This article has been written by Prathamesh More, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho. It has been edited by Zigishu Singh (Associate, LawSikho) Ruchika Mohapatra (Associate, LawSikho).
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“Rent” is a popular term nowadays, since housing rates have gone up sky high and people’s earnings are averaging all the time, making it difficult for everyone to afford the cost of living with such earnings. People ask for development of the place wherever they live, but it has to be noted that development comes with a hefty price. The cost of living becomes more expensive as the Government provides more amenities including transport services, health services, better infrastructure, etc.
Because of such expensive housing rates, people tend to live on rent before saving up to buy or own a new house or flat. And when it comes to metropolitan cities like Delhi, Mumbai, Chennai or IT Hubs like Pune, Bangalore, Gurugram or any other upcoming Industrially equipped city, the population tends to increase in huge numbers and the Housing sector gets a boost and the rates go higher. The phrase “Sky’s the limit”, has become relevant when it comes to asking rates of owning a new flat. In this article, we shall understand the essentials of renting, procedures, rights and obligations of the landlord as well as tenant.
Why do people rent their property?
Selling an owned property is tough these days as most of the buyers don’t have enough financial support to buy the property at once. Nowadays, the cost of even a 1BHK (Bedroom, Hall, Kitchen) flat has reached above 70 lacs INR the area of which is less than 500 sq.ft. So, the people who want to live in cities prefer to stay on rent. Staying on rent is quite a boon for the property owners as said earlier it is tough to sell such property.
Renting out a property also becomes an additional source of income for the owners. The owners strive to make sure that the rent is paid at regular intervals be it monthly or quarterly. For that, they make sure that the lessee does not have to face any problem or lack of essential things that are required for a person living at home.
There are many rich people who regularly buy properties, and lease it out to make huge amounts through renting their properties. Apparently, renting has now become a lucrative business these days. It sounds really easy to rent out a property and earn money, but that is not the case, renting out a property is a complex procedure and managing all of this is exhaustive. But if the owner or lessor is well-versed with all the laws pertaining to renting out the property and rights and obligations of the landlord or owner or lessor as well as the lessee, then the process is not that hard.
Essentials of renting
A written rental agreement
The first and foremost step of the landlord before renting out his/her property shall be to make a written agreement with the tenant. The Agreement shall consist of the following:
i. Duration of the rent with start and end dates.
ii. Rent amount and frequency of the rent.
iii. Security Deposit.
iv. Service and maintenance charges.
v. Provisions related to termination of the agreement.
vi. Provisions related to vacation of the property.
vii. Provisions related to essential services like electricity, and water supply.
The agreement shall be signed by both the parties after agreement between the parties pertaining to terms and conditions of the contract. The landlord shall provide the duplicate copy of the agreement to the tenant and keep the original with himself/herself. The agreement shall be registered and stamped in the Registrar Office. Without the verification of the rental agreement the rights and obligations of the landlord and tenant cannot be enforced or protected by law.
Therefore, it is advisable to the owners to hire a legal expert to draft such a rental agreement to avoid any kind of violation of law.
Maintenance of the property
Both the parties – owner and the tenant(s) are responsible for the upkeep of the rented property. The owner shall make sure that the property is free of damages and potential dangers before renting out the property. Therefore, it is advisable for the tenant to give the property a physical inspection before moving in.
Apart from the normal wear and tear, both the owner and tenant(s) should split any amount regarding the maintenance required for certain damages to the property. If the tenant refuses to pay for the repairs, the owner has the right to deduct the specific amount from the security deposit and where the owner refuses to pay for the repairs the tenant has the right to deduct the amount from future rent payments.
After the tenancy commences on the given date, the tenant is responsible for the maintenance of the property if the damage is done negligently or purposely. The tenant has no right to damage the property so that the owner suffers a loss. Hence, it has to be noted that maintenance of the property should be written down in the agreement with great precision as it safeguards both the parties- owner and tenant from any allegations pertaining to the damages to the property.
