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
