Rent Control Act - Rental Agreement, Rights of Tenant & Landlord

In India, the governing law for the control of rent, protection of rights of landlords and the rights of tenants are governed by the Rent Control Act.

Introduction to the Rent Control Act

A central Rent Control Act was passed by the legislature in 1948. It regulates the rules of letting out a property and ensures that neither the landlords nor the tenants’ rights are exploited by the other. It should also be noted that currently, each state has its own Rent Control Act, though largely similar to each other, they carry some minor differences.

Due to the 1948 Act being extremely stringent and pro-tenant, the real estate market has had difficulty in growing in some areas. There are some properties that have been let out that are still paying the same amount of rent since 1948, disregarding inflation and increased property valuations.

In 1992 the Central Government tried to bring about amendments to the Act via a proposed model to ensure that the property is not devalued. Unfortunately, the changes were opposed by the sitting tenants and therefore failed to take effect.

Rental Agreement

In India, renting or letting out of any property for residential or commercial purposes is subjected to various rules and regulations, such as: – Under the law, it is a must to have a written agreement between the two parties enumerating all the terms and conditions of tenancy.

An agreement reached without being expressly put in writing will not be a valid contract in the following cases:

• Any changes regardless of the type of rectification must also be put in writing.
• The agreement must be dated and signed by both parties, i.e. the landlord and the tenant.
• The agreement must be stamped and registered.
• Without a valid rental agreement, the rights and duties of the landlord and the tenant cannot be enforced or protected by law.

Therefore, it is always prudent to enlist the help of a legal practitioner in the making of such an agreement as many complexities entail, especially for commercial leasing.

Rights of a Tenant

The Rent Control Act is established not only to protect the landlord and their property but also to protect the tenant. Under the Act, the few important rights that are given to the tenant are:

1. Right Against Unfair Eviction: Under the Act, the landlord cannot evict the tenant without sufficient reason or cause. The rules of eviction are slightly different from state to state. In some states for the landlord to evict a tenant, he/she must approach the court and obtain a court order for the same. In some states, the tenant cannot be evicted if he/she is willing to accept any changes to the rent.
2. Fair Rent: The landlord when letting out a house cannot charge extraordinary amounts in rent. The valuation of a property for rent is to be dependent on the value of the property. If the tenant feels that the amount of rent that is being asked is too much compared to the value of the property, he/she may approach the court to seek redressal. Usually, the rent is to be between 8% and 10% of the value of the property, including all costs incurred via construction and fixtures on the property.
3. Essential Services: It is the basic right of the tenant to enjoy essential services such as water supply, electricity etc. A landlord doesn’t have the right to withdraw these services even if the tenant has failed to pay rent with regards to the same property or a different one.

Rights of a Landlord

The point of interest in a rental agreement is always the property, and the property has to be protected from unfair exploitation. The Rent Control Act entitles the landlord with the following rights:

1. Right to Evict: The right to evict a tenant is also different from state to state. Meaning in some states, the landlord may evict a tenant for personal and bona fide reasons such as wanting to live there themselves. Such a reason is not an acceptable cause for eviction in Karnataka. The landlord, in most cases, must approach the court to evict the tenant. It is also needed by law for the landlord to send sufficient notice to the tenant before approaching the court.
2. Charge Rent: Being the owner of the property, the landlord has the right to charge rent upon the tenant. Since there is no actual legislation providing for an upper limit on the rent, the landlord may keep increasing the rent charges according to his wishes. Therefore, the prudent thing to do in such cases is to stipulate the amount of increase and the condition of increase in the rental agreement itself. Usually, the rent is increased periodically every year by 5% to 8%.
3. Temporary Repossession of Property: The landlord may temporarily repossess the property to improve the condition of the property, alter the property in any way or make changes to the property. But such changes to the property must not bring any loss to the tenant or materially affect his tenancy.

Non-Applicability of the Rent Control Act

There are certain cases where the Rent Control Act is not applicable when the property has been let out. They are:

• Property let out to private limited or public limited companies with a paid-up share capital of Rs 1 crore or above.
• Property let out or sub-let to public sector undertakings, banks or any corporation established under any state or central Act.
• Property let out to foreign companies, international missions or international agencies.

6 Steps for Renting Commercial Property in India

The real estate industry in India faces cut-throat competition from within, and hence rent agreements have to be worked upon smartly. You need to know the right questions to ask and all the laws that are best suited for your business.

1. Title Ownership Validation

Always ensure that you have complete details of the ownership of the property and hence access to the title deed is a must to authenticate the rent. Investigate further to confirm there is no sub-rent or any other form of rent associated with the property before getting into an agreement with the landlord.

2. Sanctioned Plans and Power Of Attorney (PoA)

If the property you are renting is a building under construction, it is always advisable to verify the title deed and commencement certificate issued by the relevant authorities. For renting commercial space in a built-up property, ensure that you check the occupation certificate. It is also important to check and confirm if there is any form of power of attorney involved in the case of indirect rent.

3. Appropriate Renting Agreement

Before entering into any form of mutual commitment with the landlord, ensure that the renting agreement is appropriated based on operations. Be specific about the nature of the rent, whether it is a rental lease agreement or a co-working office space agreement.

4. Income Tax & Mortgage Verification

It is always advisable to verify the income tax background of the landlord in case of a commercial agreement to check if there are any pending disputes or illegal proceedings. This will also confirm to you if the said property is categorized under the Income Tax Act of 1961 as ‘commercial’ or ‘residential’ under the Development Control Regulations. If there is any ambiguity in this categorization you maybe levied a TDS in the future.

5. Background Check of the Property Agent

It is also important to run a background check on the real estate agent before engaging his services. Information on the agents can be assessed through past rent agreements or by word of mouth too. Insist on the agents sharing details of past clients handled by them. Their inhibition in doing so can be a clear indicator of fraudulent activities if any, from the past.

6. Validity of Rent Agreement

In addition to other clauses, a business leasing agreement must have the following fundamental information:

• Commencement and termination date
• Location of property
• The whole rental amount as well as the deposit information.
• Payment Intervals
• Terms of lease renewal
• All of the parties involve d’s names, as well as their signatures.

What are the Documents Mandatory for a Commercial Rental Agreement?

• Aadhar card or the receipt received, Any government-issued ID proof
• Submit the original passport, if not Indian
• Power of Attorney should be presented if ID is demonstrating another person for the registration
• Evidence and Nature of Business establishment
• Original copy of proof of ownership (landlord’s property)
• Government Approvals, if any
• Two in recent times taken passport size photographs.
• Get the Commercial rental agreement printed on the stamp paper of the recommended value.
• Memorandum of association ∓ Articles of Association, If any
• Association of person’s understanding, if any
• Bonds and Dealership Proofs, if any
• Shareholder & Listing agreements, if any

What is the Procedure to Use the Commercial Rental Agreement?

The completed document must be provided to all parties, which may also include the guarantor. Each party should be given the opportunity and may need some time to read the agreement to fix this given the length of the document.

1. The Commercial Rental Agreement would require to be printed on ‘non-judicial stamp paper’ or ‘e-stamp paper,’ which is accessible in each state. The value of the stamp paper would be contingent on the state in which it is implemented and the ‘duration’ of the Rent.

2. Both parties should sign the Rental Agreement after printing the document on stamp paper or e-stamp paper, as applicable. Moreover, each party should hold a copy of the Commercial Rental Agreement.

3. If the rental period is more than 11 months, then the Commercial Rental agreement would require to be registered. Both the lessor and lessee must go to the sub-registrar’s office for the objectives of registration.

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