A Tenancy transaction between a landlord and a tenant is recorded in an important document known as the Rent Agreement. This document contains the terms and conditions of the contract between the parties of the transaction that regulates the relationship between the parties and serves as documentary evidence of such a relationship. A rent agreement needs to cover all the facets of the transaction and needs to be prepared in clear, unambiguous language. 

A rent agreement needs to be signed by both the landlord and the tenant and the landlord should have the document registered for getting it officially recognized by the Governmental authorities. A tenancy transaction is a complex transaction that involves the transfer of certain property interests in residential property and its premises to the tenant in return for monthly rent payments made by the tenant.

Thus, a rent agreement needs to record all the details and relevant information that clearly outlines this transfer and the payment aspects in clear and unambiguous terms. This article seeks to explain rent agreements and certain significance about them.

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Which stamp paper is required for a rent agreement?

A Rent Agreement is a legal document that records the contract between the landlord and tenant for a stipulated period of time. 

  • According to the Indian Contract Act, 1872, an agreement may be oral or in writing. However, for ensuring the performance of the agreement, it is in the interests of the parties to have the agreement in writing.
  • Over and above that, it is also in the interests of the landlord and tenant to have the document registered for getting it officially recognized by the Governmental authorities.
  • If the rental agreement is not registered and notarised, it is not considered as legally binding. 
  • The rent agreement for registration purposes is needed to be made on stamp paper, the minimum value of which is Rs. 100 or Rs. 200.  
  • Usually, it is the tenant who pays the registration and stamp duty for getting the document registered. 
  • Stamp duty is 1% of the total rent plus deposit paid annually or Rs. 500 whichever is lower. 
  • If any of the parties are not available to sign the agreement then they can authorize a person through a legally enforced “Power Of Attorney”.

What should a rent agreement include?

A rent agreement is an important document that regulates and records the relationship between a landlord and a tenant. It needs to be made in a clear, unambiguous language that explains the terms and conditions of the contract with clarity. 

  • A rent agreement needs to include the following details:
  1. The details of the parties to the agreement like their names and occupations, if any.
  2. The details of the rental property which is let out by the landlord to the tenant. 
  3. The tenure or term of the tenancy. There needs to be a stipulated period of time mentioned at the expiry of which, the tenancy can be renewed.
  4. The dates from which the agreement becomes effective and the date when it terminates.
  5. A beneficial clause both for the tenant and the landlord is the provision of a lock-in period incorporated in the agreement which states that before the end of a certain period in the tenure of the tenancy, the tenancy or agreement cannot be dissolved by either party. 
  6. The monetary consideration in the form of rent has to be paid on a monthly basis by the tenant for receiving certain proprietary rights and interests in the rental property.
  7. The rights, obligations, possessions, warranties, and the expenses that have to be borne by the landlord and tenant clearly allocated like the repair & maintenance expenses, water & electricity charges, property taxes, fines & penalties charged by local authorities, registration charges, etc. This apportions accountability and prevents disputes later on.
  8. The termination clause of the agreement
  9. The dispute resolution clause and the governing law under whose provisions such dispute will be resolved. It should mention the law of a jurisdiction to make matters easier. 

Is a witness required for a rent agreement?

It is in the best interests of the landlord and a tenant to have two witnesses observe the signing and registration of the document and also have such witnesses sign on the document. 

  • This provides for people who are first-hand eye-witnesses who can give testimony or evidence about the signing and registration of the rent agreement in a Court of Law.
  • If a rent agreement has the stipulated tenancy period as 11 months long, such an agreement need not be registered. 
  • Witnesses can be anyone and should preferably be one from the landlord’s side and another from the tenant’s side. 

Are rent agreements and lease agreements the same?

Despite the terms lease agreements and rent agreements being used interchangeably, there are a few dissimilarities between these two types of agreements.

  • The tenure of a lease is usually considered to be longer than the tenure of a tenancy. Where a lease (residential or commercial) usually comes with a minimum time frame of 12 months and can be stretched as long as the tenant prefers or the owner wills, the tenancy is of a shorter time frame and is a month to month transaction.  
  • The lease agreement is a more structured arrangement between a lessor/landlord and a lessee/tenant because the lease agreement has every matter mutually discussed and recorded to the final detail. The tenancy is a more ad hoc arrangement between the landlord and the tenant and the rent agreement is not as detailed or does not have that many terms and conditions as a lease agreement. 

Conclusion

Rent agreements are the documents that obtain the terms and conditions that regulate the relationship between a landlord and a tenant. It is in the best interest of the parties to the transaction to have the document registered and notarised for record purposes and evidentiary value. A registered rent agreement has legal effect and is binding on the parties.

A rent agreement contains the details of the parties, details of the rental property, tenure of the tenancy, the monetary consideration to be paid, the possessions, warranties and allocated expenses to be paid, the rights and obligation, the termination clause, the dispute resolution clause, etc. A rent agreement also requires witnesses and these witnesses can be anyone. You need to have a rent agreement carefully drafted to outline the relationship of a landlord and a tenant in clear, unambiguous terms.