Renting an unused property is very good idea for generating an additional income. It is inevitable to make a rent agreement before giving property on rent. Rent agreement or lease agreement is a legal proof that proves that you have given property on lease to the tenant. You need to be extremely careful while making a rent agreement. However, it is generally seen that the task of making Rent agreement is outsourced to a property agent. Property agent does copy paste from old available rent agreement. Any mistake made in a rent agreement makes a life of landlord miserable. There are known cases where It becomes very difficult by a landlord to sort out legal conflict or to deal with fraudulent tenants due to legal mistakes made in a rent agreement. If you are planning to rent your property here is 10 common mistake to avoid while making a rent agreement.
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What is Rent Agreement or Lease agreement?
A rent agreement is a document which allows property owner (landlord) to authorize a person (tenant) to temporarily occupy and use the immovable property for the residential or commercial purpose. The agreement should be made on stamp paper and should be registered with the registrar at the place of a jurisdiction where the property is located.
10 mistake to avoid while making Rent Agreement
Duration of Lease
It is very important to specify a duration of the lease in the rent agreement. Any mistake in this regard can be very costly to the landlord. If you are renting a residential property you should enter in leave and license agreement with 11-month lease. This lease period can be of longer duration in case of factory, office premise, mall or cinema hall.
Termination clause and Notice period
A Rent agreement should clearly specify termination clause and notice period. The termination clause should be two sided stating that either of the parties can terminate the contract for any reason. The notice period is kept as one month or three months.
Lock in clause
One common mistake observed in agreement is the absence of lock in clause. Lock-in clause says that tenant cannot leave rented property before specified period. In case tenant decide to leave the rented property before lock in period he/she needs to pay the rented amount for the lock-in period as specified in rent agreement.
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Security Deposit clause
The agreement should clearly specify security deposit amount and refund condition. It should also specify that under what condition deposit amount shall be deducted.
Payment Clause
The agreement should clearly specify rent amount and grace period applicable for the payment. You should also specify mode of payment like cash, cheque or internet transfer.
Payment Default Clause
The agreement should clearly specify payment default clause or payment delay clause. It should clearly mention applicable penalty amount and consequences of default.
Sub Letting Clause
Not specifying subletting clause in the agreement is dangerous. By not specifying subletting clause you are allowing nasty tenant to sublet the property. In absence of this clause the tenant may sub lease the property to undesirable people.
Repair work during Occupancy
The repair clause should be specified clearly in the rent agreement. It should say that who will be responsible for the repair. It should also specify under what time period occupant is accountable for reporting damage for repair.
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Dispute Resolution Clause
The dispute resolution jurisdiction should be clearly specified in the rent agreement. This will be helpful in case of disputes between landlord and tenant.
General nuisance clauses
The rent agreement should contain clause of prohibiting tenant from creating noise, unlawful act and nuisance for the neighbors. It should also say what action will be initiated under such condition.
Other Conditions
Apart from the above mention clause you should also consider following points before giving property on rent.
- Never give property possession without rent agreement.
- Don’t forget to register your rent agreement.
- Proper Identification of property, landlord detail and tenant details should be specified in agreement.
- If flat is furnished agreement must contain complete list of furniture/appliance etc and approximate cost.
- It is good idea to specify enhancement of rent payable year on year in the rent agreement.
- The rent agreement should be made in the local language applicable in the state.
I hope above post will help you in making your rent agreement. If you have any query related to renting your property do share it in the comment section.
Kamal Garg
In my opinion:
1. Duration of the Lease Agreement : It can be more than 11 months. The period can be broken into two parts : One : main part of the lease agreement with 11 months duration and Second part: with an automatic increase in the duration for a further period of 11 months without resorting to any new Lease Agreement. To me, this option is better as it covers roughly two years without renewing the Agreement at every 11 months and is lawfully valid also (I am told this mode is legally valid).
2. Notice period : Termination notice period can be different for Lessor and Lessee. It need not be equal for both the parties. And that, this is also legally valid option.
I solicit your including your learned readers’ comments on this.
Ranganathan. L
Hi, I started living in a rented property from first of February, 2020, an agreement was made for 11 months and automatic renewal for two time, and with a clause of enhancement of 5%, when does the enhancement actually start
Raviraj Parekh
As it is done for 11 months it will start from January 2021.
Kamal Garg
In fact, why we all go for 11 months lease agreement, because in many States in India, if a lease agreement is for more than 11 months, it has to be compulsorily registered with Sub Registrar’s office and an appropriate stamp duty (which may vary from 2% to 6% of the rental value in aggregate) has be paid and that’s why, we all have been told that the period for lease agreement cannot be more than 11 months.