Important considerations in a Lease and Rental Agreement

Everybody once in their lifetime will come across a lease and rental agreement either to negotiate or sign it for personal or business use. There are certain comprehensive conditions that are involved in negotiating and understanding legal agreements dealing with leasing, renting, or leave arrangements for residential and commercial properties.

What is a Lease and Rental Agreement?

A rental agreement provides for tenancy of a short duration that is automatically renewed at the end of the period unless the tenant or landlord ends it by giving written notice. For these month-to-month rentals, the landlord can change the terms of the agreement with proper written notice. A lease agreement, on the other hand, gives an occupant the right to occupy a rental unit for a set period of time - most often for six months or a year but sometimes longer -- as long as the tenant pays the rent and complies with other lease provisions. The landlord cannot raise the rent or change other terms of the tenancy during the lease unless the tenant agrees. When a lease expires it does not usually automatically renew itself. A tenant who stays on with the landlord's consent after a lease ends becomes a month-to-month tenant, subject to the rental terms that were in the lease.

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Why is a Lease Agreement important?

A lease agreement is a legal document that helps cement the formal relationship between the lessor and the lessee and ensures that both parties are on the same page with respect to the terms and conditions of the lease. A lease agreement helps to protect the interests of both the lessor and lessee and significantly reduces the chances of any disputes moving forward. It serves as evidence to the arrangement between the parties and provides for contingencies that may arise in the future, thereby reducing the possibility of friction in case of uncertainties.

Important points to ensure an effective lease agreement

Given below are the important clauses and considerations that must be kept in mind while drafting and executing a Lease and Rent Agreement :

Particulars of Parties

• The agreement must contain important identification details of both the lessee and the lessor such as full name, address, etc.

Rent

• The amount of rent payable by the lessee should be jointly decided beforehand by the parties and must be clearly stated in the lease agreement.

• If required, the parties can also agree upon and specify the quantum of increase in the amount payable after a specified period of time. This helps protect the lessee from unlawful demands and also protects the economic interests of the lessor.

• The date on which the rental amount is to be paid as also the mode of payment must be decided in advance and clearly specified in the agreement.

• The parties can also provide for a penalty in case of delayed payment by the lessee.

Duration of Tenancy and Renewal Criteria

• The duration of the lease must be clearly stated in the agreement to prevent future conflicts between the parties.

• Further, the agreement must also lay down the process and criteria for renewal of the lease upon completion of the lease period.

Maintenance

• The agreement should clearly mention the maintenance costs of the leased property and who will be the bearer of the same in order to prevent any confusion in the future.

• Similarly, the agreement must also bind the liability of either party for major and minor repairs, water bills, electricity bills, and other such expenses on the leased premises.

• The agreement should also contain wear and tear clause stating that the occupant will return the property in the condition in which he received it, subject to normal wear and tear, as long as the same was not caused by any direct act or negligence.

List of Amenities and Fixtures

• If applicable, as in the case of fully furnished premises, the agreement must list out the amenities and fixtures on the premises along with their exact condition prior to handing over possession.

Rules of Practice and Permitted Use

• The agreement must stipulate the intended use of the leased/rented premises to remove the risk of conflict on this aspect.

• The agreement should lay down the activities permitted and prohibited on the premises along with restrictions, if any, along with a penalty clause in case of breach of the same.

Security Deposit

• It should also mention the security deposit and the exact amount plus when will it be refunded to the tenant on repossession of the property by the landlord. The agreement should clearly state whether this deposit is interest-free.

Exit Clause

• The agreement should provide for the process of exit by either party prior to the completion of the duration of the tenancy/lease and the conditions of such exits, such as penalty, notice period, etc.

Termination Clause

• The agreement should clearly specify as to how and in what circumstances the agreement can be terminated by either party. Whether it would be fault-based and no-fault termination or both. Fault-based termination rights are triggered when one party breaches any terms and conditions of the agreement. No fault termination is when the parties can terminate the agreement without citing any reason.

Force Majeure Clause

• Another important clause that should form a part of the agreement is the & lsquo force majeure', also known as the & lsquo Act of God clause, which helps provide for unforeseen contingencies such as the COVID-19 pandemic which may prevent the fulfillment of contractual obligations.

Police Verification

• A person entrusting his premises/property to a new lessee/tenant must carry out police verification of the said party. Police verification is a mandatory screening process to ensure the safety and security of the lessor and the society at large. A failure to carry out the above process is punishable with a jail term or a monetary penalty under provisions of the Indian Penal Code.

Why do you need a lawyer?

As detailed above, a well-drafted lease agreement forms the backbone of a safe and successful contractual relationship. Therefore, it is vital to engage the services of a trained legal mind when faced with the task of entering into a lease/rent agreement. A good property lawyer will help best protect the interests of both parties and to ensure that neither side is wronged by the other. With innumerable cases of wrongful eviction, unlawful demands, and non-payment of rent, among others, burdening the judiciary, it is essential that a lease agreement is drafted and vetted by a trained legal mind to help reduce the risk of disputes and to protect yourself from massive litigation expenses in the future. You can also use LawRato's Free Legal Advice service to get free advice on your case from expert property lawyers.

Advocate Chikirsha Mohanty

Greater Kailash - 1, Delhi
5 years

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