A rental agreement is a contract, usually written, between a landlord and tenant who wishes to have temporary possession of the property which is different from a lease and more typical for a fixed term.
Whenever it comes to giving out their property on rent, Property owners concerns usually revolve about the quantum of rent to be imposed, tenant’s ability to pay, the lease agreement, security deposit, lock-in period, verification tasks and registrations if any.
Without the due diligence, it can become a serious headache and often a nightmare for a property owner.
Proper legal documentation is vital while renting out a property in India. Infringement of property by illegal means such as delay or absence in the receipt of rent and unlawful actions owing to lapse in tenants’ background checks are some of the risks that property owners expose themselves to, in the absence of legal documentation. Moreover, without legal documentation, there won’t be any means to solve disputes.
Real estate experts opine that the amount to be charged as rent is directly related to the home’s value. Generally, the rental amount is 1% to 2% of the home’s total value. Other factors that can be considered are, the location of the property (upmarket locations will have higher rentals) and amenities being provided (fully furnished property, semi-furnished property). Other external charges, such as maintenance charges, may also be involved in the rent.
Every rental agreement should be in writing form and registered as well. The rental agreement should define the terms and conditions of the lease, the monthly rental cost and the security deposit. It should also clarify who will pay for the utilities, electricity, water and maintenance charges. The purpose of tenancy should be clearly specified – whether the property is being used for residential or commercial purposes. If the rental agreement is set to finish and you as an owner and your tenant agree to continue the term of the lease for a particular period of time, then, the extension should be in writing.
Registration of the lease agreement
We as a property lawyer suggest that It is vital to register the lease agreement, under the Registration Act, to make it valid legally. As per the Transfer of Property Act, lease deeds, with a time period of more than one year, should be registered. The general rule that is followed in the renting your property in India is to enter into a lease deed for 11 months, with the option to renew it when the period lapses, by another 11 months, provided specified conditions are fulfilled. Such leases should also be properly stamped.