When moving into another city for a job, the first thing we do is rent an apartment. In such cases, a rent agreement becomes very important. Rent agreements, if not carefully drafted, can lead to disputes and financial stress for both landlords and tenants. To avoid potential issues, here are eight essential clauses that should be included.
Stamp Duty Implications and Calculation
The Indian Stamp Act, 1899, requires that lease deeds be stamped irrespective of their tenure. It is a common misconception that lease deeds with a duration of less than 12 months are exempt from stamp duty. “However, failure to pay stamp duty renders the document inadmissible as evidence. Furthermore, stamp duty is calculated based on the total amount payable by the lessee, which includes applicable taxes (such as goods and services taxes-GST), maintenance charges, and other fees, rather than just the monthly lease consideration,” says Avneesh Bahuguna, senior associate, Alpha Partners.
Essential Provisions
A rent agreement should include provisions that specify the term of the lease, the quantum of rent, and the manner of rent payment. Furthermore, the lease should detail the conditions for termination, the remedies available to the parties in the event of a breach, and the procedures for property handover upon termination or expiration of the lease term.
Due Diligence
Due diligence is paramount before entering into a property lease. “It is essential to verify ownership documents, revenue records, property tax receipts, and approvals for fire safety, lift installations, or environmental compliance before finalizing any leasing arrangements,” says Bahuguna.
Exit Clause
Circumstances such as job relocation or medical emergencies may require early termination of the lease. “An exit clause allows the tenant to vacate without penalty by providing notice, typically ranging from 15 to 30 days. This ensures landlords have sufficient time to find new tenants, while tenants avoid losing their security deposit,” says Yatharth Rohila, advocate and partner, Aeddhaas Legal LLP.
Tenure
Clearly defining the start and end dates of the agreement provides clarity regarding the lease duration. Upon expiration, tenants may either vacate or negotiate a fresh agreement to extend their stay.
Lock-in Period
“This clause protects landlords by ensuring tenants cannot vacate before a minimum period, often six months to a year, without incurring penalties. Similarly, tenants are protected from early eviction during this period,” says Rohilla;
Roles And Responsibilities
To maintain transparency, the agreement should detail the obligations of both parties. Tenants are typically responsible for utility payments and upkeep, while landlords handle property taxes and ensure functional utility connections.
Security Deposit
A security deposit, often equivalent to one to three months’ rent, serves as protection for landlords against damages. In cities like Mumbai, it can even be up to six months. “Tenants should ensure the agreement includes provisions for the timely return of the deposit, barring legitimate deductions for damages,” says Rohilla. In cities like Mumbai, the security deposit can be as high as six months.
