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Property Law

Important Clauses of a Rent Agreement

Written by:
Shivi Gupta
Published on
09-May-2019

Introduction: 

While majoring in Law, students, as they pursue their internships during or after the said course, realize the vast difference between the education imparted in the former and the requirements of the latter. Several Law schools provide attractive courses such as Media Law and Sports Law and often undermine subjects which rightly cater the needs of the majority of the public at large, such as the Rental Law, Service Law, etc., around which lives of several common people revolve today.

Interestingly, on entering Litigation, many of these well-read Law Students end up dealing matters revolving around the latter in the aforesaid than that of its former for earning a livelihood.

Condensing subjects of such importance against the newly introduced subjects in the curriculum showcase the failure of the Bar Council of India to actually take into account the needs of the society at large, thereby drifting away from its purpose. 

Unsurprisingly, it was pointed out in Shobha Aggarwal and Ors. V. Union of India and Ors., that roughly 10.15% of all civil litigation matters before Delhi District Courts were under the Delhi Rent Control Act, 1958.

Especially in the Central District, 27.9% of all the civil cases are under the said Act. Reading this in the light of the monetary value of the Indian Residential Rental Market which, as of today, is worth $20 Billion and that 28% of the Indian Urban population lives in rented houses, a need to regulate the same from being exploited is imperative – a task, which should rightly be handled by skilled Lawyers largely goes unnoticed.

Considering the sheer ignorance of considerable members of the Legal Fraternity towards that branch of Law that offers money, respect and gives Lawyers a chance to truly help safeguard the property or shelter of an innocent person, I’d like to take the opportunity to brief the masses about the nuances of a Rental Agreement in India, by discussing the landmark questions revolving around this dry, yet important subject. 

 

Ingredients of a Rental Agreement:

The term comprises of majorly two terms:

Rent :

“Any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any land or any building (including factory building), together with furniture, fittings and the land appurtenant thereto, whether or not such building is owned by the payee”  

Agreement:  

“Every promise and every set of promises, forming the consideration for each other, is an agreement” 

On reading them together in the light of the residential use of the land or any premises, it is evident that the said Agreement, if ratified between two parties, bestows either of them with the privilege of occupying the said property of the other for a specified period of time. This agreement does not relocate the ownership of the property but, merely transfers the possession and this statutory regulation prevents this occupier from misusing the property of the owner and ultimately, safeguards the rights of the owner over his property.

Hence, the Landlord, i.e. the owner of the premises and the Tenant, i.e. the occupier, in this case, are bound by the Agreement thereafter and this Legal Relationship is further upheld by several Laws of India. Accordingly, the Parties, on subsequent negotiations may agree to enter into a Landlord-Tenant relationship which shall be validated and preserved by the aforesaid Rent Agreement. Accordingly, it becomes imperative to discuss the intricacies of every Rental Agreement for getting a better insight into the said Relationship: 

Accordingly, every Rent Agreement is incomplete unless it does not include:

  • Names of the landlord and tenant and/or their agents:

The names of the Parties signing the Rental Agreement must be clearly mentioned therein and on their assent and signatures, the said Rental Agreement shall become binding on both the Landlord and the Tenant. 

  • Description of the property: 

The Property whose possession is being transferred to the Tenant by the Landlord for a specific period of time must be clearly mentioned herein, including the Address, the Number of Rooms, Bathrooms, etc. In simple words, the property must be described as a whole. 

  • Amount of rent and due dates for payment, grace period, late charges: 

  1. The rent amount to be paid and the dates on which these payments are to be deposited (preferably and as in practice, every month) to the Landlord by the Tenant are to be clearly stipulated therein. 

  2. The said Agreement shall clearly mention as to who shall pay the electricity dues etc. during the course of the said Rent Agreement. 

  3. Notably, any payment voluntarily made by the Tenant towards the arrears of the rent cannot be attributable or assignable or creditable, towards future rent. Rather, it shall be deemed to be a deposit by the tenant for that purpose, and for no other purpose. 

  4. There may or may not exist an escalation clause, which conveys that the rent amount may be revised annually.

  • Mode of rent payment: 

Ideally, Landlords prefer payments of rental agreements made in Cash, especially when Landlords and Tenants are occupying the said premises or our staying nearby. However, with changing times and increasing, feasible technology besides the distance between the owner and his property which is being rented, both the Landlord and the Tenant prefer digital payments on the decided date.

