Recently one of my friend was looking for an rented apartment. He asked me for the procedures, what will be duration of rent agreement & various things. I thought it will be a good idea to make a blog on this topic so that you as well me can take reference of this blog before entering into rent agreement.
The rent agreement is also called as lease agreement. It's basically a written contract between the owner of the property & the person who takes it on rent. Owner= Landlord : Person who takes it on rent= Tenant.
What does Rent agreement contains?
1. Terms & conditions based on which the property is let out
2. Description of the property (address, type & size)
3. Monthly rent, security deposit, purpose for which property can be used (residential or commercial), duration of the agreement.
4. Notice period & the circumstances under which the said agreement can be terminated along other vital inclusions.
Importance of Duration in Rent agreement
According to the Registration Act,1908, the registration of a lease Agreement/ Rent Agreement is mandatory if the leasing period is more than 12 months. In case of an agreement being registered, payment of payment of stamp duty & registration fees becomes imperative.
Stamp duty charges vary state wise.
In Maharashtra rent agreement are required to be stamped with a flat stamp duty rate of 0.25% of the total rent for the period. Stamp duty is also payable if any non-refundable deposit is paid to landlord.
Rate of 0.25% is same for residential & commercial premises.
Illustration for better understanding
Suppose Mr. A entered into a leave & License agreement for 24 months (in Maharashtra), with a monthly rent of 20,000/- and a refundable deposit of 5,00,000/- what will be his stamp duty amount & registration fee.
Calculation:
A) Monthly Rent x No. of Month = 20,000 x 24 = 4,80,000/-
B) Advance rent for the period / non-refundable deposit = 0/- (as there is no advance payment)
C) 10% of Refundable deposit x No. of years = 50,000 x 2 = 1,00,000/-
D) Total Amount= A + B + C = 4,80,000/- + 0 + 1,00,000/- = 5,80,000/-
Stamp Duty = 0.25% of D i.e. = (5,80,000/- x 0.25%) = 1,450/-
In Maharashtra, the registration fees depends on where the property is being let out is located. 1,000/- if it is situated under any municipal corporation area & 500/- if the same is in a rural area.
Who will pay?- In absence of any agreement to the contrary, the cost of stamp duty and registration charges is to be borne by the tenant.
Why 11 months?
I guess by seeing the above illustration you might have got an idea why most of the time people make rent agreement for 11 months.
Landlords or tenants are not required to register the rental agreement if the lease duration is less than 12 months. Hence there is no need to pay stamp duty & registration charges.
In above illustration we can conclude that if Mr. A make an agreement for 11 months he can save 2,450/- i.e. Stamp duty = 1,450/- & registration fees- 1,000/-
My Advice
The agreement which are registered are more secure & give more rights & duties to both parties. Registered rent agreement is a valid proof in case of dispute between both the parties.
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