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Everything you need to know about rent agreements

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We look at the process to draft an ideal rent agreement and how to register it, online or offline

Since homeownership may sometimes be inconvenient or unaffordable, a majority of the migrant working population in India’s major cities live in rented homes. For this, the tenant signs a rent agreement with the landlord, which includes the terms and conditions that shall be binding on both parties.

Draft model tenancy act

To promote rental housing in India, the government has formulated a draft policy, the Draft Model Tenancy Act, 2020, to make the transaction beneficial for both, landlords and tenants. The provisions laid under this model policy, are intended to serve as guiding principles while drafting a rent agreement. According to the union housing secretary, the policy, which is likely to replace the existing laws on rental housing across India soon, will unlock over one crore units in India’s rental housing markets.

With the expiry of the October 31, 2020, deadline to send their suggestions on the policy document, the draft model tenancy act may soon become law. The Chandigarh union territory administration has already started the process to implement the model act.

Legal validity of rent agreement

To save costs, tenants and landlords sometimes reach a verbal agreement about the tenancy and avoid executing a rent agreement. Some may also document the arrangement and put terms and conditions with respect to the tenancy but decide not to register the document. This is because both parties will be responsible to pay a registration charge if a rent agreement is created and registered. The landlord will also be obliged to report his rental income, once the rent agreement finds legal validity. However, entering into a rental agreement without registration is illegal and could prove to be a risky business for both parties, especially in case of a future dispute.

Until a rent agreement is registered with the sub-registrar’s office, it has no legal validity. It is in the favor of both parties, to draft an agreement with specific terms and conditions and to get it registered. After drafting the rent agreement, the landlord should print it on stamp paper. Once the tenant and the landlord sign the documents in the presence of two witnesses, they should register them at the sub-registrar’s office, after paying the required fee.

After states set up rent authorities in cities following the implementation of the draft law, landlords and tenants would have to be present before the authority to get the rent agreement registered.

Documents needed for rent agreement registration

Landlord

  • Two passport-sized photos.
  • Aadhaar card.
  • Identity proof (driving license, voter card, or passport).

Tenant

  • Two passport-sized photos.
  • Aadhaar card.
  • Voter ID card.
  • Passport for people from outside India.

Details to be included in the rent agreement

Key details included in a standard rent agreement are:

  1. Names and addresses of the tenant and the landlord.
  2. Signatures of the tenant and the landlord.
  3. Monthly rental amount.
  4. Security deposit.
  5. Maintenance charges.
  6. Period of stay.
  7. Responsibilities/rights of the landlord.
  8. Responsibilities/rights of the tenant.

Stamp duty on rent agreement

You have to pay a stamp duty while registering the rent agreement, which will vary, depending on the city where it is registered. This amount is paid, by purchasing the stamp paper of value you owe to the government. In Delhi, the stamp duty is payable at 2% of the average annual rent, in the case of lease agreements for a term of up to five years. In Noida, one has to pay 2% of the annual rent as stamp duty, for rent agreements of up to 11 months.

e-stamping of rent agreement

In some states, where the e-stamping facility for rental agreements is available, you do not have to physically buy the stamp paper. You can log on to the Stock Holding Corporation of India Ltd (SHCIL) website and check if the state where you reside offers this facility. Presently, Assam, Gujarat, Himachal Pradesh, Karnataka, Maharashtra, Delhi-NCR, Tamil Nadu, Uttarakhand, and Uttar Pradesh, allow e-stamping of rent agreements.

Rent agreement: Important terms and conditions

For tenants

  1. Security deposit and token amount: The agreement must clearly mention the security deposit and what happens to it when you leave the premises. It should also mention the token amount that the landlord has received from you.
  2. A number of occupants: The agreement must state what happens if your family members join you in the future.
  3. Repairs: The agreement must mention who will bear the costs associated with wear and tear.
  4. Maintenance: The agreement must clearly state who will be liable to pay the monthly maintenance charges.
  5. Visitors: The agreement must include a clause on who can visit you and at what time.
  6. Pet policy: Do check out if your landlord will allow you to keep pets if you were to adopt one.
  7. Rent receipt: To get the tax benefits on the HRA component of your salary, you will have to submit the rent receipts to your employer. Make sure you take these receipts from your landlord, after making the payment. These do not necessarily have to be taken every month and could be taken on a quarterly, half-yearly, or annual basis.

For landlords

  1. Conditions to vacate your property.
  2. Visiting hours.
  3. Damages to property and its consequences on the tenant.
  4. Rules on subletting.

Rent hike

Under the provisions of the Draft Model Tenancy Act, 2019, landlords cannot implement any hike in the pre-fixed rent for the entire period for which a rent agreement has been signed. If the rent agreement expires after 11 months, for example, the landlord cannot hike the monthly rent during this period. It is only after this period and at the time of the registration of the new rent agreement that the landlord is legally empowered to effect a hike in rate, typically not exceeding 10% of the existing amount. Also, the landlord will have to give three months’ notice to the tenant, before increasing the rent according to the draft act.

Penalty for delay in rent payment

The draft law also states that tenants extending their stay in rented accommodation as mentioned in the agreement will be liable to pay double the rent amount for the first two months and four times the rent in the subsequent months.

Is it compulsory to register a rent agreement?

Note here that notarised rent agreements are not the same as registered documents. In case of a dispute between the landlord and the tenant, the court will not admit a notarized agreement as proof. Hence, it is important to get the rent agreement duly registered.

Key tips for tenants

To steer clear of all hassles, make sure your rental agreement clearly states each and every term of the arrangement. No matter how trivial it might sound to you initially, it is always a good practice to provide verbal agreements with documentary backing. Remember that in case of a dispute, this is the document that would act as a safety for you. If need be, consult a legal expert, before entering into a rental agreement.

Source – https://housing.com/news/everything-you-need-to-know-about-rent-agreements/

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