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Wednesday, January 13, 2016

House Renting Options

 

Renting Options

 

A property can be rented out mainly under two types of agreements - lease and license & leave. Lease is defined under Section 105 of the Transfer of Property Act, 1882. A lease of immoveable property is a transfer of a right to enjoy such property for a certain time or in perpetuity, on consideration to be rendered periodically or on specified occasions. The time period of lease is mentioned in the Lease agreement as agreed between both the parties.

Leave & license is defined in Section 52 of the Indian Easement Act, 1882. It does not create any interest in the premises in favor of the licensee, excepting a mere right to use and occupy the premises for a limited duration. Formerly, this duration was used to be in the multiples of 11 months or 12 months. After the enactment of Maharashtra Rent Control Act 1999, there is no stipulation regarding the total time period. However Leave and license agreement generally does not exceed three years. Most landlords prefer a Leave and License Agreement because the rent control laws apply to lease agreements having a duration of at least 12 months. 
NOTE: Leave & License Agreement is in practice in the state of Maharashtra.


Both Lease and Leave & License Agreements are required to be registered. A lease agreement is required to be stamped and registered according to Section 107 of the Transfer of Property Act, 1882. The registration of Leave and License Agreement is made compulsory under Section 55 of the Maharashtra Rent Control Act, 1999 the and it is the responsibility of the landlord to ensure registration. If the same is not registered, the landlord would be prosecuted and on conviction he's subject to up to three months imprisonment or be subject to fine not exceeding Rs.5000/- or with both.

The implications of entering into a lease agreement would be:

  • That stamp duty would have to be paid
  • That the document would have to be registered
  • That Municipal taxes may go up
  • Income-tax would have to be paid on your income; and
  • The question of Wealth-tax would have to be considered.

It is advisable to rent out properties for short duration. While big corporate may prefer a three-five year lease, landlords, in many parts of India, usually prefer to enter into an initial lease agreement for 11 months in order to avoid the expense and effort of registration. These agreements contain a clause providing for periodic extension of the agreement on the same terms with or without increase in rent.

Renting options and the corresponding agreement/deed should be executed after careful consideration of applicable local laws based on consultation with a reputed lawyer.

Renting Property without Agreement

Renting your property without a clear rental agreement or lease is an invitation for trouble. The landlord-tenant relationship has become very complicated today, with laws and regulations governing all aspects of renting residential property. Landlords have more responsibilities, tenants have more rights, and small claims court makes it easy to take disputes to a judge. All of the details of rental agreement should be recorded in a written lease or at least a month-to-month rental agreement.

In India it is a common practice to rent property without written agreements -- generally landlord just have a conversation with the tenant, complete the tenant's check, and let the tenant move in. In present day scenario where tenants enjoys legal rights, don't take a chance -- use a legal, complete rental agreement or lease. Mentioned below are the reasons for the use of rental agreement:

Avoid Disputes: A landlord who provides no written lease often finds that the result is chaos. With no clear agreement written down, every small disagreement - whether it's over repairs, the fee for a late rent check, or deductions made from a departing tenant's security deposit -- has the potential to escalate into a nasty legal battle.

Deal With Key Issues: In addition to heading off disputes, a well defined rental agreement or lease allows the landlord to deal with key issues that might otherwise be overlooked before getting into the rental relationship.

For long lasting peaceful relationship with tenant, a landlord should always go for rental agreement or lease. Such mutually coined agreement ensures happier & stable tenants and satisfied landlords.

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