Those having more than one or multiple residential property usually get prompted to rent out their property. Apart from tax benefits, renting out a house has several other advantages like getting additional income, etc. However, giving a house on rent is not an easy task and usually comes with its fair share of responsibilities and challenges.
Therefore, while giving residential property on lease / leave and license basis, it is important for the owner/lessor to consider some important things for the purpose of safeguarding their own rights. Here we take a look at some of them:
1) As the owner of residential property, one has to be careful about the profile of the tenant and his/her ability to pay the rent on time, and hence KYC of the incoming tenant/licensee is a must. So, first of all, one should look at the profile of the tenant. “There are several cases where the tenant does not pay the rent on one hand and does not vacate the property on the other hand. The judicial process is slow and, in such a situation, the tenant takes advantage. It is also extremely important to get the police verification of the tenant/licensee done,” says Sadhawa Mishra, Partner, SNG & Partners.
2) There are agencies like Karza Technology, Cubic Tree etc which can give a report at a miniscule cost on the issues like any pending default or litigation of a person. So, such reports should be obtained to do the back ground check and to ensure that the prospective tenant is not a litigation profile or a defaulter.
3) The lease / leave and license agreement must be executed in writing duly signed by both the parties and attested by two witnesses to make it valid and legally enforceable. “The lease/ leave and license agreement should interalia include the important terms such as rent / license fee; duration; date of vacation; security deposit; no subletting rights; certain important dos and don’ts, etc. There should be adequate protective clauses under the agreement giving rights to the owner to terminate the agreement and thereby seeking vacation of the property in the event of default by the licensee/lessee which interalia could be non-payment of the rent/license fees etc., default by the lessee/licensee of the terms of the agreement,” informs Mishra.
4) The lease / leave and license document must be adequately stamped even if for a few months. If the duration of arrangement is more than 11 months, this document must be registered also with the sub registrar of assurances. If the stamp duty is not paid and the document is not registered, it cannot be relied before the court of law and creates legal complications, which makes it difficult for the owner to enforce the agreement.
5) It is advisable that a monthly or quarterly visit should be made to the tenanted property to ensure that the property is being managed well and that the property is being used only for the permitted usage and for no other purpose. For example, if the leased/licensed property is residential in nature, it ought to be used for residential purposes only.
6) Regular updates should be taken from the society that the tenant / licensee is paying the maintenance / water and electrical charges where the tenant / licensee is required to pay the same depending upon the commercial understanding/terms under the agreement. “In the event the licensee/tenant fails to do so, then the owner/licensor should have adequate right to terminate the agreement and necessary clauses to be incorporated in the agreement to that effect,” suggests Mishra.
7) Penalty / mesne profit clause should be built recording that if the property is not vacated on the agreed date, liquidated damages will be levied, which will deter the tenant / licensee from committing breach. Additionally, security deposit forfeiture clause all needs to be incorporated.