Are you a landlord or tenant? Here is an ideal way to make a solid rental agreement

A leave-and-licence rental agreement is structured in a way that protects the interests of both the tenant and the owner. The landlord retains the right of the flat, as it is her own. And the tenant should not have to incur maintenance charges that the landlord should ideally take care of. But sometimes, agreements are drafted in a way that favour the landlord.

So, what does an ideal rent agreement look like? Let's begin with the basics.

What is a leave and licence rental agreement?

A leave and licence agreement is a contract between a landlord and a tenant. It specifies the terms on which the property is let out, such as the description of the property (address, type and size), monthly rent, security deposit, duration of the agreement, as well as conditions for termination.

“The terms and the conditions are negotiable and crafted in mutual consent, which, upon execution of the agreement, become legally enforceable and binding on both the parties (landlord and tenant),” said Javed Dhorajiwala, a senior partner at MZM Legal.

“Given the things this agreement covers, it’s also important that it is registered. It shouldn't be left to an oral understanding,” said Sagar Kadam, a partner at DSK Legal.

No rent agreement? It can hurt tenant and landlord

Just in case there isn’t an agreement, “your landlord can hike the rent suddenly, or you may not get the minimum 30 days’ notice to vacate the premises,” said Dhorajiwala. You also cannot apply for tax exemption via house rent allowance if you don’t have a rent agreement. It can be shown as evidence in court in case there is a dispute with the landlord.

The absence of a rent agreement also hurts the landlord.

“If any damage is done to the rented property, the landlord cannot make the tenant pay for damages,” added Dhorajiwala. A rental agreement can specify penalties if the tenant delays paying rent. If there is no agreement in place, the landlord cannot impose penalties.

Ideal rental agreement

Aside from basic details about the property, a solid rental agreement should clearly spell out rent payment dates, frequency, penalty if the rent is late, a clause that specifies that the rent might go up, say after certain periods, and so on. It should give freedom to the landlord to sell the property during the term of the rental agreement. Above all, it should specify who bears expenses such as maintenance charges and electricity, water, and gas bills.

“It is advisable to rent a property only after all the required repairs and maintenance are carried out. This way, the tenant will safeguard himself from unnecessary expenses that may crop up in future on wiring, plumbing, and painting,” said Purvi Asher, a partner at Mansukhlal Hiralal & Co.

“Before signing the rent agreement, check whether there is any lock-in period prescribed in the rental agreement and check if there are house bills, if any, that are pending. Then convey this to the landlord immediately,” said Dhorajiwala.

To make the agreement watertight, Dhorajiwala recommended registering it at the local sub-registrar’s office. A landlord typically keeps the original rental agreement and tenants are given a photocopy.

Also read | MC Explains: Can a lock-in period in rent agreements prevent landlords from asking tenants to vacate?

What precautions should a landlord take?

A landlord’s biggest worry is that the property can be illegally occupied by an errant tenant.

“Thus, the rent agreement has to be first of all stamped and fully registered,” said Asher. In the absence of registration, it can be misused.

Aditya Khadria, co-founding partner of LEx Aeterna Practices, said that “where rental agreements aren’t registered, a tenant might just continue to live on and refuse to vacate. Grounds for termination are an essential part of a rental agreement.”

Due to a rise in unlawful activities, experts recommend a background check on tenants.

“Landlords should insist on police verification of tenants who are foreign nationals or migrating from another city,” said Asher. Proof of employment instills confidence about the tenant.

Also read | Can apartment owners arbitrarily hike rent in 11-month rental period?

What if a tenant refuses to move out?

In this case, the landlord can take the tenant to court.

“This is possible only if notice of 90 days has expired and the notice period starts 15 days after the landlord has given the intimation. This rule is mentioned under Section 106 of the Transfer of Property Act 1882,” said Dhorajiwala.

Additionally, the landlord can also take back possession if the tenant has made changes to the property surreptitiously and illegally.

Framing an agreement

In general, most lawyers who assist on framing rental agreements have a ready template. This doesn’t mean that you cannot change the provisions.

“You can also tailor the agreement to suit your needs, with clauses that are mutually acceptable to the tenant/licensee and the landlord,” said Khadria.

You can also use online rental agreement templates provided by the states. For instance, Maharashtra has a desired rental agreement template on a website.

The landlord and licensee can fill in their details in the template provided on the website, said Khadria. There is a space for additional terms and conditions to be added. A landlord can mention details such as security amount, monthly rental/licence fee, and penalty for late payment.

After filling this, an online licence agreement (for the rental arrangement) gets generated. The parties involved can even pay stamp duty and registration fees online for this rental agreement and register it without physically visiting the office of the sub-registrar.