It would not be easy to let out the property and feel 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 'Lesser',
and the person who accepts the transfer of property is called the 'Lessee'.
According to section 105 of the Transfer of Property Act, 1882, 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, or 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 lesser by the lessee for 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) terms of lease
(4) consideration or rent and (5) duration
of lease.
A lease transaction involves commitment by both the landlord and the
tenant which are complimentary to each other - the landlord agreeing to let out
his property to the tenant in consideration of the alteration.
paying him the rent and the tenant agreeing to pay to
landlord the rent 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 possession and use of property owned by some other person. It is the outcome
of 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 existence of tenancy. A lease of immovable property may be affected either under a registered instrument or under an
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 is to
be made only under a registered instrument of lease[Sec.107 of T.P.Act] and the
lease agreements for a period less than one year do not require registration.
One Year 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 under sec.17( d) of the Indian Registration Act, 1908.
An agreement of lease should be drafted carefully and
properly to protect the rights of both the parties and to avoid any
misunderstanding at a later date. It should be fair to both the Lessor
(landlord) and the Lessee (tenant). It should invariably mention the parties
name and address, description of the property, duration of lease, monthly rent payable, date of payment of monthly rent; clause for enhancement of rent on renewal of lease, amount of interest-free refundable security deposit, penalty
clause in case of default in payment of rent, liability of the lessee for
damages to the property and the fixtures and fittings, notice period in case of
premature termination of lease; date of commencement of lease and the date of
expiration of lease; notice period and manner in which the notice will have to
be served etc.
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 interference. He hall
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 for 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 an end. He shall not
unfairly make deductions while refunding the security deposit on grounds of
repair to the leased property. The lessor is bound to disclose to the lessee
any material defect in property with reference to its intended use which the
former is and latter is not aware and which the latter could not with ordinary
care discover. The lessor is also bound on the lessee's request to put him in
possession of the property.
During subsistence of the lease, the lessee has a right
to enjoy the leased premises without 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 to enable 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 leased premises to the lessor
without creating any nuisance upon receipt of the earnest money deposit. If the
lessor fails 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
comes to know of any recovery proceedings in respect of the leased property, or of any encroachment, or interference with the lessor's right in respect of the leased premises, he is bound to give notice thereof to the lessor.
The following grievances are generally encountered by
the lessee and the lessor:
Some
lessors (landlords), for obvious reasons, fail to pay back the security deposit
to the lessees(tenants) upon termination of the lease agreement or make
unreason- able 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 period expires,
some landlords would start dodging till they get the security deposit from
another new tenant. It is the common practice that tenants prefer to continue
to occupy the leased premises till they get back the security deposit since
they feel that to get back their security deposit from the landlord upon vacating the leased premises could be a difficult task. In the absence of
payment of monthly rent from the tenant during this period, the landlords
resort to adjust the rent against the security deposit till the security
deposit wipes out.
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