Rights and obligations of the landlord
a. Due Diligence: The owner has full right to do a background check of the tenant. It is not only a right but also an obligation such that the tenant does not create any kind of ruckus for the neighbors in the building or public in general. The owner is also entitled to reject tenancy applications for personal reasons. The owner is entitled to ask the tenant for copies of Government IDs, Permanent Address Proof (if available), for the sake of due diligence.
b. Right to Evict: In some states, the owner has the right to evict the tenant for personal and bona fide reasons, but in some states such reasons cannot be accepted as a cause to evict the tenant during the continuance of the tenancy period. But if the tenant has not paid the rent for two consecutive months or if the tenant is found damaging the property deliberately or misusing the rented property the owner can lawfully evacuate the property within immediate effect. If the tenant refuses to evacuate the property, the owner has the right to double the monthly rent as the compensation for damages.
c. Charge Rent: The owner has the right to charge rent from the tenant at regular intervals as mentioned in the agreement. If the amount payable for the rent is revised the owner shall inform the tenant three months in advance or most preferably the owner should stipulate the rate of amount that will increase on regular periods.
The owner is obligated to issue a rent receipt to the tenant after the payment of the rent. It should consist of the tenant’s name, date, the amount received and signature of the owner.
The owner should inform the tenant about the special facilities provided in the society like parking, elevator, etc. payment of which shall be mentioned in the rental agreement, if agreed by the tenant.
d. Right to enter premises: The owner has the right to enter the rented premises whenever he/she wants provided the owner issues a 24 hours to 72 hours prior notice to the tenant. The owner can enter to check the property for a valid cause, see if any damages are there, or certain repairs that are required to be done at the earliest, etc. The Model Tenancy Act provides that the owner is obligated to visit the premises between 7 am to 8 pm.
e. Temporary possession of the property: For the alteration or certain repairs required for the property’s upkeep, the owner may repossess the rented property for a temporary period.
f. Safety Obligations: The owner is obligated to ensure the safety of the tenant. It is his/her duty to pre-check all the electrical supplies, gas line, water supply, etc., so that the tenant does not have to go through difficulties which might also cause harm to the neighbors or public. The owner shall get expert’s help for checking inside-outside of the property. Failing to do so, the owner shall be held liable for damages.
Some property owners don’t have time to manage renting out their own property so they hire a broker who is always known for being in the business specifically in Real Estate and Rentals. The broker gets paid via commission which the owner has to pay from the rent collected with certain percentages which are discussed beforehand. It is advisable for owners to hire an experienced or reputed broker or a broker organization to avoid any further issues with the tenant.
The Model Tenancy Act 2021, has provided that it is illegal to charge security deposit more than three times of the rent charge. The rate of charging the security deposit is stipulated in the concerned state’s Rent Control Act. Although the Model Tenancy Act has a provision pertaining to repeal the State Rent Control Act, some states still have not taken such a measure to repeal the said Act.
According to the Model Tenancy Act, the tenant shall pay the security deposit in advance as agreed with the owner in the tenancy agreement, which shall —
i. Not exceed two months’ rent, in case of residential premises; and
ii. Not exceed six months’ rent, in case of non-residential premises.
The owner is obligated to refund the security deposit to the tenant on the date of taking over the possession of the vacant property, after making requisite deductions pertaining to any liability of the tenant.
Hence, a security deposit safeguards an owner if the tenant leaves the rented property without paying rents and charges required for the damage repairs. It is also implied that the owner shall not deduct charges from the security deposit for normal wear and tear. The owner is entitled to deduct unpaid rent and repair charges. However, the owner while refunding the security deposit to the tenant, he/she should specify the same with valid reasons in a written statement. The owner is obligated to refund the security deposit within one month after the tenant has vacated the property. If the owner refuses to refund the security deposit within a month, the tenant can take legal action and bring the matter before the court.
Although renting out a property seems easy it is a tough business. The owner not only gives the property to be utilized by the tenant but also trusts and values the property in the hands of the tenant. Before renting out your property it is advisable to take a background check of the tenant, make sure that the property is maintained very-well if any damage is found make sure it has been repaired before lending the property to the tenant and most preferably if you are new to renting out your property then it is better to check outthe Model Tenancy Act, 2021 or the relevant State Rent Control Act, which becomes handy in such a scenario.
- Model Tenancy Act,2021
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