Why are rent agreements for 11 months preferred in India?

6 days ago 1

Have you ever taken a house on rent? If yes, then your landlord must have told you to sign a rent agreement for a duration of 11 months. This is usually the norm in the country. However, have you ever wondered why most rent agreements are for a duration of 11 months only and not for a longer period, although the agreement can be renewed again and again?

According to legal experts, in India, owing to the tedious laws as well as laws favouring tenants, it becomes extremely difficult to get one’s property vacated which is tenanted or leased out, though the terms of the lease agreement state otherwise. It takes years in the legal battle to get justice to the owner/landlord owing to the procedural delays/lapses and till such time the tenant/lessee continues to enjoy the property.

“To circumvent such a situation, generally the owner of the property prefers to enter into a lease agreement/leave and license agreement (applicable only in the State of Maharashtra) for a term not exceeding eleven months especially for the residential dwelling units/property. The reason for the entering into a lease agreement/leave and license agreement for eleven months is because under Section 17 (d) of the Indian Registration Act, 1908, registration of a lease agreement for a period less than a year is not a mandatory requirement and the same need not be registered. Such agreements will be admissible in a Court of law as an evidence in the event of a dispute even if it is notarized,” says Sadhawa Mishra, Partner, SNG & Partners.

The process of registration is extremely complicated and time-consuming where the parties need to be physically present before the Sub-Registrar of Assurances for the instrument (compulsorily registrable instrument) to get registered. Hence, in order to avoid the hassle of registration the owner prefers to enter into a lease/leave and license agreement for eleven months as the same is not mandatory to be registered, instead the same can be notarized.

The other reasons as to why eleven months’ lease agreement/leave and license agreement is preferred is because of the stamp duty implication and registration charges. In case the lease agreement is for less than a year, the stamp duty payable is less as compared to the lease for a longer tenure and since the registration of such document is not compulsory, no registration fee is to be paid.

“Sometimes if the lease agreement, which is for a longer tenure and the terminology such as rent, tenant etc. are used in the agreement, there is possibility that the other party may claim tenancy (depending on his duration to stay on the property and other clauses of the agreement) which eventually can lead to a potential dispute as the tenants have protection under the Maharashtra Rent Control Act,” informs Mishra.

Hence, in order to avoid all these potential disputes, hassles in registration and save the stamp duty, it is always preferred to have the lease agreement for eleven months only, which on expiry can be renewed for a fresh term of eleven months on case to case basis.

It is further to be noted that in the State of Maharashtra there is a concept of leave and license agreement which can be for a maximum term of five years only wherein the owner i.e. the licensor, allows the licensee to occupy the property only for the limited purpose as defined under the agreement. The leave and license agreement is prevalent in the State of Maharashtra as against lease agreement because the rights that are given to the licensee is only in the form of license to occupy the property for a limited period as against the lessee’s rights which are better rights under the law.

In Delhi, the capital city of India, the practice is similar whereby 11 months’ lease deed is prevalent as against long-term leases. Similar is the case with many other states in India.

Rent Agreement Laws Abroad

This, however, is not the case with most other countries. In the UK, for instance, the practice that is generally followed varies from country to country, viz. the laws in England are different from the laws in Scotland.

“Broadly there rent agreements are for a longer tenure with clearly defined clauses for termination and expiry of the term. In the USA, the common law of “holdover rule” was abolished by most of the States. The “holdover rule” means a tenant remaining in possession after lease expiration without the landlord’s agreement may be treated by the landlord either as a trespasser subject to eviction or as a tenant under a lease for a new term, typically for a month-to-month term. The lease will stipulate the situation of holdover giving the landlord right to immediately vacate or charge a higher rent,” says Mishra.

Read Entire Article