Personal Finance

The nuts and bolts of rental agreements

Meera Siva | Updated on October 06, 2019 Published on October 06, 2019

Tenants and owners must pay attention to the terms, and know the rules

A rental agreement is often seen as a formality, with neither the owner nor the tenant paying much attention to the terms.

This is usually because settling any dispute through the legal process has been tedious and long-drawn. But with the Model Tenancy Act and the potential changes we can expect, it is important to know about the agreement.

Types of agreements

There are three types of agreements that you can use. A lease agreement is a contract that typically covers property rental for long periods of time — typically 12 months or more. The period and rent amount are documented and cannot be changed during the tenure. It must be renewed when it ends and the terms may be changed in the new agreement.

A rental agreement is for shorter terms such as monthly. The terms covered are similar to that of a standard lease.

Another option is the leave and licence agreement that is popular. This is also similar to the other two, and covers aspects such as rent amount, period and key conditions. The main difference is that it typically protects the interests of the landlord better than the other agreements.

What’s covered

A rental or a lease agreement is a legally binding contract between a landlord and a tenant. It must include the rent amount and security deposit. The date by which the rent is due as well as the acceptable modes of payment must be specified. The frequency of rent payment — daily, weekly or monthly — must be included.

The agreement must list out essential utilities such as electricity, water, phone/internet and garbage disposal as well as fixtures. Payments such as that for apartment maintenance or other services must be indicated. The costs must be stated so that there is no ambiguity in the amount and on how price increases will be handled.

The terms and return of deposit when the lease is terminated must be clearly specified. Indicate any restrictions the owner wants to place — for example, on having guests for extended periods or lifestyle restrictions such as noise late at night. These clauses must, however, be fair and cannot clamp down on the rights of the tenant.

What are the laws that govern these agreements?

The leasing of houses is governed by the Rent Control Act, and each State has its own version. It is imperative to understand the rules that apply to the property. For example, Tamil Nadu and Maharashtra require registering all tenancy agreements, irrespective of the term and the value of the tenancy.

In Karnataka, registration is not mandatory if the period is less than a year. When you make the agreement, make sure to use a reference from the same State.

What are the typical rights and responsibilities of owners and tenants?

Rental laws provide landlords with rights such as the ability to evict tenants. For example, Maharashtra rules allow the owner to recover possession if the tenant creates annoyance to neighbours or uses the house for illegal purposes. Also, the landlord can ask for possession of the premises if they require them for their use or for reconstruction, or if the house is in a dilapidated condition.

These rights come with responsibilities such as terms and conditions for maintenance of the property. Also, the Tamil Nadu Act requires the landlord to refund the security deposit (after deducting liabilities) within a month after the premise is vacated.

The key right of a tenant is protection against unfair practices such as eviction and discrimination. For example, the Maharashtra Act allows the tenant to serve notice to the landlord if repairs are neglected; and if the landlord does not comply, the tenant can make the repairs themselves and deduct the expenses from their rent or recover the amount otherwise.

Also, the law prohibits cutting off essential supplies or services such as power or water to a tenant who faces eviction.

Also, the tenant gets automatic preference and protection if the owner does not register the agreement. Getting receipt for payments is also a right, and failure to provide it is a punishable offence.

What are the key points to focus on in the agreement?

The agreement must address potential dispute areas. For example, one hotly contested issue is refund of security deposit. It is good to list out the conditions and terms such as payment for damages to fittings. Other areas of financial disputes include delays in rent payment, unpaid dues for utility or other services.

In Tamil Nadu, for example, if the rent is delayed for two months, the tenant can be given eviction notice. The landlord can charge 8 per cent interest rate (unless the agreement states a different rate) on the delayed payment.

Termination of agreement and vacating the tenant is another issue that must be spelled out. For tenants, maintenance aspects are important to hold the owner accountable for neglect.

Another important clause relates to arbitration. This is helpful to resolve disputes quickly rather than go through long-drawn procedures.

The writer is an independent financial consultant

Published on October 06, 2019
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