Rent Agreement: What Is It, Importance, Types, Details, And More
In a tenancy, there is a need for a legal document that ensures the legal validity of the tenancy. This is called a rental agreement, lease agreement, or simply a rent agreement in India. The document is an important factor to consider if someone is entering into a rental contract. It is essential to have the document since it contains the terms and conditions of the tenancy. Here, both the landlord and the tenant must know the details of this agreement.
In this article, you will learn about the essential details of a rent agreement and the importance of such a document. Furthermore, this article also discusses the major types of rental agreements available in India. Finally, you will learn the constituents of a rental agreement and what you need to include if you are creating one. Hence, to learn more about the lease agreement, read on to the end of the article.
What Is a Rent Agreement?
According to Investopedia, “A lease is a contract outlining the terms under which one party agrees to rent an asset—in this case, property—owned by another party. It guarantees the lessee, also known as the tenant, use of the property and guarantees the lessor (the property owner or landlord) regular payments for a specified period in exchange. Both the lessee and the lessor face consequences if they fail to uphold the terms of the contract.”
After the creation of the rent agreement, once the landlord and tenant sign the document, it becomes a legal contract. Basically, this legal agreement allows the tenant to use the property and allows the landlord to receive regular payments as per the tenure of the tenant.
Here, if both parties (the tenant and the landlord) fail to follow the terms of the contract, they might face consequences for it. The consequences of such a failure can be mild or strong, as it depends on a variety of circumstances.
In general, rent agreements are of two types – residential rent agreements and commercial rent agreements. While residential rental agreements are similar for all tenants, commercial agreements are quite different from each other.
However, whatever the rent agreement is for a certain group, it contains the duties that both parties must follow. This helps to put the agreement into effect and helps both parties to maintain it as well. Furthermore, a rent agreement also allows both the landlord and the tenant to enforce it.
Importance of Rent Agreement
PayTM’s official website adds – “In simpler terms, a rental agreement is like a rulebook for the tenancy, ensuring that both the landlord and the tenant are on the same page. And, it’s not just a piece of paper – a rental agreement is a crucial document that protects the rights of both parties and helps to avoid any disputes or misunderstandings in the future.”
Both the landlord and the tenant sign the rent agreement to start a tenancy and ensure its governance. Here, the agreement contains details about both the tenant and the landlord. Apart from that, the agreement contains all the terms and conditions of the tenancy. Basically, both parties in the agreement need to follow the rules of the lease or rent agreement.
In India, rental housing plays quite an important role, and it plays a big role in the economy as well. Hence, many states are implementing new policies to improve tenancy operations. The focus is to promote more rental housing in the country and bring in more investments in rental properties. In fact, in 2019, the union government brought out the Model Tenancy Act to promote rental housing throughout the country.
The Model Tenancy Act 2019 wants all states in India to base their draft rental laws on this Act. This law states that a tenant must sign a rent agreement when he/she is entering into a rental agreement with a landlord. Here, the rental agreement or lease must contain all the terms and conditions of the rent. Additionally, the rules of the agreement must be binding on both parties, that is, the landlord and the tenant.
What Are the Types of Rent Agreements in India?
There are four major types of rent agreements in India. These are commercial rent agreements, residential rent agreements, shared rent agreements, and single-room rent agreements. Here are the descriptions of each of the rent agreements:
1. Commercial Rent Agreements
As the name suggests, these agreements involve renting properties for commercial purposes. Some examples include renting office spaces, shops, warehouses, etc. Individuals use this rent agreement to legally rent a commercial property from a business or an individual. Hence, the intention behind commercial rental agreements or leases is to use them in business-related activities and not personal use.
Here are some of the major factors of commercial rental agreements that you need to consider:
- Commercial rent agreements come in printed form on a non-judicial stamp paper. This ensures the legality of the agreement. However, the cost of the paper depends on the duration of the rental and the location of the rental property.
- Since the agreement is legally binding on both parties, the landlord and the tenant must sign the agreement. If one party misses the signature, the agreement is deemed null and void.
- The agreement typically includes the following – property clauses, rent amount, duration, termination, renewal, and more.
- If you sign this agreement, make sure you have a physical copy of the document.
- If the agreement is for a duration of 12 months or more, it must be court-registered. However, this leads to more expenses. Hence, many agreements end in 11 months.
- It is very important to ensure that the agreement complies with local regulations and laws. Hence, always consult a legal expert to ensure compliance.
2. Residential Rent Agreements
A residential rent agreement contains the terms and conditions of a residential tenancy. Here, too, the following agreement is the responsibility of both the landlord and the tenant. Basically, this document is important for you if you want to occupy or rent a property for a temporary period. Here, the property is a residential property – flat, property, house, or apartment.
