Why Rent Agreements Are Generally For 11 Months?
Data available with Makaan.com shows 21 per cent of all landlords, who have listed their properties for renting on the website expect their tenants to stay for at least a year. Why then, rents agreements are generally signed only for a period of 11 months, one month short of a year?
“If the rent period is exceeded by another month to say, 12 months, several laws will come into application, complicating the process for both the tenant as well as the landlord. To avert that situation, renting period is kept at 11 months, irrespective of the period for which the landlord might be intending to let his property. This contract is later renewed for another term. This way, several complications are avoided by both the parties,” says Brajesh Mishra, advocate Punjab & Haryana High Court.
“From a monetary point of view, it would become expensive for a tenant if rent agreements were created for a period of over 11 months. From a legal perspective, it would be quite cumbersome for the landlord,” adds Mishra.
Now, let us understand what the possible monetary and legal repercussions are of signing a renting agreement for a period extending 11 months.
If the renting period is increased to a year or more, the parties involved in the transaction will have to pay stamp duty and registration charges. Under Section 17 of the Registration Act, 1908, registration of leases of immovable property from year-to-year, or for any term exceeding or reserving a yearly rent is compulsory. This section will thus be applicable on lease agreements that last for a year, significantly increasing the cost of renting. In such cases, the tenant will have to bear the stamp duty and registration charges.
In Uttar Pradesh, for instance, stamp duty on lease agreements is four per cent of the annual rent, plus security deposit while the registration charge is two per cent of the rent deposit.
In national capital Delhi, two per cent of the average annual rent must be paid as stamp duty, with a standard Rs 1,100 as registration charge.
In Haryana, stamp duty on lease agreements varies between 1.5 and 3 per cent of the average annual rent, depending on the rent period mentioned in the document. The registration charge varies between Rs 1,500 and Rs 16,000, depending on the rent amount.
Rent agreements that are carried out under the provisions of the Transfer of Property Act, 1882, as leave and license contracts for a period of 11 months have no validity under rent control laws. Rent control laws, which differ from state to state, have under their purview all lease agreements that are conducted for a period of at least a year. These archaic laws, which were largely implemented across the world after World War-II, set strict rules in place which make renting difficult, especially for the landlord. Landlords, who rent their premises under these laws, will find it extremely difficult to revise rents and evict tenants, for instance.
According to the rent control law in Delhi, for example, landlords are allowed to increase rent after every three years by 10 per cent ─ the common practice on the other hand is to increase the rent every year by 10 per cent. If they reconstruct the unit with the prior permission of the tenants, landlords can increase the rent amount not exceeding 15 per cent of the cost of the additions done in the property.
In Maharashtra, an increase of four per cent per annum is permitted while in Haryana, no increase is allowed for five years once the fair rent has been fixed. In many states, including Punjab and Tamil Nadu, landlords cannot increase the rent unless some repair work has been carried out. In case of improvements carried out in the premises with the permission of the tenant, an increase not exceeding one per cent of the total cost of the improvement is permitted in UP.
On the other hand, while a landlord can immediately start an action for eviction of a tenant on expiry of the notice of eviction under Section 106 of the Transfer of Property Act, they cannot start such proceedings in case rent control laws apply, unless they can prove the existence of one of the grounds of eviction under the laws applicable in that state.