Rent agreements are a fundamental part of renting property in India, serving as the legal foundation for both tenants and landlords. Understanding the terms, legalities, and nuances involved can help both parties ensure a smooth renting experience and avoid potential disputes. This guide provides a comprehensive look at all the essential aspects of rent agreements in India, from drafting and key clauses to registration requirements, helping you make informed decisions in your rental journey.
What is a rent agreement?
A rent agreement is a document that is signed between a landlord and a tenant to initiate and govern a tenancy. Rent agreements mention every detail about the two parties — the landlord and the renter, and the terms and conditions of the tenancy. Both parties have to follow the rules mentioned in the rent agreement.
Importance of rent agreement
A rent agreement plays a crucial role in establishing clear terms between tenants and landlords, protecting both parties’ rights and ensuring a mutually beneficial rental arrangement.
Benefits of a rent agreement for tenants
A rent agreement benefits tenants in the following ways:
- Legal Protection: A rent agreement provides tenants with legal protection, detailing the duration, rent amount, and terms that landlords cannot alter without mutual consent.
- Clarity on Responsibilities: It defines the tenant’s responsibilities, including payment terms, maintenance obligations, and utility expenses, reducing misunderstandings.
- Security of Tenure: A rent agreement offers security regarding the length of stay, preventing sudden eviction as long as terms are followed.
- Deposit Transparency: The agreement clearly states the deposit amount and conditions for its return, safeguarding tenants from unfair deductions.
Benefits of a rent agreement for landlords
There are several ways in which a rent agreement benefits landlords. These include:
- Legal Recourse: With a rent agreement, landlords have a binding document to fall back on if disputes arise, including issues related to rent payment or property damage.
- Property Protection: The agreement outlines tenant responsibilities for maintaining the property, which helps protect the property’s condition.
- Rent Control: It sets a fixed rent amount and includes clauses for periodic increases, allowing landlords to manage rental income effectively.
- Defined Eviction Terms: Landlords gain security with a rent agreement defined eviction terms, ensuring tenants adhere to the rules or face legal action if necessary.
Common types of rent agreements in the Indian rental market
In India, there are three primary types of rental agreements:
Rent agreement
A rent agreement is a basic contract that establishes the temporary occupancy of a property between the landlord and tenant.
Duration: Usually lasts for 11 months and can be renewed upon expiration. If the agreement exceeds 11 months, registration is required by law.
Key features:
- Includes essential details such as the names of the parties, rental amount, property description, late fees, security deposit, grace period, amenities, maintenance responsibilities, parking arrangements and insurance clauses.
- Designed to be straightforward and easy to understand.
- Registration is optional for agreements shorter than 11 months.
Lease agreement
A lease agreement is a more formal contract intended for longer-term occupancy, generally exceeding 12 months, and is subject to the State’s Rent Control Laws.
Duration: Typically spans more than 12 months.
Key features:
- Establishes an interest in the property, granting tenants certain rights to use the property for the specified term, even if it changes ownership.
- Can be extended for longer durations.
- Obligates both parties to adhere to the terms throughout the lease period.
- Requires mandatory registration for legal validity.
Leave and licence agreement
This type of agreement allows a tenant to occupy a property but is not classified as a tenancy agreement.
Duration: Flexible and can vary based on the arrangement.
Key features:
- Unlike lease agreements, it does not confer an interest in the property.
- Can be revoked by the property owner at any time.
- Provides mere “permission” to occupy rather than granting rights.
- There is no formal landlord-tenant relationship, making eviction processes simpler.
Rent agreement regulations in India
Rental housing has become quite big in a developing country like India. So much so that many states in India are currently busy working out the details of more future-aligned rental policies to promote this segment of housing in the country, after the union cabinet gave its approval to the Model Tenancy Act, 2019.
According to the draft Model Tenancy Act of the union government (all states have to base their draft rental laws on this Act), the tenant must sign a rent agreement when entering into a rental arrangement with a landlord. The rent agreement must include the terms and conditions that shall be binding on both the parties.
Also read about the importance of revenue stamp on rent receipt
Rent agreement under Model Tenancy Act
To promote rental housing in India, the government formulated the Model Tenancy Act 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 rent agreements.
