Rent Deed Types, Drafting & Documentation

Renting property is a common and important part of both residential and commercial real estate. A rent deed, also known as a rental agreement, is a legal document that clearly outlines the terms agreed upon by the landlord and tenant. It helps protect the rights and interests of both sides and sets clear rules for how the property will be used. In this blog, you will learn about what is a rent deed, its importance, types, legal requirements, and more.

What is a Rent Deed?

A Rent Deed is also known as a Rent Agreement. This is a legally binding contract between a property owner (landlord) and a tenant. It allows the tenant to use a residential or commercial property for a set period in return for paying rent. This agreement clearly lays out the rules and responsibilities for both sides. The rent deed helps to avoid misunderstandings and offers protection if any disputes arise during the rental period.

Importance of a Rent Deed

Here are the importance of a rent deed:

• Legal Recognition and Enforceability

According to the Registration Act, 1908, certain documents, like lease agreements, must be registered to be legally enforceable. A registered Rent Deed acts as solid proof in case of disputes. It ensures that both the landlord and tenant's rights and responsibilities are protected and upheld in court.

• Protection Against Unlawful Eviction

A Rent Deed clearly defines the tenancy terms, such as rent and duration. This guarantees that tenants cannot be evicted by landlords without a good reason. This agreement protects tenants from unfair eviction and offers them security and stability during their stay.

• Prevention of Fraud and Misunderstandings

A Rent agreement outlines the rights and duties of both landlord and tenant. This reduces the chances of disputes or false claims. It promotes clarity and mutual understanding. This agreement helps to avoid disputes and guarantees a positive renting experience for both parties.

• Regulation of Rent and Security Deposits

The Rent Deed specifies the rent amount, payment due dates, and the security deposit required. This rule stops the abuse of the security deposit and arbitrary rent increases. It helps to protect both parties' financial interests.

• Clarity on Maintenance and Repairs

The agreement defines who is responsible for property maintenance and repairs which ensures each party knows their duties. This prevents confusion or disputes over upkeep and ensures the property is well-maintained throughout the tenancy.

• Compliance with State-Specific Laws

Different states in India have different regulations pertaining to rental agreements. Tenancy agreements must be recorded, for instance, according to the Tamil Nadu Regulation of Rights and Responsibilities of Landlords and Tenants Act, 2017. This law helps protect the rights of both landlords and tenants.

• Facilitation of Dispute Resolution

A clear foundation for settling disagreements is provided by a well-written rent deed. It specifies procedures for addressing issues such as delayed payments or property damage. This structured approach aids in efficient dispute resolution.

• Tax Implications and Documentation

For tax purposes, a Rent Deed acts as official proof of the rent paid and received. It helps landlords report rental income correctly and allows tenants to claim eligible deductions, for both sides to file accurate tax returns.

Key Components of a Rent Deed

Here are the key components of a Rent Deed:

• Parties Involved

Full names, addresses, and identification details of the landlord and tenant.

• Property Description

Detailed address and description of the rented premises, including size, type, and any furnishings.

• Tenure of Tenancy

The Rent Deed clearly mentions when the rental period begins and ends, and also explains if and how it can be renewed.

• Rent Details

The agreement specifies the monthly rent and its due date, the payment method such as bank transfer or cheque, and any agreed schedule for rent increases.

• Security Deposit

The agreement clearly states the security deposit amount and details the specific conditions for its refund. It also follows the Model Tenancy Act’s guidelines by limiting deposits to two months’ rent for residential properties and six months’ rent for commercial spaces. This clarity ensures both landlord and tenant understand their financial obligations upfront.

• Maintenance and Repairs

The agreement details landlord and tenant responsibilities for repairs and regular scheduled maintenance. It grants that the property remains in good condition.

• Utilities and Other Charges

The agreement specifies who pays for utilities like electricity, water, gas, etc. It also includes any additional charges, like society maintenance fees, so both parties know their financial responsibilities.

• Termination Clause

The agreement can be terminated by either party at any time, as long as they give written notice and follow the notice period.

• Dispute Resolution

Disputes will be resolved through mediation or arbitration, and legal action can be taken in the agreed court’s jurisdiction.

• Registration

According to the Model Tenancy Act, all rental agreements must be written and registered with the Rent Authority. However, certain states may have extra requirements for registration, depending on local laws.

Validity and Legal Requirements of a Rent Deed

In India, a Rent Deed is valid only if it follows the Indian Contract Act, 1872, and, where needed, the Model Tenancy Act, 2021. It must also be properly registered under the Registration Act, 1908, to be enforceable.

Here is a detailed explanation:

• Written Agreement

Both the landlord and the tenant must sign and document the rent deed in writing.

• Registration

Agreements for a lease period of 12 months or more must be registered under the Registration Act, 1908.

• Stamp Duty

To make a Rent Deed legally valid, the right amount of stamp duty must be paid according to the specific rules of the concerned state.