The mode of payment herein could either be pre-paid, i.e., one made in advance or postpaid, i.e. one made after the utilization of the premises – is usually extracted by the Landlord on a monthly basis. 

  • Methods to terminate the agreement prior to the expiration date and charges if any: 

These basically comprise of the grounds for evicting the tenants if they indulge into the performance of certain illicit activates during the course of the rental agreement, i.e. during their stay at the property of the Owner.   

  • Amount of security deposit and the account where it is held: 

  1. It is another set of amount apart from the amount to be paid for the utilization of the said premises, so collected from the Tenant and kept as a reserve with the Landlord for ensuring that the Tenant does not leave the deposit at his convenience. It also imposes a great responsibility for the systematic utilization of the premises upon the Tenant. 

  2. However, the Landlord must bear in mind the ruling of Nimauthulla V. Rajan, whereby asking for a security deposit of more than Rs. 1 Lakhs is illegal in the country. 

  • Utilities furnished by the landlord and, if the landlord charges for such utilities, how the charge will be determined: 

Often, the Landlords provide the Tenants with well-furnished premises and charge for the maintenance of the same. However, monies demanded by the Apartment Association, etc. shall be borne by the Owner himself. 

  • Facilities on the premises which the tenant is entitled to use such as swimming pool, security systems, etc: 

The Rental Agreement must rightly stipulate the list of all the facilities which the Landlord is either providing the Tenant or those which the Tenant is allowed to utilize. 

  • Rules and regulations such as pet rules, noise rules and the penalty for violation: 

Largely a residuary clause, the said rules, and restrictions are imposed by the Landlord upon the Tenants to ensure proper conduct during their stay at the premises. The said clauses are necessary for the protection of the said premises and to ensure that such usage won’t affect the neighbors. 

  • Identification of parking available, including designated parking spaces, if provided: 

The Landlord may or may not, depending upon the availability, provide premises for the utilization of the same. 

  • How tenant repair requests are handled and procedures for emergency request: 

  1. The Agreement must mention the condition the property must be maintained in. Undoubtedly, the tenants look into minor wear and tear of the property, but in case of a major damage, the Landlord is bound to repair the same, unless the tenant is responsible for the said damages – in that case, the Landlord may either ask the Tenant to look into the damage at his own expense or utilize the amount from the security deposit for recovering the same or rebuilding that portion or the entire premises, as the case may be. 

  2. The Madras High Court has, in the light of the aforesaid discussion, held that:

“….a landlord is under no obligation in law to effect any repairs to the building except those which he had successfully undertaken under the tenancy agreement; and admittedly it is not the respondent's [tenant’s] case that there is any term in the tenancy agreement casting an obligation on the petitioner [landlord] to effect any repairs to the building. The respondent [tenant] cannot, therefore, call upon the petitioner [landlord] to pay compensation for the repairs he claims to have effected.”  

  • Lock-in Period:

  1. One of the most essential clauses of every Rent Agreement, it prescribed the time period within which the Tenant cannot leave the said premises before a specified period of time if over.  

  2. In case the Tenant insists on vacating the said premises before the aforesaid period or has to vacate the same for breaching the Agreement etc,  then he is bound to pay the rent amount for the lock-in period as stated in the said Agreement.

  3. As held in Silvermoon Construction Pvt. Ltd. V. South Asian Hospitality Services Pvt. Ltd., the Landlord has to prove the following things for making a successful claim hereunder:

a) That such amount claimed is a genuine estimate of damages

b) That the landlord had altered its position by making the premises available to the licensee keeping in view the licensee’s requirements and spending thereupon. That certain expenditure was incurred on infrastructure specifically provided to the licensee as per licensee’s requirements; certain other expenditure incurred on whitewashing, fixtures, and fittings and the landlord was forced to incur expenditure again before giving the premises to the new licensee and, therefore, lock-in period was treated as reasonable period to avoid duplication of such expenditure, etc.

c) That the licensor took all reasonable steps to mitigate the loss consequent on the breach.

  • Renewal of the Agreement:

  1. On the Lapse of the duration, the scope for renewing the Agreement for the duration may or may not be stipulated, depending upon the interest, willingness and negotiations of both the parties to the said Agreement. 

