Rent Agreement is also known as Rental Agreement or Leave and Licence Agreement. Due to high property prices & floating population there is always a huge demand for property on rent. In my previous post on Real Estate, i highlighted 10 Benefits of Staying on Rent. To enjoy these benefits, you have to take a house on rent :). Rent Agreement is signed between Owner and the Tenant. Rent Agreement can signed on a regular stamp paper of Rs 100 / Rs 200. In some places like Mumbai, most of the Rent Agreements are registered in sub-registrar office. Cost of registration is equally borne by the owner and the tenant. Format of Rent Agreement is normally standard and brokers are Single Point of Contact for same. I observed that tenants don’t give too much importance to Rent Agreement clauses. As a thumb rule, you must check clauses of agreement you are signing even if it is short term agreement or not of much relevance. To avoid any future dispute it is important to include following 11 Clauses in Rent Agreement.
Rent Agreement and Imp Clauses
1. Security Deposit: For different cities, value of security deposit is different i.e. no of times the monthly rent. In Mumbai, 10 months security deposit is must whereas in NCR, security deposit of 5-6 months is OK. This security deposit is refundable but i observed that in some cases there was dispute on the same. In Rent Agreement, it was not clear whether security deposit is refundable or non-refundable. You should always mention that “Security Deposit is Refundable“. You may ask for separate payment receipt of security deposit with details of cheque no, date and signature of the owner.
2. Rent is Prepaid or Postpaid: Another grey area in the Rent Agreement. Recently, one of my client vacated the flat and owner demanded rent for last month. He was under impression that he is paying advance rent as he paid one months rent before shifting in the house. Finally after so much hassle and pulling out all the bank statements, he proved that rent was paid in advance. In Rent Agreement, it is usually mentioned that rent will be paid on or before 5th of every month. After some time tenant lose track. You should always mention in Rent Agreement whether Rent will be paid in advance or after the month is over.
3. Lock in Period: These days owners are insisting on clause related to lock in period in rent agreement. Normally Lock in Period is of 6 months but the clause is included smartly to retain lock in period for renewal of Rent Agreement in future. Ideally there should not be any lock in period in rent agreement and owner / tenant can serve one month’s notice to vacate the flat.
4. Penalty for delay in Refund of Security Deposit: This is biggest pain point for any tenant to get refund of security deposit. Usually amount is huge and common excuse of owner is that he has invested the amount and he will refund in a month’s time. Worst part is when owner know that tenant is moving out of city then it is being done intentionally. In Rent Agreement, it should be clearly mentioned that security deposit is due at the time of peaceful possession to the owner by the tenant. If owner fails to refund the security deposit then tenant can retain the possession of flat without paying any rent. Owner is also liable to pay compensation of Rs 1000/= per day till security deposit is refunded for causing inconvenience to tenant.
5. Maintenance Charges: Another point of dispute. It should be clear in Rent Agreement that who will bear the maintenance charges and whether it is included in rent or not. It is beneficial for owners to keep maintenance charges separate from rent as it will help in taxation purpose. This arrangement will reduce their income from house property. For example, if rent is Rs 20k and maintenance is Rs 3k. In case owner charge Rs 23k as a rent then this amount will be income from house property. Suppose maintenance is charged separately then income from house property is Rs 20k.
6. Non-Maintenance Charges: Apartment associations keep charging additional amount for corpus fund, sinking fund, painting of apartment etc. All these heads should be borne by the owner only. Reason being, payment under these heads add long term value to the property. These charges cannot be attributed as maintenance charges. In Rent Agreement, it should be clearly mentioned that non-Maintenance Charges will be borne by the owner.
7. List of fittings and fixtures: As a tenant, in Rent Agreement you should always include the fittings and fixtures provided by owner in working condition. For example No of fans, Geysers, Tubelights, AC’s, CFL’s etc. Tenant should handover all fittings and fixtures in working condition at the time of vacating the flat. All these details should be included in the Rent Agreement.
8. Govt Taxes: There is dispute between owner and tenant on who will bear the Property Tax and other Govt / Municipal taxes. There is no right or wrong answer as the tenant is occupying property therefore depending on mutual understanding these taxes can be borne by either party. Mostly these taxes are borne by the owner. There should be clause in Rent Agreement regarding the same.
9. Wear, Tear and Damages: In Rent Agreement, you should include a clause that tenant is only liable to bear the cost for damages which are not part of natural, reasonable and normal wear & tear of the property. With ageing of property, natural wear and tear is but obvious. Normally there is a dispute between owner and tenant only on wear, tear and other damages.
In many cases, owners include clause to deduct cost towards painting of the flat from security deposit. This is open ended clause and it should be quantified by mentioning absolute value (max). Normally cost of painting is limited to Rs 20,000. Therefore it should be clarified and mentioned in the rent agreement.
10. Terms for Renewal: To avoid any dispute in future, there should be a clause in Rent Agreement regarding renewal of agreement if both parties mutually agree. This clause include % increase in rent, deposit etc.
11. Brokerage: Last but not the least, it is not beneficial for the brokers, real estate agents etc if tenant stay for longer period. Therefore they came out with an innovative idea of charging brokerage at the time of renewal of Rent Agreement. Secondly, owners would like to keep brokers in good humor as they have to deal with them in future. In short, You should discuss brokerage with owner and include a clause in Rent Agreement that brokerage is one time. At the time of renewal of agreement, there will not be any payout to broker. An owner may pay to maintain his relation with broker.
I received feedback from my readers that i don’t write much on rental properties therefore i have decided to write regularly on rental properties. Hope you liked the post. If i missed any crucial point, you may add the same through following comments section.
