March 23, 2023

To live on rent tenants have to enter into a rent agreement with the landlord for a specified time. The most common period used by a good number of landlords is typically 11 months. Have you ever wondered why such rent agreements are for 11 months only? Here’s why.

No need to register if tenancy is less than a year

As per the requirements of 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 registration. “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,” says Niraj Kumar, partner, DSK Legal.

In order to avoid legal trouble, landlords prefer the 11-month tenancy. “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,

Keeps the initial cost under check

Not going for registration, when tenancy is less than one year, also saves the cost of stamp duty one has to pay in case they opt to go for registration of rent agreement. Usually, the landlord and the tenant mutually decide not to register the lease to avoid paying such high fees.

If one decides to register the rent agreement, the quantum of stamp duty depends on the rent and the period of stay. Longer the tenure of tenancy, higher is the stamp duty. So, even when one goes for registration of rent agreement, having a shorter period helps in lowering the big lump sum payable as stamp duty if the period is shorter. So both parties usually remain on the same page as far as it helps them to avoid paying higher fee.

Notarising rent agreement is used as alternative

In absence of registration, getting a rent agreement notarised is also an option many people go for. “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” says Kumar. This is why many people simply notarise the rent agreement.

Who benefits more from an 11-month agreement — 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,” says Kumar.

It is easier to come out of a non-registered agreement which is notarised only. An 11-month lease agreement can be put to an end after 11 months by way of a typical simple one-month notice. “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.

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.”

Admissibility in court – notarised or registered lease agreement

From legal point of view, a notarised rent agreement, if otherwise requires registration, is inadmissible as evidence in court of law. Therefore, a tenant can’t use the unregistered agreement to assert any rights, says Kumar.

However, a notarised rent agreement cannot be wished away as an illegal document. “As of now, it is legal and valid to draft an 11-month notarised rent agreement. If a dispute arises, these agreements can also be presented as a piece of evidence,” says Bhatt. A stamp paper of Rs 100 or Rs 200 is typically used to draft such rent agreements by a public notary.

However, long-term agreements are more secure and give more rights and duties to both the parties, says Bhatt.

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. Kumar says that an unregistered rent agreement, being inadmissible in courts, will bring out unpropitious outcomes to parties in proving their rights under the rent agreement such as disputes concerning eviction notice, lock-in period, premature termination, renewal period, etc.

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. “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.

Why long-term tenants should go for registration

When you are planning to have long term tenancy it is better to go for a registered rent agreement. “If the parties are desirous of a longer tenancy and relationship, they should get it registered. This 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.

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *

%d bloggers like this: