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Read between the lines before signing a rent agreement

Here are a few essential things that tenants should be aware of before signing on the dotted line

What is a rent agreement?

A rental / lease agreement is a legal document stating that owner and the tenant agree to follow the rental rules and the deal. Typically, a rent agreement is prepared by the real estate agent hired by the landlord and the tenant. To validate the agreement, both the landlord and the tenant ought to sign the agreement in the presence of two people who are non-beneficiaries of the property and will sign on the agreement as witnesses. In most cases the real estate agent doubles as one of the witnesses.

What does a rent agreement include?

A rent agreement includes the terms and conditions under which the property is given on rent. The agreement includes the tenant’s name and landlord’s name and address of the property which is given on rent. A common mistake we usually make is not to read a contract before we sign. Obtain a copy of the rent agreement and make sure you go through everything before you sign it.

Make sure the person you are transacting with is the actual owner / landlord of the property. You also have the right to see the documents that prove all previous bills related to the house have been paid, especially the electricity, water and gas bills. 

A rent agreement includes the amount of rent paid and the tenure for which the rent agreement is made. The tenure of a rent agreement is usually 11 months. Also a clear mention of the terms and conditions under which the agreement can be renewed after it expires should be incorporated in it at the outset. If the rent agreement is for more than a year, it is compulsory for the owner to register the rent agreement by paying the necessary stamp duty. 

The rent agreement also mentions the security amount to be deposited with the landlord by the tenant. The deposit is usually held for the duration of the tenancy. The deposit is a safety net for the landlord to guard against the cost of replacing or repairing property damaged by the tenant.

The agreement also mentions the date before which the rent is expected to be paid. For instance, it could be the 5th or 10th of every month. In case the tenant fails to pay the rent before the predetermined date, the penalty charges that he would be liable to pay should also be defined in the agreement.

What is in the rent agreement?

  • Rent tenure
  • Rent amount
  • Security amount
  • Rent payment date
  • Any panel payment if rent is late
  • Facilities for tenant
  • Rent escalation clause
  • Renewal terms after the contract expires

Rent escalation clause

A tenant should verify whether the landlord has included a “rent escalation clause” in the agreement, which could be used to increase the rent after a certain period say after six months. Verify whether the agreement mentions the date after which rent charges would increase and the percentage of increase.

Other terms

Check if the owner has added a “clause on the sale of the house”. If the landlord decides to sell the house during the term of the rent agreement, you need to know how many months you will get to find a new accommodation for yourself. 

A clause clearly stating who will be responsible for regular repairs of the property must also be incorporated in your agreement. Typically, minor repairs of the property are taken care of by the tenant.

Visit the place

Visit the place at least once—where you want to stay on rent—before signing the lease agreement. You not only need to check the condition of the house, but also make sure that all electricity and water connections are working properly. Check the windows to see if they open close and lock properly. Also inspect the walls. Also ensure that the all the appliances in the house are working appropriately. Normally, it is the owner’s responsibility to ensure that the property is handed over for possession in good shape. This would mean that all electrical and water connections are in working condition, the electricity meter and water motor are in running condition.

Additional charges

The rent agreement could also include additional monthly charges, such as the society maintenance charge, electricity bill, water bill to be paid by the tenant. Rent agreement can also include mention the facilities like parking space included with the property. These additional charges should be clearly mentioned in the rent agreement along with the person who is supposed to pay them.

Notice period & penalty

If either party fails to honour the terms and conditions of the agreement, it will become invalid and the aggrieved party could claim penal charges. Therefore the agreement should also include notice period and penalty for cancelling the agreement without completing the specified period. Normally a one-month notice period is served.

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A finance blogger with avid interest in equities, markets, commodities, currencies and ipos. I hold an important position in a reputed brokerage firm with its presence globally