The Rent Agreement: What you need to know

A rent agreement is a rental contract, usually in written form, between the owner of
a property (landlord) and a renter (tenant) who desires temporary possession of the
property.

1. The Rent Agreement: What you need to know



Summary
• A rent agreement is a rental contract, usually in written form, between the owner of
a property (landlord) and a renter (tenant) who desires temporary possession of the
property.
• The rent agreement document contains details about the parties and the terms and
conditions of the tenancy of the property.
• A rent agreement has no legal validity until it is registered with the sub-registrar’s
office.
• Both parties must pay a stamp duty fee while registering the rent agreement, which
varies from state to state.
• The model tenancy law covers all rental agreements involving residential and
commercial properties.
• There are two types of rent agreements: Residential Rent Agreement and
Commercial Rent Agreement.
Table of Contents
• What is a rental agreement?
• Types of Rental Agreement
• Rent agreement regulation in India
• Model Tenancy Act

2. o Does the model tenancy law cover all rent agreements?
• Legal validity of rent agreement
• Why Do Rental Agreements Usually of 11 Months?
• The Stamp Duty Cost
• Registration charges
• A rent agreement should contain the following information:
• Hike in Rent
• Penalty for delay in rent payment
• Why is it mandatory to register a rent agreement?
• The Documents Needed to Register a Rental Agreement
• Benefits of a Rent Agreement
• Requirements in a Rent Agreement
• Common mistakes to avoid while making a rent agreement
• What is the procedure to make a rent agreement?
• Conclusion:
• FAQs
o
▪ Can the rent agreement be terminated in between?
▪ Do I require getting police verification?
▪ Is insurance utilized in rent agreements?
▪ What do you mean by a verbal tenancy agreement?
▪ What do you mean by a written tenancy agreement?
▪ What is a Lease Agreement?
▪ What is a rent agreement?
▪ What is a security deposit?
▪ What is the stamp paper value required for the rental agreement?
▪ What should be included in a rental agreement?
▪ When does the rent agreement require to be registered?

