Leasing out your Property in India?


11 Important things that every Property owner must keep in mind

If you are a NRI and have a property in India, you might want to rent out your property to a tenant. Before you rent out your property, you must keep in mind the Indian laws that govern this and guarantee you a safe transaction. Since the rent laws vary in each state in India, here are the important guidelines that can follow to ensure peace of mind :

  • Difference between different types of agreement : In general people use rent agreement, lease agreement and leave and license agreement interchangeably. It is important to understand the difference between different types of agreements and use the suitable agreement. In general if the property is a residential property which has to be rented for a short tenure then leave and licence agreement offers more protection to the landlords as in this case the right to live in the property does not pass on to the next of kin in case of death of the person in whose name the agreement has been made.
  • Leave and Licence / Rent Agreement : It is essential for both landlords & the tenants to have a legal written agreement before renting a property. It is done to safeguard interest of both the landlords and tenant. It is legal proof of the terms &conditions under which the property has been rented by the landlord to the tenant.
  • Terms and Conditions : It is important to specify in writing all the conditions applicable under which the property has been given to the tenant. Some of the important things one should have are:
    • Rental amount
    • Mode and time of payment of rent
    • Penalties applicable for late payment of rent
    • Who will pay the utility bills and maintenance charges
    • Do’s and don’t’s for the tenant (if applicable)
    • Penalty if the tenant violates any condition of rent agreement
    • Liability of tenant in case of damage to the property
    • Tenure of the tenancy
    • Who and how the tenancy agreement can be terminated
    • What is the security deposit amount
    • Notice period for vacating the premises
    • If the agreement is for longer duration then how the agreement will be renewed and the rent escalation clauses.
  • Background check of the Tenant locality & the rented property : It is important to do a police verification and  background check of the prospective tenant before renting the property. In fact in many places police verification is mandatory before renting the property. In some societies it is required to inform the office bearer of society/ RWA before renting the property. You can get a background check by speaking to the tenant’s colleagues or can ask for a letter from his HR department (if possible).
  • Registration of the Lease agreement : if the agreement is for a duration greater than 11 months then it is mandatory by law to register the agreement. Many people sign agreement which is for more than 11 months but fail to register this can cause their agreement to have no validity in law and in case of dispute between landlord and tenant this agreement may not be adequate.
  • Maintenance Fees: It is important while negotiating the contract that one should clearly define who will pay the society/building maintenance fees on a regular basis. If the tenant is responsible for this then he has to pay it on time and send the proof of payment on a regular basis to the landlord. This is to avoid last minute surprises and huge arrears for the landlord when tenant vacates the property.
  • Furnishings and fixtures :The landlord should handover a complete list of furniture and fixtures being provided by the landlord at the time of renting of the property. In fact a list should be prepared and signed by both the tenant and the landlord to avoid disputes at a later date and should form part of the lease agreement.
  • Rules for the landlord : Tenants or residents need to know that landowners cannot enter their property for any reason without written notice. They have to inform before they enter the property. According to Model Tenancy Act, landowners can only enter the property only between 7 am to 8 pm if they’ve given a written notice. For NRIs since they are living abroad they should specify (if possible) to the tenant in their absence who from their side is permitted to enter the premises and inspect it on their behalf.
  • Termination  notice : Landlord is eligible to ask the tenants to vacate the property if the tenants have failed to pay the rent for consecutive two months or have violated any terms and condition under which the property was rented out. Similarly, the tenant can also choose the end the contract. It should be clearly specified in the rent agreement the mode of communication of the termination notice and the notice period.
  • Death of any tenant : If for any reason, the tenant passes away, the right of tenancy goes to the successor for the tenant (Spouse, sons/unmarried daughter, parents or daughter in law). But in case of leave and license agreement this right does not get passed on the heirs of the tenant.
  • Security deposit : Landlords normally ask for a security deposit at the time of renting out their property. This serves a very important purpose that in case the tenant is leaving and has damaged the property then the damage cost can be recovered from the security amount. Secondly in case the tenant has not paid the utility bills and has left or in case the tenant fails to pay the last month rent then all these can be recovered from the security deposit. This also ensures that the tenant does not leave the property without informing the landlord and giving him adequate notice. Normally two months’ rent is taken as security deposit. In cities like Mumbai higher security deposit amount is taken.

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