Basically, if you are looking for a property to live in for rent, you need to prepare a residential rent agreement before you move in. Similarly, if you are a landlord looking to rent your property or a part of your property to a tenant, you need to prepare this document before the tenant moves in.
In this case, too, you will need to ensure that the agreement meets local laws and regulations. Apart from that, it is also essential for the landlord and the tenant to have physical copies of the document.
3. Shared Rent Agreements
As the name suggests, this rent agreement happens between two individuals who agree to share a living space together. This living space is a property owned by a landlord. The individuals who choose this type of rental agreement are the ones who are trying to save on costs.
You will find all the terms and conditions of the rental process in this agreement. Also, this agreement acts as a reference for both parties in case there is a need in the future. For example, if you, as a tenant, rent an apartment of three bedrooms, but you are two occupants, then you have the option to rent out the third room. This way, you will be able to balance your expenses in an easy manner.
4. Single-Room Rent Agreements
This rental agreement allows you to rent a single room in a rented apartment consisting of more than one room. This way, you will be able to share tenancies with other tenants. This form of agreement is popular among people who want more privacy and independence in their tenancy. Furthermore, this type of tenancy also acts as an affordable option for housing.
What to Include in a Rent Agreement? – Essential Details
According to Experian.com, “Rental agreements typically spell out the obligations of both the landlord and tenant, such as what (if any) changes can be made to the property, who is responsible for maintenance inside the property, and how and when either party can terminate the contract.”
Hence, a rent agreement consists of the following things – rent amount, duration of the tenancy, terms and conditions, security deposits, etc. As a result, this factor ensures that both parties are present on the same page regarding the tenancy of the rental property. The following are the major terms that are present in a rental agreement:
| Items | Explanation |
| Tenancy Duration | This part contains the duration of the agreement for which it is valid. |
| Rent Amount | It is the amount that the landlord and the tenant agree on, which the latter individual has to pay for the rental property. |
| Security Deposit | The rental agreement also consists of details of the security deposit. This also includes the amount and purpose of the rent. Also, it consists of the procedure for adjustments or returns in the rent. |
| Terms and Condition | As the name suggests, this portion of the rent agreement consists of the terms and conditions of the tenancy. Both the landlord and the tenant need to follow these terms and conditions to ensure the validity of the tenancy. |
| Maintenance | This part consists of the responsibilities that the landlord needs to take to maintain and repair the rental property. Furthermore, it also consists of maintenance terms. |
| Insurance | The insurance clause in the agreement is in place to safeguard the rental property. |
When Do You Use a Rent Agreement?
There are a variety of situations when you can consider creating a rent agreement. Here are some of the situations when you need to use a rental agreement:
- When you are renting or letting out your house, flat, or apartment for rent. This works also for commercial spaces and apartments.
- These agreements are also important as they act as a formal document for the tenant and the landlord.
- A rent agreement also helps the landlord to document and enforce certain clauses for the rent/tenancy.
- If you want to register your rent with local authorities, it is important to have a rent agreement.
What Are the Documents Necessary for Rent Agreement in India?
To ensure the working of the rental agreement, both the tenant and the landlord need to provide their essential documents. However, based on teh requirement of local laws or state laws, teh requirement may vary. The following are some of the major documents required for rental agreements in India:
- Identity Proof: Here, you can include a copy of your voter-ID card, Aadhar Card, passport, or driving license.
- Address Proof: Here, you need to include a copy of your voter-ID card, Aadhar Card, passport, or utility bills.
- Passport-size Photograph: You must have a recent passport-size photograph to include in the rental agreement.
How to Create a Rental Agreement?
The following are the steps you need to take to create a rental agreement:
- Gather and collect the necessary information about the property, landlord/tenant, and their essential details.
- Decide on the agreement terms and essential details based on the agreement, such as rental amount, duration, security deposit, etc.
- Create a draft rent agreement that consists of all the necessary terms and details.
- Make sure to review the draft agreement with the landlord/tenant and a legal advisor. Also, make changes as per review and additions.
- Create the final agreement, get a printout of the agreement, and make sure both parties sign the agreement. Ensure that there is a witness present in the agreement.
- Register the rent agreement with the local authorities by making sure it complies with all necessary regulations and laws.
By following the aforementioned steps, you will be able to create the rent agreement. Make sure every party involved gets a copy of the original document.
Wrapping Up
Hope this article was helpful for you to get a better understanding of what is present in a rent agreement and how the process works. When you are about to create a rent agreement, make sure it consists of all the essential details and both the landlord and the tenant(s) agree to it.
Do you have further details to add? Consider sharing your ideas and opinions in the comments section below.
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