In India, it is mandatory for a prospective tenant looking for a house and a property owner renting out their property to sign a rental agreement. A rent agreement is a written legal contract specifying the terms and conditions of the tenancy, which protects the interests of both parties, thus preventing potential disputes. In India, there are key differences between residential and commercial rent agreements based on the duration of the lease, rent amount, etc. Typically, commercial rent agreements are longer compared to residential rent agreements. While commercial leases are signed for around three to 10 years, residential rent agreements are signed for around one year. Registration of property documents in government records is a legal obligation in India. However, it is common across several cities in India to sign a rent agreement for a tenure of 11 months. In this guide, we discuss whether registering a rental agreement of 11 months is mandatory.
What is a rental agreement?
A rent agreement is a legally binding contract between a landlord and a tenant. It contains the terms and conditions of the tenancy, including the monthly rent, security deposit, maintenance and repairs, termination and renewal and several other key clauses to protect the rights and duties of both parties.
Why are rent agreements signed for 11 months instead of one year?
No registration required
As per Section 17 of the Registration Act, 1908, it is mandatory to register a rent agreement for a term exceeding one year. One can prepare a rent agreement for 11 months duration without registration. That is, for a 11-month rent agreement, the property can be rented without the need to visit the sub-registrar’s office for the registration process and payment of stamp duty. Hence, to avoid the hassle of registration, landlords and tenants go for an 11-month rent agreement.
No additional expenses
According to the Rent Control Act, registration of a rent agreement requires payment of stamp duty and registration charges. The stamp duty rates differ based on the state where the rented property is located. Further, charges of Rs 100 are applicable on the renewal of the rent agreement on stamp paper. Since registration of an 11-month rent agreement is not required, one need not pay these additional charges.
Flexibility
An 11-month rental agreement format provides the landlord and the tenant with the flexibility to review the contract and modify the terms and conditions if required. In less than a year, if the landlord plans to increase the rent based on the market trends, they can do so and draft a new rent agreement.
Financial implications of a one-year rent agreement vs 11 months’ rent agreement
Let us take an example. Suppose the rent in a locality is Rs 25,000 and the rent increase has been decided at 10% annually.
The monthly rent amount payable by the tenant is Rs 25,000.
After 12 months, the rent payable will be Rs 27,500.
Suppose the registration charges payable are 2% of the total average annual rent.
That is, the amount to be paid will be Rs 6,000. Additional charges towards the security deposit will be Rs 100.
Thus, the total amount to be paid will be Rs 6,100.
Usually, the tenant and the landlord share this cost. For subsequent years, this cost will increase accordingly.
On the other hand, these charges will not apply if the rental agreement is drafted for 11 months.
Importance of an 11-month rental agreement
#1. Establishes landlord-tenant relationship
Having a rental agreement in place establishes a legal relationship between the property owner (landlord) and the tenant. The contract lays down a set of responsibilities that both parties must fulfil for the specified tenure, which is 11 months in this case.
#2. Ensures legal compliance
Signing an 11-month rent agreement ensures compliance with the applicable laws by both the parties (the landlord and the tenant). The 11-month rent agreement should contain the terms and conditions of the tenancy, including tenancy terms, rent and security deposit, maintenance, termination and eviction terms, etc.
#3. Allows for quick disputes resolution
By clearly stating the terms and conditions of the tenancy, the landlord and the tenant are aware of their rights and duties, which eliminates the scope for potential disputes. Even if a dispute arises, the rent agreement serves as a legal document to find a quick resolution to the issue.
Requirements of drafting rent agreement of over 11 months
- Registration of the rent agreement: If rent agreements are prepared for a period exceeding 11 months and it should be duly registered with the authorised court in the area. If the document is not registered, it will not be considered legal. In case of disputes, the landlord and the tenant are liable to pay a penalty for not getting the rent agreement registered.
- Financial implications: If the tenancy exceeds the 11-month period, the landlord is required to pay the stamp duty and registration amount, which vary from state to state.
Does an 11-month rent agreement hold valid in court?
In India, an 11-month rent agreement can be used as evidence in a court of law in case any dispute arises between the landlord and the tenant. However, one should ensure that such an agreement is notarised. Notarising the rent agreement makes the document more genuine and helps both parties present a stronger case in case of disputes. Moreover, the rent agreement should be drafted on a stamp paper that costs Rs 100.
Disadvantages of not registering a rent agreement
A registered rent agreement serves as valid proof in a court of law to resolve disputes between a landlord and the tenant. Moreover, it is used as proof in case of any collateral transactions, such as payment of monthly maintenance for occupying the property.
In case of an unregistered rent agreement, the tenant may find it difficult to prove their case in case of any dispute with the landlord. Moreover, it makes it easier for landlords to incorporate arbitrary changes, go for unreasonable rental increases or tenant eviction.
In certain cases, penalties may be levied for not registering the rent agreement, which could include stamp duty payment. These charges may have to be borne by the landlord and the tenant.
Process of registration of a rent agreement
Rental agreements should be registered if the tenure exceeds a period of 12 months. After a tenant finalises a property and the landlord agrees to rent out the property, both parties discuss the tenancy terms. In the next stage, a deed is prepared and verified by them after the clauses have been settled. The document is then printed on a stamp paper. It is signed by the renter and the landlord in the presence of two witnesses who also sign the document. The landlord and the tenant should meet at the sub-registrar’s office along with the witnesses. They must have a valid identity proof and a passport-size photograph. The registration is completed after the payment of stamp duty.
Click to read more about stamp duty on rental agreement
FAQs
Is registration of an 11-month rent agreement mandatory?
No. It is not mandatory to register rent agreements with a tenure of less than one year.
Is stamp duty applicable on an 11-month rent agreement?
No. Stamp duty must be paid only if the rental agreement exceeds a period of 12 months.
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