Everything you need to know about rent agreements

As home ownership may sometimes be inconvenient or unaffordable, a majority of the migrant working population in India’s major cities live in rented homes. So much so that many states in India are currently busy working out the details of more future-aligned rental policies, to promote this segment of housing in the country.

In fact, the union cabinet recently gave its approval to the Model Tenancy Act, 2019, a piece of legislation that is likely to significantly improve the rental real estate market in India. The central version will be circulated to states for adaptation, by way of enacting fresh legislation or amending existing rental laws suitably.

According to the draft Model Tenancy Act of the union government (all states have to base their draft rental laws on this act), the tenant must sign a rent agreement when entering into a rental arrangement with a landlord.  The rent agreement must include the terms and conditions that shall be binding on both the parties.

Model Tenancy Act

To promote rental housing in India, the government formulated the Model Tenancy Act, to make the transaction beneficial for both, landlords and tenants. The provisions laid under this model policy, are intended to serve as guiding principles, while drafting rent agreements. According to the union housing secretary, the policy, which will replace the existing laws on rental housing across India after states notify it, will unlock over one crore units in India’s rental housing markets.

However, note here that the existing rent agreements will remain outside the purview of the model tenancy law, since it is progressive in nature and will not take effect retrospectively. While saying that states have been asked to implement the Model Tenancy Act, 2019, with immediate effect after the union cabinet recently approved the central version of the law, housing secretary Durga Shanker Mishra, on July 21, 2021, said that the provisions of the law clearly mentioned that all disputes related to existing rent agreements would be dealt with under the old laws, even after they were repealed.

Legal validity of rent agreement

To save costs, tenants and landlords sometimes reach a verbal agreement about the tenancy and avoid executing a rent agreement. Some may also document the arrangement and put terms and conditions with respect to the tenancy but decide not to register the document. This is because both parties will be responsible to pay a registration charge if a rent agreement is created and registered. The landlord will also be obliged to report his rental income, once the rent agreement finds legal validity. However, entering into a rental agreement without registration is illegal and could prove to be a risky business for both parties, especially in case of a future dispute.

Until a rent agreement is registered with the sub-registrar’s office, it has no legal validity. It is in the favour of both the parties, to draft an agreement with specific terms and conditions and to get it registered. After drafting the rent agreement, the landlord should print it on stamp paper. Once the tenant and the landlord sign the documents in the presence of two witnesses, they should register it at the sub-registrar’s office, after paying the required fee.

After states set up rent authorities in cities following the implementation of the draft law, landlords and tenants would have to be present before the authority to get the  registered.

Rent agreement format in English and Hindi

Click here to check out the format of a rental agreement in English.

Click here to check out the format of a rental agreement in Hindi.

Documents needed for rent agreement registration

Details to be included in the rent agreement

Key details included in a standard rent agreement are:

• Names and addresses of the tenant and the landlord.
• Signatures of the tenant and the landlord.
• Monthly rental amount.
• Security deposit.
• Maintenance charges.
• Period of stay.
• Responsibilities/rights of the landlord.
• Responsibilities/rights of the tenant.

See also: Most important clauses for any rental agreement

Stamp duty on rent agreement

You have to pay a stamp duty while registering the rent agreement, which will vary, depending on the city where it is registered. This amount is paid, by purchasing the stamp paper of value you owe to the government. In Delhi, the stamp duty is payable at 2% of the average annual rent, in the case of lease agreements for a term of up to five years. In Noida, one has to pay 2% of the annual rent as stamp duty, for rent agreements of up to 11 months.

See also: Income tax deduction on rent paid, under Section 80GG

e-stamping of rent agreement

In some states, where the e-stamping facility for rental agreements is available, you do not have to physically buy the stamp paper. You can log on to the Stock Holding Corporation of India Ltd (SHCIL) website and check, if the state where you reside offers this facility. Presently, Assam, Gujarat, Himachal Pradesh, Karnataka, Maharashtra, Delhi-NCR, Tamil Nadu, Uttarakhand and Uttar Pradesh, allow e-stamping of rent agreements.

Rent agreement: Important terms and conditions

For tenants

Security deposit and token amount: The agreement must clearly mention the security deposit and what happens to it, when you leave the premises. It should also mention the token amount that the landlord has received from you.

See also: How much security deposit can landlords charge?

Number of occupants: The agreement must state what happens, if your family members join you in future.

Repairs: The agreement must mention who will bear the costs associated with wear and tear.

Maintenance: The agreement must clearly state who will be liable to pay the monthly maintenance charges.

Visitors: The agreement must include a clause on who can visit you and at what time.

Pet policy: Do check out if your landlord will allow you to keep pets, if you were to adopt one.

Rent receipt: To get the tax benefits on the HRA component of your salary, you will have to submit the rent receipts with your employer. Make sure you take these receipts from your landlord, after making the payment. These do not necessarily have to be taken every month and could be taken on a quarterly, half-yearly or an annual basis.

For landlords

Conditions to vacate your property.

Visiting hours.

Damages to property and its consequences on the tenant.

Rules on subletting.

See also: Arbitration clause in rental agreements and how it can help landlords and tenants

Rent hike

Under the provisions of the Draft Model Tenancy Act, 2019, landlords cannot implement any hike in the pre-fixed rent for the entire period for which a rent agreement has been signed. If the rent agreement expires after 11 months, for example, the landlord cannot hike the monthly rent during this period. It is only after this period and at the time of the registration of the new rent agreement that the landlord is legally empowered to effect a hike in rate, typically not exceeding 10% of the existing amount. Also, the landlord will have to give three months’ notice to the tenant, before increasing the rent according to the draft act.

Penalty for delay in rent payment

The draft law also states that tenants extending their stay in a rented accommodation as mentioned in the agreement ,will be liable to pay double the rent amount for the first two months and four times the rent in the subsequent months.

Is it compulsory to register a rent agreement?

Note here that notarised rent agreements are not the same as registered documents. In case of a dispute between the landlord and the tenant, the court will not admit a notarised agreement as proof. Hence, it is important to get the rent agreement duly registered.

Key tips for tenants

To steer clear of all hassles, make sure your rent agreement clearly states each and every term of the arrangement. No matter how trivial it might sound to you initially, it is always a good practice to provide verbal agreements with documentary backing. Remember that in case of a dispute, this is the document that would act as a safety for you. If need be, consult a legal expert, before entering into a rental agreement.

It might also not be a bad idea, to hire the services of a broker who would help you with the rent agreement work. These days, this task could also be accomplished by using online services offered by property brokerage companies, such as Housing Edge.

Can your landlord evict you over your failure to pay rent during the COVID-19 pandemic?

Under the provisions of the Draft Model Tenancy law in India, landlords could initiate the eviction process, if their tenants fail to pay the rent for two months in a row. So, unless states start issuing a directive to landlords in this regard, like they did in 2020 during the first wave of COVID-19, the landlords would be well within their legal right to ask their tenants to move out.

“Not only can the landlord ask you to move out of their premises, he would also be allowed to keep a large part of the security deposit to claim the unpaid rent,” says Prabhanshu Kishra, a Lucknow-based lawyer.

FAQs