What is a rent agreement?
A rent agreement is a document that is signed between a landlord and a tenant to initiate and govern a tenancy. Rent agreements mention every detail about the two parties — the landlord and the renter, and the terms and conditions of the tenancy. Both parties have to follow the rules mentioned in the rent agreement.
Rent agreement regulation in India
Rental housing has become quite big in a developing country like India. So much so that many states in India are currently busy working out the details of more future-aligned rental policies to promote this segment of housing in the country, after the union cabinet gave its approval to the Model Tenancy Act, 2019.
According to the draft Model Tenancy Act of the union government (all states have to base their draft rental laws on this Act), the tenant must sign a rent agreement when entering into a rental arrangement with a landlord. The rent agreement must include the terms and conditions that shall be binding on both the parties.
Also read about the importance of revenue stamp on rent receipt
Rent agreement under Model Tenancy Act
To promote rental housing in India, the government formulated the Model Tenancy Act to make the transaction beneficial for both, landlords and tenants. The provisions laid under this model policy are intended to serve as guiding principles while drafting rent agreements.
The law will replace the existing laws on rental housing across India after states notify it. However, note here that the existing rent agreements will remain outside the purview of the model tenancy law since it is progressive in nature and will not take effect retrospectively. All disputes related to existing rent agreements would be dealt with under the old laws, even after they were repealed.
Also, on rent agreements signed between the landlord and the tenant for a period of up to 11 months, the rules of the MTA will not be applicable. This also means that neither the landlord nor the tenant will be able to cite the rules of the model law in case of disputes.
Check out the difference between Leave and license agreement
Legal validity of rent agreement
To save costs, tenants and landlords sometimes reach a verbal agreement about the tenancy and avoid executing a rent agreement. Some may also document the arrangement and put terms and conditions with respect to the tenancy but decide not to register the document. This is because both parties will be responsible to pay a registration charge if a rent agreement is created and registered. The landlord will also be obliged to report his rental income, once the rent agreement finds legal validity. However, entering into a rental agreement without registration is illegal and could prove to be a risky business for both parties, especially in case of a future dispute.
Until a rent agreement is registered with the sub-registrar’s office, it has no legal validity. It is in the favour of both the parties, to draft an agreement with specific terms and conditions and to get it registered. After drafting the rent agreement, the landlord should print it on stamp paper. Once the tenant and the landlord sign the documents in the presence of two witnesses, they should register it at the sub-registrar’s office, after paying the required fee.
After states set up rent authorities in cities following the implementation of the draft law, landlords and tenants would have to be present before the authority to get the rent agreement registered.
Why are rent agreements for 11 months?
For as long as a rent agreement is executed for 11 months, the document is able to avoid applicability of rental regulations.
According to Brajesh Mishra, advocate at the Punjab & Haryana High Court, it would be more expensive for a tenant, if rent agreements were created for a period of over 11 months. Since no registration is necessary, a rent agreement signed for an 11-month period does not attract stamp duty and other charges. Note that payment of these charges is the responsibility of the tenant.
Having a rent agreement exceeding a period of 11 months would also be quite cumbersome for the landlord from a legal perspective. With the rules of the MTA becoming applicable, the landlord will be have to shoulder more responsibilities than a typical landlord in India’s rented market is accustomed to.
“If the rent period is exceeded by another month to, say, 12 months, several laws will come into effect, complicating the process for both, the tenant and the landlord. To avert such a situation, the renting period is kept at 11 months, irrespective of the period for which the landlord might be intending to let out his property. This contract is later renewed for another term. This way, several complications are avoided by both the parties,” says Mishra.
Rent agreement format
Here is a basic rent agreement format. Note that this rent agreement format is an 11 month rent agreement format.
Rent Agreement
This rent agreement is made on this __________ (date) by ________________ (name of the landlord) S/o _______________ (father’s name of the landlord), Address: ___________________________________________________ (residential address of the landlord). Hereinafter called the Lessor/Owner, and first party
AND
_____________________________ (Name of tenant), called lessee/tenant, or second party
The expression Lessor/Owner and the Lessee/Tenant shall mean and include their legal heirs successors, assigns, representatives etc.
