future. Assistance from a legal expert is recommended.
References
- https://www.ijlmh.com/paper/a-study-on-lease-and-its-kinds-under-the-transfer-of-property-act-1882/.
- https://globaljournals.org/GJMBR_Volume14/4-The-Impact-of-Leasing-Decisions.pdf.
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