The law will replace the existing laws on rental housing across India after states notify it. However, note here that the existing rent agreements will remain outside the purview of the model tenancy law since it is progressive in nature and will not take effect retrospectively. All disputes related to existing rent agreements would be dealt with under the old laws, even after they were repealed.
Also, on rent agreements signed between the landlord and the tenant for a period of up to 11 months, the rules of the MTA will not be applicable. This also means that neither the landlord nor the tenant will be able to cite the rules of the model law in case of disputes.
Check out the difference between Leave and license agreement
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 favour of both the 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 it 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.
Why are rent agreements for 11 months?
For as long as a rent agreement is executed for 11 months, the document is able to avoid applicability of rental regulations.
According to Brajesh Mishra, advocate at the Punjab & Haryana High Court, it would be more expensive for a tenant, if rent agreements were created for a period of over 11 months. Since no registration is necessary, a rent agreement signed for an 11-month period does not attract stamp duty and other charges. Note that payment of these charges is the responsibility of the tenant.
Having a rent agreement exceeding a period of 11 months would also be quite cumbersome for the landlord from a legal perspective. With the rules of the MTA becoming applicable, the landlord will be have to shoulder more responsibilities than a typical landlord in India’s rented market is accustomed to.
“If the rent period is exceeded by another month to, say, 12 months, several laws will come into effect, complicating the process for both, the tenant and the landlord. To avert such a situation, the renting period is kept at 11 months, irrespective of the period for which the landlord might be intending to let out his property. This contract is later renewed for another term. This way, several complications are avoided by both the parties,” says Mishra.
Rent agreement format
Here is a basic rent agreement format. Note that this rent agreement format is an 11 month rent agreement format.
Rent Agreement
This rent agreement is made on this __________ (date) by ________________ (name of the landlord) S/o _______________ (father’s name of the landlord), Address: ___________________________________________________ (residential address of the landlord). Hereinafter called the Lessor/Owner, and first party
AND
_____________________________ (Name of tenant), called lessee/tenant, or second party
The expression Lessor/Owner and the Lessee/Tenant shall mean and include their legal heirs successors, assigns, representatives etc.
Whereas the first party is the owner and in possession of the property No: _______________________________________________________________________________________________ (address of rented property) and has agreed to let out the said property to the second party for a monthly rent of Rs. ______/- (in words) per month.
Now This Rent Agreement Witness As Under:
That the second party will have to pay Rs. ______/- (in words) as monthly rent, which does not include electricity and water charges.
That the second party shall pay one month rent in advance to the landlord that would be further adjusted in the monthly rent.
That the second party shall pay the water and electricity charges on the basis of the consumption to the landlord/owner.
That the second party shall not lease the property to a subtenant under any circumstances without the consent of the owner/landlord.
That the second party shall follow all the rules and regulations, by-laws set by the local authorities in respect of the leased property and will not get involved or do illegal activities in the leased property.
That this rent agreement is granted for a period of eleven (11) months starting from ___________, and this contract can be extended further with the mutual consent of both the parties.
That the second party shall not be permitted to do a construction in the rented premises. Besides, he/she could do the installation of temporary decoration, wooden partition/cabin, air conditioners etc. without seeking the permission of the landlord.
That the second party is not allowed to make any alteration in the rented property without the written consent of the owner.
That the second party will have to allow the landlord or his authorized agent to enter in to rented premises for its inspection or general checking for any repair work, if needed.
That the second party shall keep the premises clean.
That the second party shall bear the cost of day to day minor repairs.
That this contract/agreement could be revoked before the expiry of this tenancy period by serving one month prior notice.
That both the parties have read and understood this agreement and have agreed to sign the same without any pressure from any side.
In WITNESS WHEREOF
The landlord and the tenant have hereunto subscribed their hand at ______ (place) on this the _____________ (date of rent agreement) year first above mentioned in presence of the following witnesses.
Witnesses:
1.
2.
___________ (name of the landlord) _________________ (name of the tenant)
Lessor Lessee
Rent agreement format in MS Word
Click here to download the rent agreement in MS Word format.
