Dos and don’ts while drafting a rental agreement
The rent agreement, a document that seals the arrangement between a landlord and the tenant, is a potent instrument that can be used and misused. Shyam Sunder, a Delhi-based lawyer dealing in property-related cases, “The rent agreement, if formalized properly, helps the landlord and the tenant, and results in a good healthy relationship between the two. However, it should be formalized with all the provisions and necessary laws.”
Rent agreements in the country are often made on notarised stamp papers. While this document becomes a legal contract, there are chances of violation from either party. Thus, the lease agreement has to be registered at the local sub-registrar’s office. In the absence of registration, it can be misused by either side. Moreover, the lease agreement should have sound clauses and provisions that protect the interests of both parties.
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Important clauses for tenants
Provisions relating to your tenure of stay (tenancy period), the frequency and date of rent payments, the time of renewal of your lease and the provisions for repair and maintenance, should be clearly mentioned in the agreement. In addition to these, the roles and responsibilities of the tenant and the landlord should be defined. “It is advisable to take the property on rent, after all repairs and maintenance. One should also check the wiring and plumbing, before occupying the flat. This way, the tenant will safeguard himself from unnecessary expenses that may crop up in future,” advises Ekank Mehra, a Delhi-based lawyer.
It is also important to check on pending dues, such as electricity and development charges of the society. For example, Tinu Sharma, an executive working in Gurgaon and living on rent, recently got a notice from the society’s residents’ welfare association (RWA) over pending dues for two years against development charges.
In general, the development charges are paid by the tenant. Sharma, after paying the current and pending dues, got the amount deducted from the rent.
Security deposit: Rental agreements should also clearly state the amount/consideration paid as booking amount (or security deposit) and as advance, in the agreement. The amount and the time by which it will be refunded to the tenant should be clearly specified in the rent agreement. The new draft Model Tenancy Act, 2019, which takes forward what had been proposed in the Draft Model Tenancy Act, 2015, focuses on putting a cap on the security deposits at two months’ rent for housing.
The mention of arbitration clause, is also equally important. If your landlord is providing a furnished flat, it is in your interest to list the items, furniture or goods in the house. Any loss or repair needed, can then be easily established towards the end of your tenancy.
Payment of bills and other charges: Further, it is important to mention in the rent agreement, the charges for maintenance, electricity, water, etc., and if there is a separate utility connection and the basis on which the tenant must pay the bill or if a fixed monthly amount must be paid.
Important clauses for landlords
A landlord’s biggest worry is that the property can be usurped or illegally occupied by an errant tenant. For this reason, the rental agreement should be registered.
It is also important to sign the agreement, in presence of two known witnesses. Due to worsening law and order situation in metros, the police often insist on verification of tenants. Landlords can also ask for a copy of employment letter from the tenants’ employer. However, this should not be a yardstick of anyone’s character. Landlords should insist on police verification, for tenants who are foreign nationals or those who are not natives of that city.
Revision of rent: The Model Tenancy Law specifies that landlords cannot increase the rent in the middle of the term. They need to provide a written notice, three months in advance, before revising the rent. They can increase the rent if they have borne expenses due to improvement, addition, or structural alteration that does not include ‘repairs’.
Eviction of tenants: Under the Model Tenancy Law, landlords have the right to approach the rent court, asking for eviction of tenants if they fail to pay the rent for two months in a row.
To discourage tenants from staying in the property after the expiry of the rental agreement, the Model Tenancy Law states that tenants will be liable for paying double the rent for two months and four times the rent in the subsequent months.
The termination clause in the rental agreement
A rental agreement should also include a clause allowing the tenant to terminate the agreement. It binds the tenant and the landlord, to do what is mentioned in the contract. That is if the document mentions that a notice period of two months should be served, then, both the parties must adhere to it.
List of fixtures
Fixtures are basically attachments with the house that have become a part of the immovable property owing to the nature of attachments. The landlord has the right to prohibit the tenant from using such fixtures and can shift to the court in case of any violation.
Restrictions on subletting the property
Though it is the right of the tenant to sublet his rented property, this right can be limited or prohibited if there is any specific clause in the rent agreement. In such cases, the tenant is debarred from subletting the property.
How can tenants and landlords frame the agreement?
In general, most lawyers who assist in framing the rent agreement, have a ready template. This doesn’t mean that you cannot change the provisions. You can also tailor the agreement to suit your needs, with clauses that are mutually acceptable to the tenant and the landlord. You can also use the proposed Draft Tenancy Act 2015 for the desired template.
The Draft Model Tenancy Act, 2015 aims at balancing the rights and obligations of landlords and tenants through rental contracts. The main objectives of this act include mutually fixing and revising the rent between the landlord and tenant, unlocking existing properties to rent out, and addressing repossession issues.
Presently, rent agreements are registered at the sub-registrar’s office. To ensure transparency and fairness, the Model Tenancy Act, 2019 proposes the setting up of a rent authority. The landlord and the tenant can prepare a written rental agreement, after mutually discussing and agreeing upon the terms and conditions. They should approach the authority to get the agreement registered. The authority will update the details of the registered agreement on its website. On June 2, 2021, the union cabinet approved the Draft Model Tenancy law.
In how much time the Rental Agreement should be prepared?
According to the Model Tenancy Act 2021, the rental agreement should be finalized between the landlord and the tenant, signed, and registered with the Rent Authority within two months of the rental deal. In case of any dispute arising between the two parties, they can approach the Rent Authority and the rental agreement signed between them will be referred to for arriving at a solution to the dispute. The Model Tenancy Act 2021 will not only minimize the points of friction between the landlord and the tenant by way of a properly registered rental agreement but will also unlock the potential of the rental property armlet in India.