With large-scale migration of people for better opportunities, most of us have either lived on rent or given a house on rent. Living on rent means signing a rent agreement with the landlord for a specified time. Have you ever wondered why a rent agreement is signed for 11 months only? A rent agreement is a contract encapsulating the terms and conditions on which a property is leased out to a tenant. This includes the terms and clauses related to monthly rent, usage of the property, security deposit, tenure, among other things.
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Why 11 months’ tenure?
As per the requirements of the Section 17 of the Registration Act, 1908, a lease agreement for a term not exceeding one year is not compulsorily registrable. This means that rent agreements for less than 12 months duration can be made without difficulty. The said option enables the parties to avoid the arduous process of getting the document registered before the office of the sub-registrar and making payment of the registration charges. Since the rate of stamp duty for a 11-month lease is usually lower than the stamp duty charged for leases exceeding one year, both parties usually remain on the same page as far as paying higher fee is concerned.
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Notarising rent agreement is common
Alternatively, there are many people who simply notarise the rent agreement. “Additionally, an 11-month notarised lease allows the landlord greater flexibility because the rent can be set in accordance with market rate and can be renewed on a regular basis,” says Bharat Chugh, former judge and lawyer, Supreme Court. Further, an 11-month lease agreement can be put to an end after 11 months by way of a simple one-month notice. Usually, the landlord and the tenant mutually decide not to register the lease to avoid paying such high fees.
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Longer tenancy
“If the parties are desirous of a longer tenancy and relationship, they should get it registered. That ensures that both parties stick to the bargain and comply with the terms of the lease,” says Chugh. For instance, a tenant taking a premises for a period of five years and making considerable investment on that basis should safeguard his rights by getting the lease agreement registered. Because if it is not registered and only notarised, the landlord, despite the five-year term, can turn the tenant out by giving a one-month notice, without having to assign any reasons and without any breach as the contract would be treated as null and void by court.
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Who benefits more — landlord or tenant?
An 11-month rent agreement favours the landlord when it comes to termination of the agreement within a short span of time. The landlord gets the opportunity to increase the amount of rent charged. Also, to avoid potential disputes and hassles landlords prefer rent agreements which are for a shorter tenure. From legal point of view, a rent agreement is inadmissible as evidence in court of law. Therefore, a tenant can’t use the unregistered agreement to assert any rights, he says.”In a lease where tenure is for a longer duration, often terms such as rent, tenant and tenure are used which invokes the possibility of tenancy by the other party (tenant) under rent control laws which are tenant-friendly. This can eventually lead to protracted court battle in case of a dispute,” says Soumee Bhatt, general counsel, BankBazaar.com.Debating that a tenant benefits more from such an arrangement, Chugh says, “If it has not been specifically agreed to in the lease agreement between the parties executing it, it is the responsibility of the lessee to pay the applicable stamp duty. Thereafter, from a monetary point of view, a tenant benefits more from an 11-month agreement as he can avoid the responsibility of paying the applicable stamp duty and registration fees.” Moreover, if a tenant doesn’t have a rent agreement, he cannot use HRA to apply for an income-tax exemption and the landlord is at liberty to increase the rent on a whim.
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Admissibility in court — notarised or registered lease agreement
The Transfer of Property Act and the Registration Act envisages the necessity for registering a lease agreement wherein the lease term is exceeding one year. Although the requirement of notarizing a rent agreement has not been provided for, the same helps in establishing the authenticity of the parties executing the agreement.As of now, it is legal and valid to draft an 11-month notarized rent agreement. If a dispute arises, these agreements can also be presented as a piece of evidence. A stamp paper of Rs 100 or Rs 200 is typically used to draft such rent agreements by a public notary.On the other hand, long-term agreements are more secure and give more rights and duties to both the parties, says Bhatt.
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Drawbacks of not getting the rent agreement registered
A registered rent agreement embodies a valid proof in case of a dispute. In the absence of a registered rent agreement, if any damage is done to the property, the landlord may find it difficult to recover the amount from the tenant. “This is because in the absence of a lease agreement, there would no clauses to tell in which condition the property is expected to be handed back to the owner. Hence, it is advantageous for the parties to execute a residential rent agreement for at least 11 months so that the other party does not meddle with the rights and benefits of the counterparty and creates binding and enforceable obligations upon both the tenants and the owner,” says Chugh. An unregistered rent agreement, being inadmissible in courts, will bring out unpropitious outcomes to parties in proving their rights under the resident rent agreement such as disputes concerning eviction notice, lock-in period, premature termination, renewal period, etc.However, it is always advisable that parties must pay the requisite stamp duty on the rent agreements proposed to be executed by them, be it for an 11-month lease or a longer term.
