INTRODUCTION
Are you unsure about your rights as the landlord or a tenant? Are you looking for ways to avoid the common mistakes in drafting a rental agreement to protect your interests? Then, you’ve landed at the right place. Here is the ultimate guide prepared by team YLCC for landlords, tenants and young lawyers willing to draft a Rental Agreement.
Recently, the government of Uttar Pradesh has initiated a platform for providing ‘e-rent agreements’ in Gautam Buddh Nagar (see here), and plans to extend the scheme to other districts in the state to issue lease deeds online. This online system allows tenants to directly enter into a contract with the owner of the property in a more secure and trustworthy way.
A rental agreement, which is also known as a lease deed, is a formal contract that documents the terms and conditions of property rental between a landlord and a tenant. It contains crucial information such as the details of the residential property, the tenant’s and owner’s information, the lease period, and the rental fee. Both the landlord and the tenant are obligated to follow the agreement until the lease period expires.
Usually, the rental agreement is drafted on stamp paper and serves as a legally binding document that helps to prevent any potential conflicts between the landlord and the tenant. It ensures the protection of the landlord’s property and guarantees that the tenant is not subjected to any unlawful requests or demands.
It is an essential document for a landlord because it outlines the terms and conditions between the landlord and the tenant. It also includes provisions related to the rental amount, payment schedule, lease term, and conditions for renewing the lease and outlines the tenant’s rights and responsibilities, such as the requirement to maintain the property’s cleanliness and the prohibition of unauthorized modifications to the property. Additionally, it also serves as evidence in case of disputes or legal proceedings, providing documentation of the rental arrangement and protecting the landlord’s interests, and by having a rental agreement in place, the landlord can avoid misunderstandings and conflicts with the tenant, as well as safeguard their property from damage or misuse.
On the other hand, a Rental Agreement can protect a tenant’s interests by specifying the rental amount, payment schedule, and conditions for renewing the lease, outlining the maintenance and repair responsibilities of the landlord which involves specifying which party is responsible for fixing certain issues, such as plumbing problems, electrical issues, or structural damage, and by establishing rules and regulations, such as noise restrictions, guest policies, pet policies, and other guidelines for the rental property.
THE OVERVIEW
Rental Agreement vis-a-vis Model Tenancy Act, 2021
Rent Control Act, 1948 was enacted to regulate the leasing of properties and prevent exploitation of the rights of landlords and tenants. However, this Act was overly strict and tenant-friendly, impeding the growth of the real estate industry. In addition, some properties have been leased at the same rent since 1948, ignoring changes in the property’s value and inflation. To address these issues and ensure accurate valuation of rental properties, the Model Rent Legislation was introduced in 1992. Unfortunately, the 1992 Act was met with opposition from tenants and did not come into effect.
Now, according to the Model Tenancy Act, 2021, a written agreement must be signed by the landlord and tenant that includes the rent amount, tenancy period, terms for rent revision, security deposit payment, and the landlord’s rights to enter the property. This agreement must be reported to the Rent Authority within 2 (two) months of execution, regardless of the property type (residential, commercial, or educational). If a subletting agreement is executed, the 2021 Act requires a supplementary agreement between the landlord and tenant. Both parties must inform the Rent Authority of the subletting agreement within 2 (two) months of execution.
Key Points
- Digital platform: The Act requires a digital platform in the local language (Chapter II of the Model Tenancy Act) (see here) to be available to facilitate the proper execution of rental agreements as per the prescribed procedure.
- Submission of Documents: Under the act, both landlords and tenants are required to submit their Aadhaar numbers and attach the self-attested copies of their Aadhaar cards to the rental agreement form that is to be submitted to the Rent Authority. The details of the rental agreement, along with other necessary documents, must be uploaded on the Rent Authority’s website.
- Importance of registration: A registered rental agreement serves as valid proof in case of a dispute, and without it, the landlord may face difficulty in recovering any damages caused to the property by the tenant. This is due to the absence of clauses in the lease agreement that specify the condition in which the property is to be returned to the owner.
DRAFTING THE RENTAL AGREEMENT
To draft a comprehensive Rental Agreement, it is important to follow several key steps. The first step is to identify the parties involved, including the landlord and tenant, and provide their respective contact information. Next, the property being rented should be clearly described, including its address, type, and size. The agreement should specify the rent amount to be paid by the tenant, along with the payment schedule, due date, and method of payment. The start and end dates of the rental agreement should also be clearly stated, along with any renewal or extension terms.
The Rental Agreement should outline the security deposit amount, how it will be held, and the terms for its return. Maintenance responsibilities should be specified for both the tenant and landlord, including any repair or maintenance costs. Prohibited activities on the property, such as smoking, pets, or subletting, should also be listed.
