There are many legal intricacies associated with renting or leasing residential real estate. Here’s taking a closer look at the same.
Landlords looking to lease/rent out their properties and tenants wishing to rent the same, will have to abide by the guiding law in the segment, namely the Rent Control Act. This Act was passed in 1948 and regulates leasing/renting out properties in the country, making sure that no party exploits or hinders the rights of the other. Every Indian State has its own version of the Rent Control Act although these are mainly similar in the core principles.
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The Act has always been slightly tilted towards tenants, leading to various complaints from landlords where they highlighted how tenants were paying the same amounts in rentals from 1948 onwards, not taking inflation and higher valuations into account. The Union Government attempted an amendment in the year 1992, focusing on property valuation. However, it did not cut ice eventually. The Central Government has also passed the Model Tenancy Act of 2021, which will safeguard rights of both parties in a better manner upon its widespread implementation.
Legal Components of The Residential Rental Process
Rental Agreement
The rental agreement is compulsory between both parties, listing out all the terms and conditions. There will be no legal validity of any agreement that is not in writing. The agreement should be signed and dated by both the tenant and landlord while keeping provisions for further changes/amendments. The agreement has to be stamped and registered for enforcing its legal status.
Tenant Rights
Tenant rights include the right against unfair or sudden eviction without a proper reason being provided by the landlord. These rules may vary across States. Some require landlords to get court orders for evicting tenants on sufficient grounds. Tenants will also have the right to pay fair rent that is based on the property’s market value. The rent is usually around 8-10% of the property value including all costs of fittings, fixtures and construction. Tenants will also have the right to use all essential utilities like electricity and water supply. Landlords cannot legally withdraw these services when the tenant does not pay rent. They have to approach the suitable jurisdictional authorities for this purpose.
Landlord Rights
The landlords will have rights to evict tenants for bona fide reasons like self-occupation or other valid legal grounds. They should send sufficient notice to tenants before eviction in this case. Landlords have the right to charge rent and increase the same after every renewal period, based on the clauses mentioned in the agreement. Rent usually goes up by 5-8% per year. Landlords can temporarily repossess their properties for maintenance, repair and essential work.
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Creating the Rental Agreement
Care and caution are two things that should go hand in hand with drafting rental agreements. All terms and conditions should be clearly mentioned to bypass any legal disputes in the future. Some crucial points include the following:
- The tenant’s name, father’s name and residential address should be mentioned and the same goes for the landlord.
- Tenants should verify whether the landlord is the legal owner of the property in question or a person with authorization from the owner.
- The tenancy purpose, i.e. commercial or residential, should be stated.
- The rent amount should be transparently stated along with clauses covering maintenance and utility costs and the person responsible for paying the same.
- The method of payment, payment date and interest payable for delays should be mentioned too.
- The quantum of rental increase at every renewal date or any other specified date, should also be mentioned.
- The tenancy period should also be stated along with the lock-in period and security deposit. The adjustment/refund of the amount should also be covered.
- A list of the furnishings, items and appliances (if applicable) of the property should be contained in the rental agreement. Their condition and also details of the ceiling, walls and other aspects should be covered for preventing any future legal disputes.
- The agreement should also talk about availability of common areas and amenities and the payable charges for the same.
- It should also talk about the procedure for premature termination of the agreement.
Lease Registration
The agreement should be registered as per Section17 of the 1908 Registration Act in case the lease duration exceeds 11 months. After the rental agreement is complete and approved by both parties, they should get it registered with the authorities. The procedure will require payment of registration charges and stamp duty. Landlords sometimes pay these charges, while they are borne by tenants at times. In many cases, both parties agree to split these costs.
Police Verification Aspects
Landlords should take the help of the police department for background checks of their tenants. Landlords should fill up the form for police verification that is available online. They can submit this at their local police stations with the tenant’s identity proof.
Landlords should periodically visit their premises to make sure that tenants abide by all the terms and conditions of the rental agreement. If tenants end up misusing the property or violating any legal clause of the agreement, then the landlord may ask for eviction. If the tenant does not agree, then legal assistance may be taken from the Court.
Finalizing the Rental Amount
One of the biggest issues in this sphere is finalization of the rental amount. Asking more than the current rate will be a turn-off for tenants, while charging considerably lower means a loss for the landlord. Yet, if the property is in good condition and has more amenities and features than similar properties in the area, then the rental amount may be slightly higher. It is easier to work out the rental amounts for apartments in housing complexes or societies since they all have the same common amenities and features to offer. Rental amounts for properties are majorly dependent upon the location, capital values, demand and overall amenities available. The ready reckoner rate is also a useful guide for helping with rent calculation.
Also Read: Difference Between a Rental and a Lease Agreement
