ADITYA PARIKH gives us tips on things to remember when renting your property.
The property market tends to be a guest you meet at every party. Conversations over the state of the real estate market can make one’s whiskey taste a little better or bitter. Shrinking sizes of apartments and rising real estate costs are the usual suspects when starting conversations. Real estate investments hold universal appeal, and the eyes really light up when one sees a profit opportunity. But god forbid, if the market is in a slump, it’s may be best to get the cheaper whiskey then.
Rental income is always welcome. However, in India, many property disputes have spent decades in court. No one wants their property to get embroiled in such a dispute. A few things can help mitigate that risk. At the very outset, good people are more important than strong clauses in an agreement. So before giving one’s property on rent, background check of the person is non-negotiable. After that, the bargaining on monthly compensation and security deposit starts. Once all those commercial terms are agreed, the paperwork arrives. Enter the lawyers and agreements.
One of the most popular and widely used agreements is the Leave and License. This type of agreement tends to bepreferred by many owners of property, as it could be a relatively safer alternative compared to other kinds of agreements. It may provide a better degree of safety to the owner whilst dealing with issues like possession, eviction etc. Pious Varghese, lawyer, DSK Legal, says, “Protecting one’s property while renting is paramount, and the best way to achieve this is by executing a Leave & License Agreement in lieu of a Lease Agreement as the former is merely a temporary permission, whereas the latter is a right created in the property”
The greed of higher and quick rental income can blind many a property owner. Add to that, the lack of legal savvy, the result is a poorly drafted contract. The consequence, penny wise, pound foolish- chasing the prospect of high rental income, the owner puts the entire property value at risk. Some issues are critical to safeguard one’s property. Certain clauses and issues can’t be overlooked. Firstly, the issue of possession, owning a property on paper while someone else occupies it against your will is a tragedy. It defeats the purpose of owning property. The agreement should clearly deal with the issue of possession in a manner where the owner’s possession is absolutely protected. A clause securing the owner’s legal and physical possession should be unambiguous.
Secondly, property is a costly affair. One doesn’t wasn’t the licensee to terminate the agreement at his whims and fancies in a short duration, leading to a sudden loss of revenue. Therefore, dealing with the issue of lock- in period is essential. This will ensure that even if the licensee terminates the agreement and walks, he is bound to pay for at least the lock-in period, thereby protecting the owner’s revenue.
Thirdly, some people love to overstay their welcome. So when it comes to refunding the security deposit, it’s best to give it at the time the owner is handed over the vacant apartment. This should dissuade many from hanging around when they shouldn’t. Further, a penalty clause can be added in case some tardy licensee decides to take it easy. He’ll have to pay for the taking it easy. Fourthly, the human mind is ingenious in cutting costs. An over smart licensee may try to bring in unrelated and unknown others to share the rent burden. Add a clause to prevent any such activities e.g. property cannot be sub-licensed; third party rights can’t be created etc.
The above are just a few issues that the agreement should capture. There are many scenarios that need to be dealt with, so clearly this isn’t a do-it – yourself exercise. Not only do you need a lawyer, but an experienced property lawyer. No, it’s not over yet, it doesn’t end at just the drafting and signing. The agreement should be registered and stamp duty paid as per the relevant Stamp Act to give it proper legal validity. Another oft overlooked aspect is the co-op housing society. Sometimes, co-op housing societies need a prior permission taken or ‘no objection’, and may have charges called ‘non-occupancy charges’.
Disputes are as old as the hills. Unfortunately, if the property descends into it, most matters land up at the Small Causes Court. As the owner of the property this is a nightmare, as property values in most metros are high and that puts a lot of value at litigation risk. The additional rental income can pay for that foreign vacation you wanted to take, but get a competent lawyer on your side, lest you have to cut short that vacation for a court visit.