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 is 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 transfer or 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.
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 effected 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 Transfer of Property 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].
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.
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.
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.
During subsistence of the lease, the
Lessee has a right to enjoy the leased premises without any interference from
the Lessor or byany 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 to enable 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.
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:
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.
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 vacate the leased premises by the tenant, the landlords, in many
cases, take coercive actions 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 sore relationship between them, ending up
in prolonged and uncalled for litigation.
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 with over a friendly note instead of litigating. It
should be based 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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