RENTING OUT PROPERTIES

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It would not be that easy to let out the property and stay free from litigation unless there exists a properly drafted rental agreement. Therefore, it is better to know the salient features of the rental agreements before any property are let out.Rental agreements in the legal terminology are known as Lease Agreements. The person who transfers the property is called the ‘Lessor’, and the person who accepts the transfer of property is called the ‘Lessee’.

According to section 105 of the Transfer of Property Act, a lease is defined as “A lease of immovable property is a transfer of the right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of the price paid or promised, of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions   to the transferor by the transferee, who accepts the transfer on such terms”.  In short, a lease is a transfer of a right to enjoy the property of the lesssor by the lessee for a certain time, during which period the lessee is put in possession of the property upon payment of lease money or rent. 

Elements of a good lease

The essential elements of a lease are (1) parties, (2) subject matter, (3) the terms and (4) the consideration or rent.A lease transaction involves  commitments  by both the landlord and the tenant  which are  complimentary to each other,the landlord agreeing to let out his accommodation to the tenant in consideration of the latter paying him the rent and  the tenant agreeing to pay to landlord the rents in consideration of the landlord allowing him to use the leased premises. A lease is that form of encumbrance which consists of a right to the possession and use of property owned by some other person.It is the outcome of the separation of ownership and possession.

A tenancy is created not only by an express contract but also by implication by the conduct of parties.  Acceptance of rent by the landlord clearly establishes a tenancy. A lease of immovable property may be affected either by a registered instrument or by unregistered instrument.  However, in cases where the lease is from year to year or for any term exceeding one year or reserving a yearly rent the lease agreements are to be made only by a registered instrument [Sec.107 of T.P.Act] and the lease agreements for a period less than one year do not require registration.  Applicable stamp duty for lease agreements of a period of less than one year is Rs.50/-[Rupees fifty only].

Period

It is a common practice to terminate the lease agreement at the end of every eleventh month and  enter into a fresh Lease Agreement since if the rent is paid on yearly basis or if the period of lease exceeds one year, then it is mandatory to register the lease agreement. The practice of termination of lease agreements at the end of eleventh month and entering into new lease agreement is adopted generally to avoid payment of stamp duty and registration charges on such lease agreements.

Contents

An agreement of lease should be drafted carefully and properly to protect the rights of both the parties and to avoid any misunderstanding in the future. It should be fair to both the Lessor (landlord) and the Lessee (tenant). It should mention the parties to the deed, the description of the property being transferred, the duration of the lease, the monthly rent payable, the date of payment of the monthly rent; the clause for enhancement of rent on renewal of the lease period. The amount of interest-free refundable security deposit, penalty clauses in case of rent default, liability of the Lessee for damages to the property and the fixtures and fittings, notice period in case of early termination of lease; the date of commencement of lease and the date of expiry of lease; the notice period and manner in which the notice will have to be served must also be mentioned.

Obligations of the Lessor

The first and foremost duty of the lessor is to abide by the terms of the  lease agreement in letter and spirit and  to ensure that the  lessee is allowed to enjoy the leased premises without any interference from any unlawful person.  He shall have to ensure that all the basic and civic amenities are provided to the leased premises.  It is the responsibility of the lessor to carry out major repairs to the leased property to make it habitable and pay municipal and other taxes due on the property. The Lessor should ensure that the leased premises is not used for any immoral or unlawful purposes nor allow storing of any hazardous and inflammable materials like explosives etc.

Lessor shall issue receipts for the earnest money deposit and the rents received by him in respect of the leased property. The lessor shall refund the security deposit received from the Lessee when once the lease has come to end.  He shall not unfairly make deductions while refunding the security deposit on ground of repair to the damages caused by the lessee. Lessor is bound to disclose to the lessee any material defect in property, with reference to its intended use, of which the former is and latter is not aware, and which the latter could not with ordinary care discover. Lessor is also bound on the Lessee’s request to put him in possession of the property.

Obligations of the Lessee

During subsistence of the lease, the Lessee has a right to enjoy the leased premises without any interference from the Lessor or by any person on his behalf. The Lessee shall pay to the Lessor the monthly rent for the leased premises on the agreed date.  He shall also pay the electricity and water bills on or before due dates to the concerned authorities and furnish a copy of the receipt received by him from such authorities to the Lessor for his records. The Lessee shall always keep Lessor informed about the additions or alterations that the leased premises may require enabling the Lessor to attend to such work. The lessee shall not make any structural alterations to the premises or cause damages to fixtures and fittings during the subsistence of the lease.  The lessee is under a legal obligation not to use the leased premises for immoral or illegal purposes nor for storing the hazardous and inflammable materials like explosives, etc.

The lessee is under obligation to use the leased premises for self use and not to sub-let the same unless the lease agreement has a provision for sub-letting. He shall not cause any nuisance to the co-tenants; maintain the premises in a habitable condition, and on completion of the lease period, hand over the premises to the landlord without creating any nuisance, upon receipt of the earnest money deposit from the Lessor. If the Lessor neglects to make any repairs, within reasonable time after notice, the lessee may make the same himself and deduct the expense of such repairs with interest from the rent, or otherwise recover it from the Lessor. If the Lessee becomes aware of any proceeding to recover the property or any encroachment or any interference with the Lessor’s right concerning such property, he is bound to give, with reasonable diligence, notice thereof to the Lessor.

General grievance

The following grievances are generally encountered by the Lessee and the Lessor and an effective and properly drafted Lease Agreement shall contain penal clauses for failure to adhere by the parties to the terms and conditions of the agreement:

Non-refund of security deposit

Some of the Lessors (landlords), for obvious reasons, fail to pay back the security deposit to the Lessees (tenants) at the time of termination of lease agreement or make unreasonable deductions from the security deposit.  Generally,   the landlords who mainly depend upon the rental income and who would have utilized the security deposit for their personal needs fail to refund the security deposit as per agreement. Thus, when the tenant issues notice indicating his intention of vacating the leased premises or when the lease comes to an end, such landlords would start dodging till they get the security deposit from a new tenant. It is the common practice that tenants prefer to continue to occupy the leased premises till they receive back the security deposit fearing losing of security deposit once they have vacated the leased premises. In the absence of payment of monthly rent by the tenant during this period, the landlords resort to adjust the same against the security deposit and till the security deposit becomes nil.  

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Non-vacating the premises by the tenant

It is not uncommon that the tenants continue to occupy the leased premises even after the lapse of the lease period on some pretext or the other.Upon failure of the persuasive method adopted by the landlord to make the tenant vacate the leased premises the landlords, in many cases, take coercive action to get their leased premises vacated.

Thus, non-fulfillment of obligation by the landlord and the tenant would lead to uncalled for misunderstanding between the landlord and the tenant and would make sore the relationship between them, ending up in prolonged and uncalled for litigation.

Need for amicable settlement

All said and done, problems do crop up even when the lease agreements clearly spell out the rights, duties and obligations of the Lessor and Lessee since it is not possible to change the mindset of any person.However, what is needed is to adopt “give and take” policy by both the Lessor and Lessee and part over a friendly note instead of litigating the matter on the philosophy of “live and let others live”.

It is advisable for the landlords who intend to let out their property to rent to take the help of an experienced advocate in property matters to avoid any complications because of loop- holes in the lease agreement.

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