Whereas the first party is the owner and in possession of the property No: _______________________________________________________________________________________________ (address of rented property) and has agreed to let out the said property to the second party for a monthly rent of Rs. ______/- (in words) per month.
Now This Rent Agreement Witness As Under:
That the second party will have to pay Rs. ______/- (in words) as monthly rent, which does not include electricity and water charges.
That the second party shall pay one month rent in advance to the landlord that would be further adjusted in the monthly rent.
That the second party shall pay the water and electricity charges on the basis of the consumption to the landlord/owner.
That the second party shall not lease the property to a subtenant under any circumstances without the consent of the owner/landlord.
That the second party shall follow all the rules and regulations, by-laws set by the local authorities in respect of the leased property and will not get involved or do illegal activities in the leased property.
That this rent agreement is granted for a period of eleven (11) months starting from ___________, and this contract can be extended further with the mutual consent of both the parties.
That the second party shall not be permitted to do a construction in the rented premises. Besides, he/she could do the installation of temporary decoration, wooden partition/cabin, air conditioners etc. without seeking the permission of the landlord.
That the second party is not allowed to make any alteration in the rented property without the written consent of the owner.
That the second party will have to allow the landlord or his authorized agent to enter in to rented premises for its inspection or general checking for any repair work, if needed.
That the second party shall keep the premises clean.
That the second party shall bear the cost of day to day minor repairs.
That this contract/agreement could be revoked before the expiry of this tenancy period by serving one month prior notice.
That both the parties have read and understood this agreement and have agreed to sign the same without any pressure from any side.
In WITNESS WHEREOF
The landlord and the tenant have hereunto subscribed their hand at ______ (place) on this the _____________ (date of rent agreement) year first above mentioned in presence of the following witnesses.
Witnesses:
1.
2.
___________ (name of the landlord) _________________ (name of the tenant)
Lessor Lessee
Rent agreement format in word
Click here to download rent agreement in word format.
Know all about HRA calculation & HRA exemption on rent paid
Documents needed for rent agreement registration
| Landlord |
| Two passport-sized photos.Aadhaar card.Identity proof (driving licence, voter card or passport). |
| Tenant |
| Two passport-sized photos.Aadhaar card.Voter ID card.Passport for people from outside India. |
Details to be included in the rent agreement
Key details included in a standard rent agreement are:
- Names and addresses of the tenant and the landlord.
- Signatures of the tenant and the landlord.
- Monthly rental amount.
- Security deposit.
- Maintenance charges.
- Period of stay.
- Responsibilities/rights of the landlord.
- Responsibilities/rights of the tenant.
| Housing.com has launched a fully digital and contactless service, to create rental agreements. If you would like to complete the formalities in a quick and hassle-free manner, all you need to do, is fill out the details, create the Rent Agreement Online, sign the agreement digitally and get it e-stamped in seconds. |
Stamp duty on rent agreement
You have to pay a stamp duty while registering the rent agreement, which will vary, depending on the city where it is registered. This amount is paid, by purchasing the stamp paper of value you owe to the government. In Delhi, the stamp duty is payable at 2% of the average annual rent, in the case of lease agreements for a term of up to five years. In Noida, one has to pay 2% of the annual rent as stamp duty, for rent agreements of up to 11 months.
See also: Income tax deduction on rent paid, under Section 80GG
e-stamping of rent agreement
In some states, where the e-stamping facility for rental agreements is available, you do not have to physically buy the stamp paper. You can log on to the Stock Holding Corporation of India Ltd (SHCIL) website and check, if the state where you reside offers this facility. Presently, Assam, Gujarat, Himachal Pradesh, Karnataka, Maharashtra, Delhi-NCR, Tamil Nadu, Uttarakhand and Uttar Pradesh, allow e-stamping of rent agreements.
Rent agreement: Key terms and conditions
For tenants
Security deposit and token amount: The agreement must clearly mention the security deposit and what happens to it, when you leave the premises. It should also mention the token amount that the landlord has received from you.
Number of occupants: The agreement must state what happens, if your family members join you in future.
Repairs: The agreement must mention who will bear the costs associated with wear and tear.