  2. As held in Manujendra Dutt V. Purendu Prosad Roy Chowdhary

“If there is no provision for an option to renew and the landlord does not extend the term, he has, of course, to vacate on the expiry of the term. But where the lease provides for an option and the tenant exercises the option it is but fair and equitable that he must know in good time whether the lessor agrees to the renewal or not. “  

And while negotiating upon these clauses, often both the Parties try imposing their interests over the other for ensuring either maximum flexibility for utilizing the property or maximum monies with limited liability, as the case may be. Accordingly, the following are the important clauses the Landlord and the Tenant must try asserting for having an upper-hand in the said Agreement:

  1. The Landlord must, at all costs, ensure that the said Agreement is registered so as to protect his property from being illegally occupied by the Tenant. 

  2. A Police Verification of the Tenants who are bound to occupy the said premises is preferred.  

The Tenant must first take an in-person look of the property and personally look for all the damages etc. which require immediate repair. Before occupying the Property, the Tenant must ensure that the property is completely repaired and does not require any immediate repairs at that point of time. A thorough examination of the wiring and plumbing facility of the said premises before occupying the same by the Tenant is advised. 

With the dawn of Brokerage, finding properties for tenancy has really become very easy today. Moreover, their effort of negotiating the deal between the Parties and then personally drafting that Rent Agreement makes Tenancy considerably smoother.  

Nevertheless, the Supreme Court of India, in Mohammad Ahmad & Anr. V. Atma Ram Chauhan, for the sake of streamlining the Landlord-Tenant relationship and preventing unnecessary litigation before the Indian Judiciary, developed a Model Rent Agreement – its vital points are stated hereunder: 

  1. The tenant must enhance the rent according to the terms of the agreement or at least by ten percent, after every three years and enhanced rent should then be made payable to the landlord. If the rent is too low (in comparison to market rent), having been fixed almost 20 to 25 years back then the present market rate should be worked out either on the basis of valuation report or reliable estimates of building rentals in the surrounding areas, let out on rent recently.

  2. Apart from the rental, property tax, water tax, maintenance charges, electricity charges for the actual consumption of the tenanted premises and for the common area shall be payable by the tenant only so that the landlord gets the actual rent out of which nothing would be deductible. In case there is an enhancement in property tax, water tax or maintenance charges, electricity charges then the same shall also be borne by the tenant only.

  3. The usual maintenance of the premises, except major repairs, would be carried out by the tenant only and the same would not be reimbursable by the landlord.

  4. But if any major repairs are required to be carried out then in that case only after obtaining permission from the landlord in writing, the same shall be carried out and modalities with regard to adjustment of the amount spent thereon would have to be worked out between the parties.

  5. If present and prevalent market rent assessed and fixed between the parties is paid by the tenant then landlord shall not be entitled to bring an action for his eviction against such a tenant at least for a period of 5 years. Thus for a period of 5 years, the tenant shall enjoy immunity from being evicted from the premises.

  6. The parties shall be at liberty to get the rental fixed by the official valuer or by any other agency, having expertise in the matter.

  7. The rent so fixed should be just, proper and adequate, keeping in mind, location, type of construction, accessibility with the main road, parking space facilities available therein, etc. Care ought to be taken that it does not end up being a bonanza for the landlord.

The said guidelines inspired the Legislation to enact the Model Tenancy Act, which aims at balancing the rights of the Tenant and the Landlord, besides devising a framework for the regulation of Rent in India. Thanks to this Act, the Landlords hereafter, can market the rates for their residential properties get the rents revised periodically, and also get their premises vacated easily without getting into long-drawn legal proceedings.

Likewise, the Tenants are empowered to seek a reduction in the rent amount so decided earlier if the quality of the service hereunder deteriorates in any way. 

With added security, more and more people will now be inclined to rent their properties to willing people as a result of which, affordable shelter for one and all would be ensured in the country. 

 

The content of rent Agreements in India varies depending upon the type of property which is rented by the tenant. However, the rent agreement format remains the same for a rent agreement made for renting shops, offices, buildings, factories, flat, house, etc. It is advised to consult expert lawyers in India to get your rent agreement registered. MyAdvo connects you with the best property documentation lawyers in India for online rent agreement. Email us at support@myadvo.in or call us at +919811782573.