3. ▪ Who prepares the rental agreement?
▪ Why is the rental agreement for 11 months?
What is a rental agreement?
A rental agreement is one of the most important legal documents both parties must sign,
i.e., the landlord and the tenant, to regulate the tenancy. It contains details of the terms and
conditions of the tenancy of the property. In addition, there is a binding contract/agreement
between both parties. A contract includes all essential factors, such as rent, security deposit,
property information, dimensions, address, type, and most importantly, the duration of the
agreement or contract. The clause is binding, so both parties must go through it carefully
before signing. The agreement remains invalid until the two witnesses or non-beneficiaries
sign it as witnesses.
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Either party drafts a rental agreement with the other party’s consent, and both parties must
agree. The rental agreement could be written, verbal, or implied. However, it is usually best
to have a written agreement as it serves as evidence of mutual consent of the parties. Rent
agreements cannot be amended until and unless both parties agree to them.
Types of Rental Agreement
One of India’s most prevalent rental agreements is the tenancy agreement for 11 months.
This kind of agreement can be extended after its 11-month duration. Such contracts
generally do not require registration due to their brief length.
• Residential Rent Agreement– Long-term rental agreements are typically signed for
residential purposes. Sometimes those feature a lump sum deposit rather than the
rental income payment. These are duly recorded and notarized.
• Commercial Rent Agreement or Agreement of a Business Property – Deeds
between the businesses and landlords (landlord would usually be a company) or
between two firms are known as commercial agreements. They don’t have a set
structure.
Rent agreement regulation in India
Rental housing has become quite popular in developing countries like India. After the union
cabinet approved the Model Tenancy Act, 2019, many Indian states are working on more
future-aligned rent policies to promote this housing segment.
As per the draft Model Tenancy Act of the union government, tenants must sign an
agreement with their landlord when entering a rental arrangement. In addition, the term
and conditions of the rental agreement must be binding on both parties.
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4. Model Tenancy Act
The government drafted the Model Tenancy Act to promote rental housing in India and
make the transaction beneficial for landlords and tenants. This model policy serves as a
guide when drafting rent agreements, as it contains provisions that should be considered
when preparing a rent agreement. As per the union housing secretary, the policy will replace
existing laws on rental housing across India when states formally notify it, enabling over one
crore of units to be made available in the rental housing markets.
Despite this, since it is progressive, the model tenancy law does not apply retrospectively to
existing rent agreements. Therefore, even after the old rules are repealed, disputes relating
to existing rent agreements will be handled under the old laws.
Does the model tenancy law cover all rent agreements?
The model tenancy law covers all rental agreements involving residential and commercial
properties. For the Model Tenancy Act (MTA) to apply, the rental agreement must be drafted
for a period exceeding 11 months. Therefore, for a rent agreement signed between a
landlord and tenant for up to 11 months, the MTA rules do not apply. Accordingly, neither
the landlord nor the tenant can cite the rules of the model law in case of a dispute.
Legal validity of rent agreement
Tenants and landlords sometimes agree verbally about the tenancy to save money and avoid
executing a rent agreement. Some may also document the arrangement and include terms
and conditions regarding the tenancy but decide not to register it. This is because both
parties are responsible for paying the registration charge if a rent agreement is created and
registered. In addition, once the rent agreement is legally valid, the landlord must also
report his rental income. Rental agreements without registration, however, are illegal and
can be risky for both parties, especially in future disputes.
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A rent agreement has no legal validity until it is registered with the sub-registrar’s office.
Therefore, it is in favour of both parties to draft a rental agreement with specific terms and
conditions and to get it registered. Printing the rent agreement on stamp paper should be
done after preparing it by the landlord. Then, in the presence of two witnesses, the tenant
and landlord should sign the documents before registering them at the sub-registrar’s office.
To register a rental agreement in a state, landlords and tenants must appear before the rent
authority after the MTA is implemented in the city.
Why Do Rental Agreements Usually of 11 Months?
According to the Registration Act 1908, it is mandatory to register a lease agreement with a
lease period of more than 12 months. However, to avoid stamp duty and other charges,
people usually choose a rental agreement of 11 months that can be renewed later. In Delhi,

5. a flat fee of 100 INR is added to the stamp duty rates as a security fee. Also, a flat INR 1100 is
payable as a registration fee through Demand Draft (DD).
The Stamp Duty Cost
(Based on the total average annual rent)
• Up to 5 Years – 2%
• 5–10 Years – 3%
• 10–20 Years – 6%
Example: Suppose a property is let out for 24 months at a monthly rental income of Rs
20,000 for the first twelve months and then Rs 22,000 a month for the subsequent 12
months. The charges/fee for registering this agreement would be 2% of the average rent for
12 months: Rs 5,040 (average monthly rent is Rs 21,000, average annual rent is 21000*12,
and 2% of that is Rs 5,040).
For this reason, both tenant and landlord usually opt for an 11-month rental agreement,
which can be extended if both parties mutually share the cost.
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Registration charges
There is no fixed registration fee for rental agreements in India. Instead, it varies from state
to state. It also includes stamp duty charges.
A rent agreement should contain the following information:
An agreement or contract between the owner of a property and the tenant who wishes to
rent the property is called a rent agreement. On a rental contract, the following information
is included:
• The name of an owner
• The name of the tenant
• The details of the rented property
• Rent amount and due date, including a grace period
• Term of the contract/agreement
• Responsibilities/rights of the landlord
• Responsibilities/rights of the tenant
• The mode of rent payment
• Electricity, water, and maintenance charges