Maintenance: The agreement must clearly state who will be liable to pay the monthly maintenance charges.
Visitors: The agreement must include a clause on who can visit you and at what time.
Pet policy: Do check out if your landlord will allow you to keep pets, if you were to adopt one.
Rent receipt: To get the tax benefits on the HRA component of your salary, you will have to submit the rent receipts with your employer. Make sure you take these receipts from your landlord, after making the payment. These do not necessarily have to be taken every month and could be taken on a quarterly, half-yearly or an annual basis.
See also: Can I claim HRA for different city?
For landlords
Conditions to vacate your property.
Visiting hours.
Damages to property and its consequences on the tenant.
Rules on subletting.
See also: Arbitration clause in rental agreements and how it can help landlords and tenants
Rent hike
Under the provisions of the Draft Model Tenancy Act, 2019, landlords cannot implement any hike in the pre-fixed rent for the entire period for which a rent agreement has been signed. If the rent agreement expires after 11 months, for example, the landlord cannot hike the monthly rent during this period. It is only after this period and at the time of the registration of the new rent agreement that the landlord is legally empowered to effect a hike in rate, typically not exceeding 10% of the existing amount. Also, the landlord will have to give three months’ notice to the tenant, before increasing the rent according to the draft act.
Rent can’t be hiked on unregistered properties: Karnataka HC
Landlords can increase the rent under the provisions of the existing rental laws only if the rent agreement is registered, the Karnataka High Court (HC) has ruled. In case the tenancy period is more than 11 months, and the rent agreement is not registered, the legal provisions of rent enhancement don’t apply, the HC elaborated. Such lease agreement can only be considered for collateral purposes, it added.
Read full coverage here.
Penalty for delay in rent payment
The draft law also states that tenants extending their stay in a rented accommodation as mentioned in the agreement ,will be liable to pay double the rent amount for the first two months and four times the rent in the subsequent months.
Is it compulsory to register a rent agreement?
Note here that notarised rent agreements are not the same as registered documents. In case of a dispute between the landlord and the tenant, the court will not admit a notarised agreement as proof. Hence, it is important to get the rent agreement duly registered.
Role of rent agreement in claiming tax deduction
To save tax deducted on the HRA component of their salary, employees have to provide proof of rent payment. This is typically done by providing a registered rental agreement as well as rent receipts. Since fake rent receipts are a common tool used by miscreants to evade taxes, the income tax department may demand the rent agreement to check the veracity of your HRA deduction claims.
Key tips for tenants
To steer clear of all hassles, make sure your rent agreement clearly states each and every term of the arrangement. No matter how trivial it might sound to you initially, it is always a good practice to provide verbal agreements with documentary backing. Remember that in case of a dispute, this is the document that would act as a safety for you. If need be, consult a legal expert, before entering into a rental agreement.
It might also not be a bad idea, to hire the services of a broker who would help you with the rent agreement work. These days, this task could also be accomplished by using online services offered by property brokerage companies, such as Housing Edge.
FAQs
What should be included in a rental agreement?
The rent agreement should include the names and address of the landlord and tenant, terms of the tenancy, period of tenancy, rent and security deposit amount, restrictions on both parties, conditions for termination of the agreement, conditions for renewal and details of who should bear other charges such as maintenance charges, repairs, etc.
What are the components of rental agreement?
The key components of a rental agreement include: Names and addresses of the tenant and the landlord. Signatures of the tenant and the landlord. Monthly rental amount. Security deposit. Maintenance charges. Period of stay. Responsibilities/rights of the landlord. Responsibilities/rights of the tenant.
What is the significance of rental agreement?
Rental agreement is a legal contracts that safeguards the rights of both the landlord and the tenant while clearly expressing their duties so that there is no room for doubt or confusion with regard to the two. This in turn narrows the scope for future dispute.
How many types of rent agreements are there?
There are two main types of rent agreement, lease & licence agreement and lease agreement.
What is difference between rent agreement and registered agreement?
A registered rent agreement is printed on a stamp paper and registered with the sub-registrar of the area. An unregistered rent agreement is that which is printed on a stamp paper and attested by a public notary, typically lawyers.