Renting a place is often the go-to option for most working people to fulfil their housing needs instead of buying one straightaway. But, if certain legal safeguards are not adopted, the process could become problematic. From spelling out modalities pertaining to the security deposit to fixing tax liability, there are several aspects that require attention to detail. Here are some handy tips on the care that needs to be taken while drafting one’s rent agreement with a prospective landlord.
When taking a house on rent, it is important that you read the rental agreement carefully before you sign on the dotted line. Not only do you have to read the rental agreement carefully, you have to make sure that vital clauses are included that will protect your rights as a tenant . Here is a look at 11 key clauses that should be covered in the rent agreement.
Refund of security deposit
The sum of the security deposit differs from city to city. In metros, the amount is more than in tier-II cities. Although refundable, often disputes occur on the payment of security deposit. “The rent agreement should clearly set out that the security deposit, if any, paid by the tenant should be refunded by the landlord on termination or expiry of the licence,” says Arnav Nagalia, counsel, Trilegal.
You may ask for a separate payment receipt of security deposit with details of cheque number, date and signature of the owner, says Soumee Bhatt, general counsel, bankbazaar.com.
Penalty for delay in refund of security deposit
Getting a refundable security deposit out of the landlord’s pocket is any tenant’s nightmare. In the rent agreement, it should be clearly mentioned that if the owner fails to refund the security deposit, then the tenant can retain the possession of the flat without paying any rent, says real estate expert, Nitin Bhatia.
Nagalia adds that the rent agreement may provide for, firstly, the payment of interest by the landlord to the tenant if the security deposit is not refunded by the landlord in time. He adds that another clause should be added that the tenant is within his right to set off the rent against the security deposit for the last month of the term. Usually, a tenant gets his refund as soon as he vacates the premises, but many landlords intentionally dilly-dally in returning the lump sum to the tenant. “A necessary clause should be included in the agreement to ensure that the security deposit is refunded immediately upon termination of the agreement and handing over possession of the premises back to the landlord,” says Mitali Naik, Associate Partner, DSK Legal.
Timeline to pay rent
One should always mention in the rent agreement whether the rent will be paid in advance or after the month gets over. “One of my clients vacated the flat and the owner demanded the rent for the last month. My client was under the impression that he was paying advance rent as he had paid a month’s rent before shifting to the new house. Finally, after so much hassle and pulling out all bank statements, he proved that rent was paid in advance,” says Bhatia. Hence, it is important to state in the agreement that rent will be paid on or before a certain date every month.
Flexible termination rights
Ideally, there should be no lock-in period in the rent agreement and the tenant should be able to vacate the premises after serving one-month notice. However, landlords typically impose a lock-in period during which licensee’s or tenant’s ability to terminate the agreement is restricted. “It is worth considering carving out breach by the landlord and extenuating circumstances such as damage to the property making it uninhabitable, force majeure events such as the pandemic, etc. as exceptions to the lock-in period,” says Nagalia. In the event the tenant is desirous of occupying the premises for a longer period, he should demand a longer lock-in period, says Naik.
Assertion of owner having the title of the property
It is critical for the tenant to ensure that the landlord is the true owner of the property. “The tenant should ensure that the ownership and possession of the premises is with the landlord,” says Naik. “The rent agreement should also contain a representation from the landlord that he is the owner of the premises, and that the premises is free from encumbrances and litigation,” adds Nagalia.
Maintenance and non-maintenance charges
Another area that could emerge as a bone of contention between the landlord and the tenant is the inclusion of maintenance and non-maintenance charges in the rent agreement. “It should be settled between the two parties as who will bear the monthly maintenance but for non-maintenance charges, such as in the case of apartment associations who keep charging additional amount for corpus fund, sinking fund, painting of apartment etc, these should be borne by the owner of property as they don’t fall under the purview of maintenance charges,” says Bhatia. Reason: payment under these heads add long-term value to the property. Thus, it should be clearly mentioned that non-maintenance charges will fall in the kitty of the landlord.
Nagalia suggests that another line should also be included that the landlord is responsible for settling the utility bills, maintenance charges and any other dues incurred with respect to the property prior to the commencement of the licence. “If the tenant pays any of these amounts, he should be able to adjust subsequent rent payments against such amounts,” he adds.
Government taxes and other levies
Often a dispute emerges between the landlord and tenant on payment of sundry government taxes. “The rent agreement should provide that the property taxes and other such taxes, cesses, and amounts payable in respect of the premises should be the responsibility of the landlord,” says Nagalia. (It should be clearly mentioned in the agreement as which taxes and levies has to be borne by which party, including property tax, municipality tax, sewer and drainage charges, water bills, among other charges.)
List of fittings and fixtures; wear and tear of property
A clause should be inserted in the rent agreement stating that fittings and fixtures provided by the owner should be in working condition. “With ageing of property, natural wear and tear is obvious. Include a clause that the tenant is only liable to bear the cost for damages which are not part of natural, reasonable and normal wear and tear of the property,” says Bhatia.
He warns that in many cases owners include a clause to deduct cost towards painting of the flat from security deposit. “The terms and conditions should be clarified and mentioned in the rent agreement,” he adds.
Terms for renewal and brokerage
To avoid any dispute in future, there should be a clause in the rent agreement regarding renewal of agreement if both parties mutually agree. “This clause should be about the percentage increase in rent, deposit among other things in the event the tenure is renewed,” says Bhatia. On the issue of brokerage, a tenant should insert a clause that the brokerage would be one-time. “Many brokers insist on getting brokerage at the time of renewal of contract. This issue should be discussed with the landlord,” says Bhatia.
Protection against sale of the property by the landlord
There have been cases where landlords sell off their properties while tenants are still occupying premises. This leads to undue hassle for a tenant. “To safeguard his interest, the rent agreement should provide that the tenant’s right to use the premises should not be affected by the landlord transferring the premises and that the new owner should be bound by the terms of the rent agreement, including refunding the security deposit, if any, to the tenant,” says Nagalia.
The rent agreement should contain an indemnity provision wherein the landlord indemnifies the tenant for any loss or damage caused or suffered to the tenant on account of misrepresentation or breach of contract by the landlord or on account of defect in the title of the landlord to the premises, says Nagalia. At the same time, it is also pertinent to check if the landlord has obtained all requisite consents for leasing or licensing the premises such as the permission from the society / association of apartment owners in which the premises is located.
All these clauses should clearly mention charges and property-related rules and regulations. The landlord and tenant should mutually agree on the contract to avoid disputes, says Bhatt.