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.
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 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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