It is important to detail eviction procedures and clearly outline the grounds for eviction, as well as the process to be followed in case of a breach of the agreement. Finally, the governing law and jurisdiction under which the agreement is to be interpreted and enforced should be included, along with spaces for the signatures of both parties and the date of signing.
However, before drafting a rental agreement, you need to know the following points:
- The Model Tenancy Law mandates that during the tenancy period, landlords cannot increase the rent amount without providing a written notice to the tenant. The notice must be given three months in advance of the proposed increase, and the new rent amount should be agreed upon by both parties.
- However, landlords are allowed to increase the rent amount if they have incurred expenses related to the improvement, addition, or structural alteration of the property. This does not include expenses related to repairs, which are the responsibility of the landlord.
- Landlords are entitled to approach the Rent Court to seek eviction of tenants who default on rent payments for 2 (two) consecutive months. Additionally, to dissuade tenants from overstaying after the expiry of the rental agreement, the law stipulates that tenants will be responsible for paying double the rent for 2 (two) months and 4 (four) times the rent in the following months.
THE KEY CLAUSES TO DRAFT A RENTAL AGREEMENT:
Payment Clause (Includes the amount of rent, security deposit, and other payments):
This clause in a rental agreement is a critical component that sets out the financial terms of the agreement. Here are some key points to remember when incorporating this clause:
- Rent amount: The agreement should clearly mention the monthly rent amount that the tenant has to pay to the landlord.
- Security deposit: The agreement should specify the amount of security deposit that the tenant is required to pay, and specify the terms and conditions for refunding the security deposit at the end of the tenancy period.
- Other payments: The agreement should also mention any other payments that the tenant is required to make, such as maintenance charges, water charges, electricity charges, or any other charges that the landlord may impose.
- Mode of payment: The agreement should clearly state the mode of payment that the tenant can use to pay the rent and other charges, such as online transfer, cheque, or cash.
- Due date for payment: The agreement should specify the due date for payment of rent and other charges and the consequences of non-payment or delayed payment.
- Rent increase: The agreement should clearly mention the circumstances under which the landlord can increase the rent amount and the notice period required for the same.
Term and Renewal Clause:
When incorporating a renewal clause in a rental agreement, here are some key points to remember:
- Specify the duration of the rental agreement and the conditions for renewal, including the notice period required for renewal.
- Clearly state the terms and conditions of the renewal, such as any changes in rent, security deposit, or other terms of the original agreement.
- Include provisions for automatic renewal, if applicable, and the conditions under which automatic renewal will be triggered.
- Specify the consequences of non-renewal, such as the requirement to vacate the premises and the procedure for returning the security deposit.
- Clarify the circumstances under which renewal may be denied, such as if the tenant has violated any of the terms of the original agreement or if the landlord requires the property for personal use.
Fittings and Fixtures Clause:
The Rental Agreement should include a detailed description of the property being rented, including the floor or apartment number, total area, number of rooms and bathrooms, living area, kitchen, etc. In case the property is furnished, it is important to have a comprehensive list of all the fixtures and fittings, such as beds, sofas, tables, chairs, wardrobes, fans, air conditioners, lights, and so on.
Restriction Clause:
A restriction clause in a rental agreement is a provision that sets out the limits of what tenants can and cannot do while renting a property. This clause is often included to protect the landlord’s interests and to ensure that tenants do not engage in any activities that may damage the property or cause a nuisance to the neighbors. The purpose of including a restriction clause is to ensure that the property is used in a responsible and reasonable manner. Landlords should make sure that the tenants acknowledge these restrictions and comply with them to avoid any legal issues or disputes with the landlord.
Some common restrictions that can be included in the rental agreement are:
- Limiting the number of occupants who can reside in the property.
- Restricting the use of the property for commercial purposes.
- Prohibiting the use of the property for illegal activities.
- Limiting the use of the property to residential purposes only.
- Prohibiting alterations or modifications to the property without the landlord’s prior written consent.
- Setting out specific rules for pets, noise levels, and other activities that may affect the property or the neighbors.
CONCLUSION
A Rental Agreement is an important legal document that helps to ensure the protection of both the landlord’s and tenant’s interests. With the Model Tenancy Act, 2021, there are now legal provisions that make it mandatory for landlords and tenants to enter into a written agreement and register the agreement with the Rent Authority. The rental agreement must contain important details, including the rent amount, payment schedule, lease period, security deposit, and maintenance responsibilities of both parties. By following the key steps for drafting a rental agreement and adhering to the provisions of the Model Tenancy Act, landlords can ensure that they have a legally binding document that will help to prevent disputes and protect their property, while tenants can ensure that their rights and interests are safeguarded.
Disclaimer: This article is for information purposes only. You are advised to consult a legal professional for drafting such crucial documents for your business.
This article has been written by Team Your Legal Career Coach (YLCC), for queries, please write to us at: queries.ylcc@gmail.com
