Tips to Consider Before Drafting a Rental Agreement

What is a Rental Agreement?

It’s a legal contract of the rental between a landlord and a tenant. It states the guidelines for temporary possession of the property. This agreement differs from a lease, which is for a fixed term.

This contract plays a key role in settling down the conflicts between the tenant and the landlord. Sometimes, their relationship turns bitter due to complaints and misunderstandings. This agreement becomes crucial in resolving the matter.

Who should draft this rent agreement?

This agreement can be drafted by either the tenant or the owner of the property. In the case of NRIs, the property management company will be responsible for it.

It requires registration from the court or sub-registrar office. However, it may be notarized.

There are certain things that should be taken into account before renting out a property or drafting a rental agreement. Below are a few requirements for it.

Requirements for Drafting

To draft the rental agreement, you need to follow these steps:

• Openly talk & discuss important matters like rent, security deposit, maintenance charges, etc.
• Roughly draft with details like names of both parties involved in the agreement and address of the property.
• Mention important clauses in the document.
• Purchase a stamp paper of recommended value. Print what you have drafted on the stamp paper.
• Get the paper signed by both tenant and landlord in the presence of two witnesses.
• Visit the local sub-registrar office to get it registered.
• In case of NRIs, a Power of Attorney in the name of the NRI property management agent or company will be required.

However, the cost drafting can be equally shared between the property manager and the tenant. The metropolitan (like Delhi) citizens have to get it legally registered to avoid a penalty of INR 5000. Or, the landlord can be imprisoned for three months because it would be a violation of the Delhi Rental Act Control.

How does an ideal rental agreement look like?

The ideal rental agreement should have a list of clauses that avoid any type of disputes or conflicts. For this reason, it should not miss out on a few key points, which are here for your concern:

• The ownership agreement should be properly documented, and a copy of the similar one should be attached during the registration of the rental property.
• There should have a clear mention of the contract period of the rental property. The notarization can be sufficient if the period of the agreement is less than a year. In case it exceeds, the registration from the sub-registrar office is a must.
• Both parties should agree on the drafted terms and conditions that apply to both the tenant and the landlord.
• All facilities, utilities, and appliances should be listed out in the agreement, which is likely to e offered to the tenant.
• Do mention the provision of the repair and maintenance of utilities. This agreement should clearly read out the state of responsibility of payment for repair and maintenance.
• This paper should state a crystal clear amount of rent and deposit. In addition, there should be scenarios wherein the landlord can terminate the contract and withhold the security deposit.
• There should be a clear mention of restrictions that the landlord may put on the tenant. It could be anyone related to the choices of food and the guests of the opposite gender coming to the property.
• The rent agreement should clearly read the purpose of the rented property. If it’s a commercial building, it cannot be used for a purpose other than any commercial purpose. There should be a written approval of the owner if one is using it for some other purpose.
• Furthermore, this contract should be renewed at the end of every 11th month. There should be a track record of the security deposit and refunds if the agreement lapses.

Types of Rental Agreement

• Rental Agreement

It is a commonly used document when a landlord agrees to accommodate his property to a tenant on rent. The purpose is only renting a residential property. This document is essential to form a favourable environment with the assurance of security from the lawsuit.

The tenant has to pay out a security deposit, which is refundable in most cases. Apart from that, there should be a monthly rent to be paid to the owner. This agreement ends in 11 months and should be renewed at the end of this tenure.

• Lease Agreement

This agreement is crucial when a party accommodates the property for a particular number of years. The period of the agreement should not be less than a year. In this case, the monthly rent or security deposit is not required.

It is simply because the lump sum amount is paid to the owner. The owner parks this amount in the bank and earns interest on it. As the tenant vacates the property, the least amount is released to his account.

• Commercial Agreement

The commercial agreement is drafted for accommodating property to carry out commercial purposes. The tenant is not allowed to rent it out to another party. In this case, also, the security deposit is a must, which should be paid before renting the property. Besides, the monthly rent should be paid in the account of the owner.

In the case of the lease agreement for the commercial space, it is a must to pay the lease amount before renting the property. As the lease expires, the tenant may receive the lease amount without any interest.