Lease Agreement: What it is & Terms & Conditions

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All of us have had to make a lease agreement one or several times in life, for various reasons, say, for renting a house, for leasing out a property and so on. There is always a format available somewhere, and we get our hands on such copies (since thankfully, lease agreements do not come into copyright issues).

However, since specific additions to the lease agreements or special requests need to be filled only by the party who is making the agreement or their lawyer, it may be of interest to understand what lease agreements are, and how or why to make it.
A lease agreement, as we know, is a contract between two parties, (a lessee and the lessor here, the lessee being the one who is renting/leasing the property, and the lessor, the owner), wherein, specific conditions are mentioned about renting or leasing the property. It is a legal agreement which gives the lessee the right to occupy the property for the tenure mentioned on it, but does not give them the right to own it.

The lease also carries specifications, instructions and conditions the lessor has laid down and accepted by both parties, during the tenure of their occupancy in the property.

The lease agreement, therefore, is a very crucial document for both parties, the one who is renting it out and the one who is giving his property on rent. There are several issues wherein the lessor has signed an agreement and the lessee has misused the property or sublet it.
Similarly, in cities like Kolkata, where there are several old houses being sublet, there are cases pending for years together against the lessees who have refused to vacate the property Let to them by the lessor. And, there is also a case of increasing the rents or the percentage of increase one has to bear year after year or after a certain duration as mentioned by the lessor.

Hence, because of all the above mentioned issues, and much more that we see every day, it is essential to understand what needs to go into your lease agreement while renting/letting your property. The lease agreement is a legally binding document which is notarized and signed by both parties, and thus, makes it mandatory for them to follow the instructions in it.

This article looks into the necessary inclusions in a lease agreements and the difference between a rental and a lease agreement.

Details to be included in a lease agreement:
A lease agreement is a legally binding document. Hence, irrespective of its length or the number of pages it contains, it is essential to include certain mandatory details to make it agreeable to both parties.

The name of both parties with their address

Let us consider an example here. You, as a lessor, are letting out a property that is in the name of both you and your wife. Similarly, the lessees are three individuals who have come to rent it out.

When you are making an agreement, it is necessary to include both your and your spouse’s name as lessor, with your present address. Similarly, although they will be renting out the property, the lessees will have an original address. Include the names of the all the three lessees with their original address.

What a lease agreement should contain, therefore, is the name and address of each adult member who will be occupying the rented accommodation/lease property. All their signatures are mandatory requirement too, to make the document valid.
The inclusion of all their names (as well as both your names) gives equal rights to all the three individuals and if one of them breaks a rule in the lease agreement, you will have the legal rights to end their tenancy.

Terms and conditions

When you are leasing or renting out a property, there are several conditions to be included.
For instance, if you are making an agreement for eleven months, what or how the intimation for ending the tenancy will be made, and on what date the tenancy will come to an end, is one consideration.
If the tenant wants to continue staying at the property, how or when that intimation needs to be made, and what will be the conditions- will there be an increase in the rent, and if so, what will be the percentage of increase?
If the lessee has made an agreement for five years, will there be an interim increase in rent/lease?
How and when will the rent be paid every month and what will be the mode of payment? What is the rent amount fixed for the lease period?
Whether the property is Let on lease or rent. (There is a marked difference between how a lease works and how rental agreements are made)

Occupancy limits:

The lease agreement should specify the number of individuals who will be staying in the property. As it is seen in many cases, India is a country where guests have divine powers and can stay for as long as they wish. This may result in the property being Let occupied by a group of individuals who never figured in the lease agreement, and since they are guests, they are not permanent members. However, what if they are going to occupy months at a time, and use the rental property?
While it may not affect you as a lessor, the society might have objections to it, and the usage of your rental accommodation might increase, thereby enhancing its wear and tear. Hence, the lease agreements should carry the detailed account of occupancy limits.
This detail will give you a legal right to vacate a tenant who have brought in a relative or friend and sublet a part of your apartment.

Movable assets within the property and its conditions

With so many floating population in big cities, it becomes impossible to take care of every single detail when it is being rented out year after year. However, if you want to safeguard the movable assets inside the property, such as ceiling fans, furniture, wardrobes and so on, make a list of all the items, and put it in the lease agreement stating their conditions and what will be the fine charged in case of any damage. This way, even though you can give leeway to some wear and tear on usage, any major damage will be covered legally in the document and you can recover their loss/damage from the last rent.

Maintenance and repair

It is always a major bone of contention between the lessor and the lessee regarding the maintenance and repair of the property. A tenant, who has lived in the property for one year, might want to apply a new coat of paint, repair the movable assets or a wardrobe, or might just require a general maintenance before renewal or in-between the tenancy.

As a lessee, you might want to ensure the terms are clear regarding the maintenance issues and the lessor will take care of it. The lessor can, in turn, suggest such possibilities and agree upon a middle ground to seek out any such issues. Putting these up in the lease agreement might help both parties achieve a better understanding.

Rental deposits

While it is a norm in India to deposit a security amount before occupying the property, the terms and conditions or the percentage of such deposits differs in various States. In cities like Bangalore or Chennai, where there is a lot of floating population, the amount ranges from ten to twelve months rent in advance.

This might work out to be huge in case of Mumbai, where rental prices are quite exorbitant. Hence, whatever the conditions may be in your area, a lessor and lessee can come to an agreement on this, and put it up in the document stating the:

What are the conditions for returning it back to the lessee by the lessor, at the end of the tenancy: Since the amount involved is quite substantial, a proper agreement needs to be reached and signed to avoid any hassles at the end of tenancy.

Miscellaneous clauses
There are several other clauses depending upon where your property is, and also your personal conditions. For instance, if you are renting a property within a society, which has a club house and a pool, you might need a signed agreement from the owner for its usage. The society might protest otherwise, and can charge you extra for the same.

Similarly, many are averse to brining pets or even food preferences. Mentioning them in the miscellaneous clause may put an end to the hassles which may arise later, during the period of tenancy.

Any other conditions such as disruptive behaviour of the tenants or the noise created can be put on paper to avoid tiff with the neighbours.

While all the above mentioned details may or may not figure out in one single lease agreement, having them in your mind, while making the agreement may prove useful and avoid legal hassles.

All the above mentioned conditions apply for both the lessee and lessor. As a tenant, however, ensure that you are renting the property out from its legal owner only, and not a third party. Even though you have dealt with the initial formalities with an agent, it is essential that the owner be involved (or a legally authorized signatory) during the signing of the lease agreement to make it legal.

Difference between a lease and a rent agreement:
Both lease and rent agreements are between a lessor and a lessee. However, a lease agreement is made when the lessor provides the use of a property for a set period of time, and a one time payment is made out by the lessee, after signing in the contractual agreement.

In case of rental agreements, the contract states the monthly rent to be paid, the date on which it needs to be done as well as the tenure of occupancy.

While there are no major differences between the two, a rental agreement usually is made on a month to month basis, and the tenure can be extended with the conditions given.

A lease agreement is made for extended periods, sometimes even up to five years, and extensions require a fresh agreement to be documented.
Both are legally authorized and carry a great value when you need to contest a court case on the rights of occupancy or on any other issues relating to the said property.

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A lawyer with 14 years' experience, Vikram has worked with several well-known corporate law firms before joining Vakilsearch.

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