Rent Agreement: Important Clauses Explained

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The tenancy agreement creates various rights and obligations on you and the property owner. Without a contract to decide what happens when rights are breached or obligations not performed, problems will surely ensue. If you’re not familiar with the procedure, you should pay a lawyer to take you through it. A range of disputes could arise from a badly drawn out leave and license agreement. The contract should address all the key issues and state what the consequences will be in case of a dispute.

Clauses in a Leave & License Agreement

Leave and license agreements have similar elements, but what’s important is how it has been worded. So don’t just check to see it’s all there, read carefully to check its meaning. Here’s what you need to look out for.

Names: Always look for the names mentioned in the agreement. The names of the licensor and the licensee should, of course, be mentioned. Ensure that the person presenting himself as the owner, genuinely is the owner. Also ensure that the agreement doesn’t create a relationship with any other person or entity.

Address: In agreements of immovable property, the address is always described in a detailed manner. The full address of the property, a description of the house and the surrounding areas are a must.

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Term of Agreement: The term is the period of the license. Often, it is for 11 months, but this can be increased to five years as well. There isn’t any restriction on the time. There may also be a mention of a lock-in period. For example, an agreement may penalise the tenant for terminating the agreement within a short period of time (usually six months) by withholding the entire amount or a portion of the deposit. Lock-in periods aren’t enforceable in court, but if you sign an agreement that stipulates a lock-in period, you are bound to abide by it.

Repairs: The agreement should clearly mention the condition the apartment should be in. This is important because the landlord then has to maintain and repair the home as and when necessary. The rental agreement should mention a clause for regular maintenance of the property. Usually, tenants take care of minor repairs. It is important that you look at the shape the property is in before taking possession. Find out if electrical and water connections are in working condition.

Alterations: Tenants can’t just make any change to the property. There need to be guidelines as to what can and can’t be done. Usually, structural changes are not allowed. The contract could also specify how often the apartment needs to be painted. However, this would only be with contracts with a term longer than 11 months. If the property owner renews the contract every 11 months, this is usually discussed sporadically.

Mode of Payment: Some landlords prefer post-dated cheques of a few months, if not the duration of the lease. The agreement should mention the amount to be paid and when it needs to be paid. Preferably, make all payments by cheque so that transactions are recorded and transparent. In case of a dispute, the owner cannot allege non-payment or late payment. It should also mention the penalty payable in case of delays in payment of rent.

Security Deposit: There’s always a deposit to be paid. Usually the deposit is two months’ rent. This money is security in the hands of the landlord. It ensures that the tenant doesn’t just leave without serving the notice period or cause damage to the property. As far as possible, pay this amount by cheque. Some owners may wish to deduct a certain sum when you want to move out. So find out the proportion and under what circumstances the money
can be deducted. This should be in the agreement.

Notice Period: Both parties must serve a notice period. If the landlord wants to terminate the contract or you wish to do so, a notice period, usually of one month, needs to be served. Some agreements, however, may specify a longer time period. Always send your notice in written communication, with the date mentioned clearly.

Escalation Clause: There’s usually a clause in the agreement that the rate will be revised upwards annually. A 5%-15% increase is normal, but this depends on the prevailing market rate in your city.

Registration of Rental Agreement

Registration is creating a record of the agreement in the government database. In case of a dispute, only a registered agreement is admissible as evidence in court. Its authenticity is presumed unless proved otherwise, whereas a notarised
agreement is inadmissible because it is very easy for either the owner or licensee to say that they have not signed it or claim the agreement is fake. This is not possible in case of a registered agreement as the photos of the people signing are also included and recorded on the agreement and in the government database.

Registration protects both parties. Firstly, it creates a record of the deposit paid. If the owner does not refund the deposit it would be difficult for the licensee to recover the money without the registered agreement. Similarly, the owner is protected by having the agreement registered as the licensee cannot exaggerate his rights. At the end of term, if the licensee does not vacate the premises, the owner can initiate legal proceedings and have the premises vacated.
After taking an appointment, for the same at the registrar’s or sub-registrar’s office, the owner and the licensee, along with two witnesses, are to be present.

Photographs of all persons present and their signatures are recorded in the government database as well as attached to the agreement. The authorities check that all the identity and address proofs are correct and the photos make it easier to trace any person who has signed. Also, the local police station is informed of the leave and license and a copy is given to them. After the document is registered, stamp duty will also need to be paid.

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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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