Rent agreement format in English
Click here to check out the format of a rental agreement in English.
Rent agreement format in Hindi
Click here to check out the format of a rental agreement in Hindi.
How to register a rent agreement in India?
To register a rent agreement, you need to visit the nearest sub-registrar’s office. Ensure the registration is completed at least four months before the agreement’s expiration date, so it’s crucial to track when the agreement was initially created. If the deed expires, a new agreement must be drawn up. Both parties, along with two witnesses, must be present for attestation. If one party cannot attend, the attending party must sign a Power of Attorney, authorising the other party to complete the registration process.
Documents needed for rent agreement registration
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Tenant |
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Details to be included in the rent agreement
Key details included in a standard rent agreement are:
- Names and addresses of the tenant and the landlord.
- Signatures of the tenant and the landlord.
- Monthly rental amount.
- Security deposit.
- Maintenance charges.
- Period of stay.
- Responsibilities/rights of the landlord.
- Responsibilities/rights of the tenant.
| Housing.com has launched a fully digital and contactless service, to create rental agreements. If you would like to complete the formalities in a quick and hassle-free manner, all you need to do, is fill out the details, create the Rent Agreement Online, sign the agreement digitally and get it e-stamped in seconds. |
How to make a rent agreement?
Steps for writing a rent agreement include:
- Collect information: Gather essential details about the property, landlord and tenant, including names, contact information and addresses.
- Set the terms: Establish the terms of the agreement, such as security deposit, duration of stay, rent amount and any additional clauses.
- Draft the agreement: Create a draft that includes all necessary details and agreed-upon terms.
- Review and finalise: Both parties should review the draft, suggest changes if needed, and agree on the final version.
- Sign the agreement: Print the final version, and have both parties sign it in the presence of witnesses.
- Register the agreement: Register the signed agreement with local authorities as required by law.
- Keep a copy: Retain a copy of the signed agreement for future reference.
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: Key terms and conditions
A well-drafted rent agreement protects both tenants and landlords by clearly outlining their rights and responsibilities. Here are some essential clauses that should be included to avoid disputes and ensure a smooth rental experience.
For tenants
- Security Deposit and Token Amount: The agreement should specify the security deposit amount, its refund terms upon vacating, and any token amount received by the landlord.
- Number of Occupants: It must clarify whether additional family members can join later and the conditions for the same.
- Repairs: The document should define who is responsible for expenses related to wear and tear.
- Maintenance Charges: It must clearly state whether the tenant or the landlord will bear monthly maintenance costs.
- Visitors: The agreement should include guidelines on visitor restrictions, if any, including timings.
- Pet Policy: Tenants should check if keeping pets is allowed, especially if they plan to adopt one in the future.
- Rent Receipts: To claim tax benefits on HRA, tenants need rent receipts. The agreement should ensure that the landlord provides these receipts, either monthly, quarterly, or annually.
For landlords
- Vacating Conditions: Clearly outline the circumstances under which the tenant must vacate the property.
- Visiting Hours: Specify the landlord’s permissible hours to visit the rented premises.
- Property Damage: Define the tenant’s liability in case of damages and the consequences they may face.
- Subletting Rules: State whether subletting is permitted and any restrictions around it.
See also: Arbitration clause in rental agreements and how it can help landlords and tenants
Security deposits in rent agreements
In India, a security deposit, also known as an advance, is a sum paid by the tenant to the landlord, which is refundable upon the termination of the rental agreement. The amount of the security deposit typically ranges from two or three months’ rent up to ten months’ rent. The security deposit is usually paid at the time of signing the rental contract.
Landlords may use a portion of this deposit to cover any damages incurred to the appliances, furniture, electrical systems, or the property itself caused by the tenant When the rental agreement is cancelled or terminated, the landlord is required to return the remaining balance of the security deposit to the tenant after deducting any amounts for damages and necessary repairs, such as repainting the property.
Common mistakes to avoid in a rental agreement
A rental agreement is a crucial legal document that defines the terms of tenancy. However, mistakes in drafting it can lead to disputes between landlords and tenants. Here are some common errors to avoid:
- Not Registering the Agreement: An unregistered rent agreement holds little legal value in case of disputes. It is advisable to register the document, especially for long-term rentals.