• Compliance with Local Laws

The Rent Deed must comply with applicable state-specific tenancy laws, which may have additional requirements.

Types of Rent Deeds

Here are the types of rent deeds:

• Fixed-Term Lease Agreement: This type of agreement is established for a specific duration, typically 11 months. This helps avoid stringent rental laws that apply to leases of 12 months or more. Upon expiration, both parties may choose to renew the agreement.
• Periodic Lease Agreement: This agreement is also known as a month-to-month lease. It automatically renews at the end of each period unless either party gives notice to end it. Both landlords and tenants have the freedom to modify the agreement as necessary.
• Commercial Lease Agreement: A Commercial Lease Agreement is meant for renting property used for business activities. It generally covers a longer duration and includes specific terms that cater to the needs and operations of the business.
• Sub-Lease Agreement: In this arrangement, the original tenant leases the rented property to a third party. This requires prior consent from the landlord and transfers certain tenant responsibilities to the sub-lessee.
• Leave and License Agreement: Predominant in states like Maharashtra. This agreement allows the licensee (tenant) the right to occupy the premises without transferring any interest in the property. It offers the licensor (landlord) greater control and is typically easier to terminate than a lease.

Documents Required to Draft a Rent Deed in India

Here is the list of documents required to draft a rent deed in India:

1. Identification Proofs: The landlord and tenant must provide their Aadhaar Card or Passport, along with PAN Card details for verification.
2. Property Documents: Proof of ownership (e.g., title deed, sale deed, property tax receipt) and Copy of the property’s latest electricity or water bill
3. Photographs: Passport-sized photographs of both the landlord and tenant
4. Address Proof: For both the landlord and tenant (e.g., utility bills, bank statements)
5. Stamp Paper: Stamp paper of the appropriate value as per the Stamp Act (based on the rent and state regulations)
6. Witness Details: Name, address, and identification proof of two witnesses (who will sign the agreement)

These documents will help you draft and register the Rent Deed as per legal requirements.

How to Draft a Rent Deed in India?

Here is a step-by-step process to draft a rent deed in India:

Step 1: Drafting the Rent Agreement

Begin by drafting the rent agreement, and ensure that it includes the following key details:

• Parties Involved: Include the full names, addresses, and identification details (like Aadhaar, and PAN) of both the landlord and tenant.
• Property Details: Provide the complete address and description of the rented property.
• Term of Lease: Clearly state the start and end dates of the renting duration.
• Rent and Payment Terms: Mention the monthly rent, the due date for payments, and the mode of payment (bank transfer, cash, etc.).
• Security Deposit: State the deposit amount, conditions for its refund, and any potential deductions.
• Maintenance Responsibilities: Define who is responsible for repairs and general upkeep of the property.
• Termination Clause: Outline the conditions under which the agreement can be terminated by either party.
• Additional Clauses: Include rules regarding subletting, alterations, and other special terms.

Both parties should carefully review and agree to these terms before signing the agreement.

Step 2: Printing on Stamp Paper

The rental agreement needs to be printed on stamp paper with the correct value in accordance with the Stamp Act after it is finalized. The stamp duty depends on the state and is generally based on the annual rent or lease duration. For example, in West Bengal, for leases lasting 1 to 5 years, the stamp duty is 2% of the average annual rent. Ensure you follow local rules for accurate calculations.

Step 3: Signing the Agreement

The agreement should be signed by the tenant and the landlord in front of two witnesses.  The witnesses should also sign and provide their details. This step is crucial to validate the agreement legally.

Step 4: Registration of the Agreement

According to the Registration Act, 1908, it is mandatory to register a lease agreement if the term exceeds 11 months. The registration process involves the following steps:

• Visit the Sub-Registrar’s Office: Both the landlord and tenant must be present at the Sub-Registrar’s office in the property's location.
• Submit Required Documents: Bring the signed lease agreement, identification documents, passport-sized photos, and proof of property ownership.
• Pay Registration Fee: A fixed registration fee must be paid, which is usually the same regardless of the rent amount or property value.
• Verification and Registration: The documents will be checked by the Sub-Registrar. The agreement will be registered if everything is in order. Both parties will then receive a copy of the registered document.
• Online Registration Option: In some states, such as Maharashtra, rent agreements can be registered online through portals like the Department of Registration and Stamps.

Step 5: Post-Registration

Once the rent agreement is registered, both the landlord and tenant should keep a copy safely. This document serves as legal evidence in case of any disputes.  

Conclusion

The interests of both landlords and tenants must be safeguarded by a rent deed. It ensures legal clarity, prevents disputes, and secures financial interests. Proper drafting, registration, and compliance with state laws make the agreement legally enforceable. This offers security and transparency throughout the rental period for a smooth experience. If you have any queries about drafting a rent deed, contact Online Legal India. They have experts to assist you.