The Rent Control Act in India is the primary legal instrument that governs rent regulation, landlord rights protection, and tenant rights.
Summary of the Rent Control Act
The legislature enacted a national Rent Control Act in 1948. It controls the guidelines for renting out a property and makes sure neither the rights of the landlords nor the tenants are violated by each other. It should be noted that each state currently has its own Rent Control Act, and while they are generally similar to one another, they do have a few small variations.
The 1948 Act was quite restrictive and pro-tenant, which has made some sectors of the real estate market struggle to expand. Despite inflation and rising property values, some properties that have been rented out since 1948 continue to pay the same amount of rent.
In an effort to prevent the property’s value from declining, the Central Government attempted to change the Act in 1992 through a proposed model. The sitting tenants, unfortunately, resisted the adjustments, so they did not go into effect.
Rental Agreement
In India, renting or letting out any property for residential or commercial purposes is subject to a number of laws and restrictions, including: – According to the legislation, it is necessary for the two parties to have a written agreement outlining all the terms and circumstances of the tenancy.
In the following circumstances, an agreement formed without being explicitly set forth in writing is not a binding contract:
- All modifications, irrespective of the nature of the correction, must also be made in writing.
- Both the landlord and the renter must sign the document and both parties’ signatures must be dated.
- The contract needs to be registered and stamped.
- The obligations of both the landlord and the tenant cannot be enforced or legally protected in the absence of a formal rental agreement.
As a result, it is generally advisable to get the assistance of a legal professional when creating such an agreement due to the numerous complications involved, especially in commercial leasing.
Tenant’s Rights
The Rent Control Act was created to safeguard both tenants’ rights as well as those of landlords and their property. The Act grants the tenant a few key rights, including the following:
Right Against Unfair Eviction: In accordance with the Act, the landlord is not permitted to remove the tenant without a valid reason or justification. Each state has a slightly different set of eviction laws. In some places, the landlord must go before the court and request a court order before they can evict a tenant. If the renter is ready to accept any adjustments to the rent, he or she cannot be evicted in several states.
Fair Rent: The landlord is not allowed to demand excessive rent while renting out a home. A rental property’s appraisal must take its value into consideration. The tenant may go to court to seek relief if they believe the amount of rent being requested is excessive given the worth of the property. Typically, the rent should range from 8% to 10% of the total value of the property, which includes all costs associated with building and property improvements.
Essential Services: The renter has a fundamental right to use vital services like power and water supply. Even if the renter has not made rent payments for the same or a different property, the landlord does not have the right to terminate these services.
Landlord’s Legal Rights
The property is always the focal point of a rental agreement, and it must be safeguarded from unfair exploitation. The following rights belong to the landlord under the Rent Control Act:
Right to Evict: Each state has a varied set of laws governing the ability to evict a tenant. Meaning that in some places, a landlord has the right to remove a tenant for legitimate, personal reasons such as wishing to move in. In Karnataka, such a justification is not a valid ground for eviction. In most situations, the landlord must file a court petition to evict the tenant. Additionally, before going to court, the landlord is required by law to give the tenant adequate notice.
Charge Rent: As the property’s owner, the landlord is entitled to charge rent to a tenant. As there is no legal law establishing a cap on rent, the landlord is free to keep raising the rent fees as he sees fit. Hence, it is wise to include the amount of the increase and the conditions of the increase in the rental agreement itself in such circumstances. The rent often goes up by 5% to 8% on a yearly basis.
Temporary Repossession of Property: The landlord has the right to temporarily take back possession of the property in order to repair, change, or improve it. Nonetheless, such alterations to the property must not do the tenant any harm or seriously interfere with his tenure.
Absence of the Rent Control Act’s application
When a property has been rented out, there are some circumstances in which the Rent Control Act is not applicable. As follows:
- Property leased to private limited or public limited firms with a paid-up share capital of Rs. 1 crore or more.
- Property leased or subleased to banks, corporations created under state or federal law, or public sector operations.
- Property rented to foreign businesses, missions abroad, or international organizations.
6 Steps to Rent Commercial Property in India
Since there is fierce internal rivalry in the Indian real estate market, rental agreements must be carefully negotiated. You must be aware of all applicable laws for your type of business and the appropriate questions to ask.
Verifying title ownership
Always make sure you have full knowledge of who owns the property, therefore, having access to the title deed is necessary to verify the rent. Before entering into a contract with the landlord, conduct more research to make sure there is no sub-rent or other type of rent associated with the property.
Plans approved and Powers of attorney (PoA)
It is generally essential to check the title deed and commencement certificate given by the relevant authorities if the property you are renting is under construction. Make sure to verify the occupation certificate before renting out commercial space on a built-up property. In the case of indirect rent, it’s also crucial to verify whether any kind of power of attorney exists.
A suitable rental agreement
Make sure the rental agreement is adequate based on operations before engaging in any type of mutual commitment with the landlord. Whether it is a rental leasing agreement or an agreement for co-working office space, be precise about the type of rent.
Verification of Income Tax and Mortgage
In the case of a business agreement, it is usually advisable to investigate the landlord’s tax history to see whether there are any current legal problems or investigations. You can use this to find out if the property in question falls under the Development Control Rules’ “business” or “residential” classification under the Income Tax Act of 1961. You can later be assessed a TDS if there is any ambiguity in this classification.
Checking the property agent’s history
When hiring a real estate agent, it’s crucial to research his credibility. Past rental agreements and word of mouth are other good ways to learn more about the agents. Demand that the agents provide information on previous clients they have served. Their reluctance to do so may be a blatant sign of past dishonest behavior, if any.
Validity of the Rent Agreement
A business leasing agreement must have the following key details in addition to other clauses:
- Date of commencement and termination
- Property location
- The total cost of the rental as well as the details of the deposit.
- Payment Intervals
- Renewing lease conditions
- The names of each party and their signatures.
Required documents for a commercial lease agreement?
- Aadhar card, receipt, or any other kind of official identification
- The original passport must be submitted; if it is not, an Indian Power of Attorney must be shown if the ID is proving another person for the registration.
- Proof and the Kind of Business Established
- Authentic copy of ownership documentation for the rental property
- Approvals from the government, if any Two recently taken passport-size photos.
- Print the Business Rental Agreement on the recommended-value stamp paper.
- Articles of Association, Memorandum of Association, If any
- shareholder and listing agreements, if any
- bonds and dealership proofs, if any
- associations of person’s understanding, if any
What steps must be taken to utilize the commercial rental agreement?
Each party, including the guarantor, shall receive a copy of the completed document. Given the length of the paper, each side should be given the chance to read it, which could take some time.
- The Business Rental Agreement must be printed on “non-judicial stamp paper” or “e-stamp paper,” both of which are readily available in any state. The “duration” of the rent and the state in which it is implemented would determine the value of the stamp paper.
- After printing the rental agreement on stamp paper or e-stamp paper, as appropriate, both parties must sign it. Moreover, a copy of the Commercial Rental Agreement should be kept by each party.
The Commercial Rental Agreement must be registered if the rental length is more than 11 months. For the purposes of registration, both the lessor and the lessee must visit the sub-registrar’s office.
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