LETTING OUT THE PROPERTY FOR RENTAL

In legal terminology, rental agreements also known as lease agreements refers to the transfer of an immovable property for a specific period of time in consideration of a specified price on certain terms and conditions contained therein.

The person who transfers such a property is called the ‘Lessor’, and the person who accepts the transfer is called the ‘Lessee’. Therefore, a Lease means the transfer of property to the Lessee, who has only the right to make use of the property for a particular purpose and for a fixed period of time.

A Lease agreement is an agreement or a contract between the owner or the holder of the immovable property and the tenant who enjoys and makes use of immovable property. The amount charged for using and enjoying the immovable property is called ‘rent’. In the Transfer of Property Act, the owner is referred to as the ‘Lessor’, and the tenant as the ‘Lessee’. Therefore, it is better to stick to these terms while drafting a lease agreement.

One Year Period

If the rent is paid on yearly basis or if the period of lease exceeds one year, then it is necessary to register the lease agreement. It is a common practice to terminate the agreement at the end of every eleventh month and then enter into a fresh lease agreement. This is done to only to avoid high stamp duty and registration charges.

An agreement to lease should be drafted carefully and properly to protect the rights of both the parties and to avoid any misunderstandings in the future. It should be fair to both the Lessor (landlord) and the Lessee (tenant). It should mention the parties to the deed, the description of the property being transferred, the duration of the lease, the monthly rent payable, the date of payment of the monthly rent; the clause for enhancement of rent on renewal of the lease period. The amount of interest free refundable security deposit, penalty clauses in case of rent default, liability of the Lessee for damages to the property and the fixtures and fittings, notice period in case of early termination of lease; the date of commencement of lease and the date of expiry of lease; the notice period and manner in which the notice will have to be served must also be mentioned.

The Lessor should ensure that the Lessee pays the earnest money deposit; pays the rent promptly, pays the electricity and water bills within the due dates; makes no structural alterations in the premises or causes damage to fixtures and fittings; does not use the leased premises for immoral or illegal purposes; does not store hazardous and inflammable materials like explosives; does not cause nuisance to the co-tenants; maintains the premises properly and at the end of the lease period the lessee should get back his deposit without any hassles.

Duty of Lessee

Ideally, during the sustenance of the lease period, the Lessee should enjoy the use of the premises without any interference from the Lessor; be in a position to demand proper receipts from the Lessor against the monthly payments made to the Lessor, pay water and electricity bills promptly and, at the end of the lease period, handover the premises to the landlord in a tenantable condition, get back the earnest money deposit without any reduction, and depart on a friendly note.

Unforeseen Problems

However, all said and done problems do crop up for reasons beyond the control of the parties concerned. There are instances galore where landlords, for genuine or false reasons, fail to return the deposit or make unreasonable deductions on flimsy grounds even after receiving proper notice from the tenant. In either case the tenant is bound to suffer.

Certain landlords who depend on rental income often fail to pay back the deposit amount in time. Many landlords do not re-invest the money and instead often use it for personal needs. Thus, when the tenant issues notice, the landlord often requests the tenant to vacate the premises so that he could collect deposit from new tenant for refunding the deposit.

The tenants invariably do not vacate the premises. For fear of losing the opportunity and means or recovering their deposit from the landlord. After vacating the premises what happens if the landlord does not refund the deposit is the moot question. This leads to the vicious circle of “you-pay-then-I-leave, you-leave-then-I-pay” and leads to avoidable animosity between the parties.

If the tenant does not pay the monthly rent, it is adjusted against the advance. For the landlord it is a “heads I win, tails you lose” situation. Even after exhausting the advance, if a tenant does not vacate the premises, the landlord usually resorts to arm-twisting methods to get back the premises. All these problems can be solved amicably through mutual discussions or the aggrieved party can always seek remedy through legal means.

Stamp Duty

Stamp duty payable on Lease Agreement in Karnataka if it exceeds one year

1.	Period of lease not less than one year, but not more than five years	5% of the total rent/lease amount
2.	Period of lease not less than five years, but not more than ten years	8.96% on the amount equal to twice the annual average rent
3.	Period not less than Ten Years, but not more than twenty years	8.96% on the amount equal to thrice the amount of annual average rent.