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Rental Agreement

Rent agreement on your mind? Read the following article before signing the next one.

A rental agreement or lease agreement is an official contract signed between the owner of a property and the tenant who wishes to take temporary possession of the property for usually a predefined time. Further, it shall be drafted on a stamp paper.

Types of Rental Agreement

In India, currently, there are two types of rental agreements. There is no established format for these agreements.

Lease Agreement

A lease agreement documents the arrangement of a lease, of any possible asset, including car, house etc. and is valid for such period as prescribed in the agreement. In the case of lease agreements, the right to the property gets transferred from the landlords (lessor) to the tenants (lessee). This protects the tenants from sudden or unfair eviction demands and prevents the landlords from overcharging the tenants.

The rental control laws are currently favouring the interest of tenants.

Rental Agreement

On the other hand, rental agreements are generally for renting assets, usually for a short period, between the owner of the asset and the tenant. For example, rental agreements for residential properties are usually for 11 months. For a tenant, this agreement is a contract showing valid permission to occupy the premises of the owner. Unlike the lease agreement, in this, the ownership of the asset stays with the owner. In a case of tenant eviction from the property, this agreement allows the landlord to take legal measures.

Contents of a Rental Agreement

The most common details included in a rental agreement are:

  1. Name of the landlord
  2. Name of the tenant
  3. Property details
  4. Rent amount and due dates for its payment, late charges, grace period.
  5. Payment mode of rent
  6. Termination method of the agreement before/after the date of expiration and costs if any
  7. Security deposit and related details
  8. Charges for utilities provided
  9. Facilities which the tenant can use/not use
  10. Rules and regulations and the penalty for any violation of such rules and regulations
  11. Handling repair requests
  12. Emergency requests procedures

Points to Remember While Drafting a Rental Agreement

  1. Discuss important matters like rent, security deposit, maintenance charges, etc.well in advance.
  2. Before preparing the final rental agreement, always prepare a rough draft.
  3. Draft the finalised rental agreement on the recommended value stamp paper.
  4. Place the signatures of parties involved in the presence of witnesses.
  5. Register the signed rental agreement at the local Sub-Registrar’s office.

Some Important Clauses To Be Included

  1. Rent: In exchange for the property rented, the payment or consideration as the case may be shall be paid by the tenant to the landlord. The decided payment terms need to form a part of the rental agreement.
  2. Duration: The period for which the premise has been rented out needs to be mentioned.
  3. Terms of Use: Terms and conditions for the use of the rented premises should be stated.
  4. Utilities: The utilities that can be used and those under the responsibility of the tenant should also be included in the rental agreement.
  5. Insurance: The insurance clause is often used in a commercial lease agreement. Based on the agreed terms, the tenant’s responsibilities towards premium and like should be clearly illustrated.
  6. Repairs and Maintenance: This agreement should be explicit on the responsibilities of the owner and tenant, individually, for carrying out repairs and maintenance.
  7. Overstay: The owner can charge an extra sum if the tenant stays in the rented premises after the agreement has expired. The terms of these charges need to be noted in the agreement.
  8. Penalty for late payment: Sometimes, a penalty or fine may be applicable if the tenant fails to pay the agreed rent within the scheduled time. These charges have to be recorded in the agreement.
  9. Subleasing: When the owner doesn’t expressly prohibit subleasing, some tenants may do it for their benefit. To avoid such a situation, this clause becomes important.
  10. Severability: The legal validity of the agreement is usually explained in this section.

Why is Security Deposit needed?

Security deposit is an advance payment of rent. It works as a backup/security for recovery of dues and losses. This has to be paid by the tenant to the landlord (if asked), at the time of signing the rental agreement. The landlord shall repay the amount after the termination of the contract subject to the conditions mentioned in the agreement. In case if the tenant damages the rented property, the amount can be deducted from the security deposit by the landlord. For instance, if a tenant breaks a window (causes damage to the infrastructure of the property), then, the landlord can use the security deposit towards making good the damage.