- Vague or Missing Clauses: Ambiguous terms regarding rent payment, maintenance responsibilities, or security deposit refunds can cause confusion. The agreement should clearly define these aspects.
- Incorrect or Incomplete Tenant/Landlord Details: Spelling mistakes, wrong addresses, or missing identification details can create legal complications. Ensure that all personal and property-related information is accurate.
- No Mention of Rent Hike Policy: A lack of clarity on annual rent increments can lead to conflicts. The agreement should specify the percentage and frequency of rent hikes.
- Undefined Maintenance Responsibilities: The agreement should clearly state who is responsible for repairs, utility bills, and maintenance charges to avoid future disagreements.
- Unclear Notice Period: Failing to specify the notice period for vacating the property can create last-minute hassles for both parties. A standard notice period is usually one to three months.
- No Mention of Security Deposit Refund Terms: The agreement should include conditions under which the security deposit will be refunded, along with deductions for damages, if any.
- Overlooking Subletting and Visitor Policies: Not addressing whether subletting is allowed or setting visitor restrictions can lead to unauthorized occupancy.
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.
Rent can’t be hiked on unregistered properties: Karnataka HC
Landlords can increase the rent under the provisions of the existing rental laws only if the rent agreement is registered, the Karnataka High Court (HC) has ruled. In case the tenancy period is more than 11 months, and the rent agreement is not registered, the legal provisions of rent enhancement don’t apply, the HC elaborated. Such lease agreement can only be considered for collateral purposes, it added.
Read full coverage here.
Penalty for delay in rent payment
The draft law also states that tenants extending their stay in a 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 notarised agreement as proof. Hence, it is important to get the rent agreement duly registered.
Role of rent agreement in claiming tax deduction
To save tax deducted on the HRA component of their salary, employees have to provide proof of rent payment. This is typically done by providing a registered rental agreement as well as rent receipts. Since fake rent receipts are a common tool used by miscreants to evade taxes, the income tax department may demand the rent agreement to check the veracity of your HRA deduction claims.
Key tips for tenants
To steer clear of all hassles, make sure your rent 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.
It might also not be a bad idea, to hire the services of a broker who would help you with the rent agreement work. These days, this task could also be accomplished by using online services offered by property brokerage companies, such as Housing Edge.
Housing.com POV
Understanding the intricacies of rent agreements in India is crucial for both landlords and tenants to ensure a smooth and legally compliant rental experience. The rent agreement serves as a vital document that outlines the rights and responsibilities of both parties, and its proper drafting and registration can prevent future disputes. With the advent of the Model Tenancy Act, the landscape of rental housing in India is evolving, making it even more important to stay informed about the latest regulations. By following the guidelines discussed in this article, both tenants and landlords can protect their interests and foster a mutually beneficial rental relationship.
FAQs
What should be included in a rental agreement?
The rent agreement should include the names and address of the landlord and tenant, terms of the tenancy, period of tenancy, rent and security deposit amount, restrictions on both parties, conditions for termination of the agreement, conditions for renewal and details of who should bear other charges such as maintenance charges, repairs, etc.
What are the components of rental agreement?
The key components of a rental agreement include: Names and addresses of the tenant and the landlord. Signatures of the tenant and the landlord. Monthly rental amount. Security deposit. Maintenance charges. Period of stay. Responsibilities/rights of the landlord. Responsibilities/rights of the tenant.
What is the significance of rental agreement?
Rental agreement is a legal contracts that safeguards the rights of both the landlord and the tenant while clearly expressing their duties so that there is no room for doubt or confusion with regard to the two. This in turn narrows the scope for future dispute.
How many types of rent agreements are there?
There are two main types of rent agreement, lease & licence agreement and lease agreement.
What is difference between rent agreement and registered agreement?
A registered rent agreement is printed on a stamp paper and registered with the sub-registrar of the area. An unregistered rent agreement is that which is printed on a stamp paper and attested by a public notary, typically lawyers.