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Hello Sir,
Our flat is also rented. Actually it is pagdi system in dombivali. As per the law when we sell our flat, 33% of profit should be given to owner but here in dombivali there is 50% share which is illegal. Even 50% is fine for us but now we have been told that our owner will forcefully take flat from us at his own rate. Currently marlet rate for pagdi is 14-16. Lakhs and we had purchased at 64 k before 25 years. So if we sell our flat, we shouls get in hand of around 7-8 lakhs min. But it is dadagiri of builder to just give him flat back at 5 lakhs.
My main reason for selling this flat is to take new ownership flat but if i dont get proper amount, i would not be able to buy any flat.
Please let me know if there is any option to take an action for this. Even if i go for legal fight, are there any chances for wining case ?
Builder might tell that he is ready for selling flat but he will make rent so high that no buyer will buy and ultimately i would need to sell the flat to him at his own rate.
We are stuck actually and dont see any way out of this dadagiri.
Is there way we could take any necessary action for solving this?
Thanks for your valuable reply in advance.
Regards,
Vaibhav Gandhi
To answer this query, i need to go through more details. Prima facie you can take legal route.
This is a very good article. I need to ask you whether a tenant can ask for removal of the lock in period from the rent agreement before signing it, Can you please elaborate on it.
No. The rent agreement will be effective from date of execution i.e. date on which both parties sign the same.
Hello sir,
I’ve rented out one of my space with 11 month agreement. Now I need to renew the agreement. Is there a need to mention earlier rent agreement in New one. Or should I take one note from tenant that he had left premises and take premises on rent age in. Please suggest the best option from owner point of view so that I won’t get any complication in future. Also is it ok if tenant pay elec bill by cheque or should I ask him to pay to me and to be paid by me
1. You may sign fresh rental agreement with the tenant without any mention of existing rental agreement. It is not necessary for tenant to vacate the property. You may refund the existing deposit and accept revised deposit under new agreement.
2. You may request tenant to directly clear all the dues like electricity bill etc and share payment receipt with you.
Can you please provide reference to your statement “Cost of registration is equally borne by the owner and the tenant.” I tried to find out in Maharastra Rent Control Act 1999 but couldn’t find that.
It is operational matter between landlord and tenant. My statement is based on general practice being followed in this regard i.e. cost of registration is equally borne by the owner and the tenant.
Hello Sir, I wanted to know what is the general trend in Mumbai and Thane region with respect to payment of Maintenance. Does the owner bear the Flat Maintenance charges or the tenant staying there pays it? Many of my friends have told me that its the owner who mostly bears the maintenance cost and not the tenant. Is there any act that specifies this?
There is no specific rule. To save tax, you can ask tenant to directly pay maintenance and keep rental income low.
Sir, If a tenant leave the house(3month) before time period(4month) mention in an agreement. Is they have a right to claim refund of security deposit in case of hostel in the state of Madhya pradesh ?
It depends on terms and conditions in the agreement. Normally, security deposit is refundable. You can only deduct any dues from tenant & refund balance security deposit.
Nitin sir
good evening
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need to ask something about my EPF and UAN….please sir……..
You may opt for telephonic consultation through following link
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Hi, I want to terminate the contract within the lock in period but no clause is mentioned as to what I am liable too. Please advise
It depends on mutual agreement between landlord and tenant. Normally, one to two months rent is deducted from deposit besides notice period but it vary from city to city.
I’ve rented a house in Mumbai with agreement of 11 months. After a period of 3 months My owner comes and tell’s to vacate the house as he has sold it to someone. Please help into this matter.
I hope he is giving you a time mentioned as notice period to vacate the flat as per rent agreement. In this case, you have to vacate the house after notice period is over.
Hi Sir , owner has asked 2 cheques for security deposit breaking the amount into half.. I dont understand what might be the reason.
You need not worry. You can record the same in your rental agreement. May be he will deposit in 2 different bank accounts.
We are not going to continue on the rented house now.The owner is giving a cheque of security deposit to us.So what should we do? should we release the keys or should we wait for the cheque to get clear
You may request DD or NEFT/RTGS transfer else you may hold keys till cheque is cleared and pay rent for the interim period.
Dear sir ,I’m the tenant of house in mumbai. I usually pay for the repairs which are due to daily wear and tear. However have now noticed that the flooring tiles of the living room are cracking on their own and reason is due to faulty tiles during construction of the house.this is a problem with many flats in the building and other members agree it’s a construction/structural issue. When I bought this to the notice of my landlord he disagrees to repair the flooring and insist that the tenant should bear the cost which I think is not justified because we haven’t done any external damage but tiles are loosing its grip by its own. Please help which clause by law states this should be landlords responsibility to repair and give tenant a safe place to stay
Regards
It depends on the clauses in your Leave and License agreement. Secondly, for natural wear and tear you are not responsible. There must be a clause in your L&L agreement. It is standard practice in Mumbai.
We signed the rental agreement (both parties did). We did not pay the deposit on a fact that the internal house work which was promised to us by the owner got quiet delayed. We had paid some money before at the time of making the deal. I dont want to continue this deal, can I back out of it now?
It depends on the clauses mentioned in the rental agreement.
When we make rent aggrement there is no list of family members staying which makes it difficult for them toopen a bank account or change the address in bank.. Can you help with the draft clause where list of family members are also included in the aggrement which can help as a proof with the bank
It depends on case to case basis. There is no standard clause.
On maintenance charges, what you have mentioned may be beneficial to landlord. But it is unreasonable, as the land lord is benefiting from lower taxable income as well as claiming 30% deduction for property maintenance. Look at it from a tenant point of view – he is paying additional maintenance charges and is not even able to claim tax benefit for that. What is your view?
Life is zero sum game. If landlord is gaining then tenant is losing & vice versa. My view is that maintenance charges are not an income for landlord. Therefore, why he should pay tax on the same.