6. • Scenarios of agreement/contract termination before the expiration period
• The sum of a security deposit and also related terms and conditions
• Procedure for handling emergency requests
• Agreement-related rules and regulations
Hike in Rent
According to Model Tenancy Act, 2019, landlords cannot implement any pre-fixed rent hike
during the rental agreement’s entire duration. For example, a landlord cannot raise the
monthly rent after 11 months if the rent agreement expires. However, once this period ends
and the new rent agreement is registered, the landlord can hike the rate, typically not
exceeding 10% of the existing amount. According to the Act, landlords must also give three
months’ notice to tenants before raising the rent.
Penalty for delay in rent payment
According to the law, tenants who extend their stay in rented accommodations, as specified
in the rent agreement, will be liable to pay double the rent for the first two months,
followed by four times the rent.
Why is it mandatory to register a rent agreement?
There is a difference between a notarized rent agreement and a registered document. The
court will not accept a notarised agreement or contract as proof in case of a landlord-tenant
dispute. Hence, it is important to register the rent agreement.
The Documents Needed to Register a Rental Agreement
Registration of a rental agreement requires the following documents from the landlord,
tenant, and witnesses:
• Evidence or proof that the rental property is owned
• Rental property records, including tax receipts
• Passport-sized pictures of the witnesses and each party
• Address of the witnesses and both parties, ID proofs like Aadhar, Passport, etc.
• Route diagram for the rental property
Benefits of a Rent Agreement
The following advantages can be secured through this form of rent agreement:
• Written: Rental agreements would be a formal and legal relationship between the
two parties. Therefore, these agreements would always be in writing form.

7. • Legal Compliance: By entering into a contract or an agreement, compliance can be
maintained by both parties. Moreover, as the agreement is in writing, the provisions
related to the law would apply to both parties, i.e., the landlord and the tenant.
• Relationship between Parties: A relationship is developed between the two parties
by entering into a rent agreement. This kind of relationship will be purely
commercial, and the parties have specific responsibilities.
• Liquidity: There are constant liquid funds through monthly rents for the landlord. It
would be beneficial to the landlord. Instead of selling off the property in a one-time
transaction, monthly income comes to the landlord. Also, the tenant would not have
to pay a significant amount related to monthly rent.
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Requirements in a Rent Agreement
To fulfil the requirements, one must do the following:
• Verification from Police: The purpose of this step is to gain a better understanding of
the tenant’s background. During this process, the character and antecedents of the
tenant would be determined. Such a procedure would require the landlord to
register online with the police to verify their identity.
• Negotiation with Tenant: The next phase would be negotiating the terms and
conditions with the tenant after the police verification is complete. Additionally, rent
rates would also be discussed.
• Drafting: Afterwards, a lawyer should be hired to draft the rent agreement on behalf
of the landlord.
• Registration: Registering the rental agreement under Section 17 of the Indian
Registration Act is required if it lasts longer than 11 months.
Common mistakes to avoid while making a rent agreement
In most rental agreements, the parties make the following mistakes:
1. Do not mention the terms that may lead to the tenant’s eviction.
2. Do not specify a lock-in period or termination date. The Lock-in period is the
minimum period when the tenant cannot vacate/evict the property. Moreover, the
tenant should specify how long notice must be given before terminating the rent
agreement.
3. Specifies the amount of rent, repairing charges, and payment mode but does not
specify how the payments are to be made.
4. It is recommended to ignore the clause concerning subletting of the property.

8. 5. Do not mention the details related to the Power of Attorney.
What is the procedure to make a rent agreement?
There are some specific guidelines one must take to prepare a rent agreement.
• Draft the rental deed: This includes specific clauses where the landlord and the
tenant could negotiate and decide what goes into the agreement. Then, once it is
finalized, a deed is drafted.
• Printing it on stamp paper: This requires purchasing stamp paper of the required
value and printing the draft.
• Signature: The parties, i.e., the landlord and the tenant, will have to sign at their
designated places in the agreement form in front of at least two witnesses who will
also sign the deed.
• Registration: Finally, register the agreement at the sub-Registrar office by paying the
appropriate registration fees.
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Conclusion:
A rent agreement helps in protecting both parties in case of any dispute or any breach
caused by either of the party. It provides security to the property owner and protects
tenants from the landlord’s unlawful demands. A well-drafted rent agreement consists of all
the necessary clauses, such as the name of both parties, duration of the tenancy, rent
amount, security deposit, etc. Thus, it is necessary to understand the tenancy before signing
it. It is better to always take legal advice in case of failure to understand any clause in the
contract or negotiate a clause in the tenancy agreement.