How to choose the right tenure for your rental agreement

Sampat Bhansali, 41, is based in Bengaluru, where he owns a small apartment that he has rented out. He lives in a larger apartment with his family on the outskirts of the city, closer to his workplace. Bhansali prefers an 11-month rental agreement as it doesn’t need to be registered. “It helps to save registration costs, as well as the hassles of making an agreement. If you make a two-year agreement and the tenant decides to leave in ten months or earlier, you again need to go through the process of registering a new agreement, getting witnesses, finding an intermediary for the registration, etc.," he says. “However, I ensure I rent the apartment only to a family." Both tenants and landlords weigh several factors when deciding on the length of a rental agreement. While some prefer an 11-month pact, as agreements under 12 months don’t need to be registered unless specific state laws require otherwise, others choose to register agreements regardless of the tenure. Some also prefer agreements with longer tenure, as it gives predictability to both the tenant and the landlord. However, having no registered agreement with proper terms and conditions can backfire at times. Take the case of Keerthi Sanagasetti. When she vacated her flat in Chennai, her landlord refused to pay back her deposit and instead raised several charges related to general wear and tear. “We had to finally take the matter to the local police station. The cops finally told the landlord that he cannot charge us on these grounds and needs to pay back our deposit," the 31-year-old recalls. She says she would have preferred to get the rental agreement registered, but up until 2019, registration of rental agreement was not compulsory in Tamil Nadu for 11 months or less. As per the Tamil Nadu Regulation of Rights and Responsibilities of Landlords and Tenant Act, the rental agreement needs to be registered, regardless of its tenure. “I would prefer a 12-month tenure, as that would give us more flexibility as a tenant," she says. Sanagasetti now resides in Delhi, where she has a registered rental agreement for a one-year tenure. Mumbai-based Bruhadeeswaran R., who has been staying on rent in Mumbai since 2014 says he has rarely had any issues with a landlord. “I have always found landlords in Mumbai very forthcoming when it comes to getting the rental agreement registered," he says. Section 55 of the Maharashtra Rent Control Act, 1999 mandates that all tenancy agreements, irrespective of their duration, must be in writing and registered. He says he preferred to register his agreement for a period of two years. “It helps to give me visibility in terms of what rental expenses are going to be in the coming months and don't need to worry about moving my family every year," Bruhadeeswaran says. He says outside of Mumbai he has had an unpleasant experience. He cites a brief stint for work in 2022 in Noida. “This landlord just had a rough agreement with me, and didn’t even share his PAN number. So, I couldn’t claim HRA deduction at the time of submitting income tax proof with my employer," he recalls. “The landlord only accepted cash and expected me to take his appointment every month, and drop cash at his home. The agreement said payment can be made between first and fifth of every month. But when I couldn’t drop cash on the first of a particular month, which I would generally do, he called and spoke rudely. That’s when I decided that I need to find a new house," he says. “There were also other issues... such as drinking water. I ended up paying the costs of repairing the RO," he added. Legal view According to the Registration Act 1908, a rental agreement for less than 12 months need not be registered. However, if the laws stipulated by a state government require registering the rental agreement, it is mandatory as land is a state subject. An 11-month unregistered agreement, where the required stamp duty is paid, might still be a legally permissible document, but either party can dispute its enforceability in a court of law. “An unregistered rental agreement, while legally valid for 11 months or less, poses risks for both landlords and tenants. For landlords, it may weaken their ability to enforce eviction or recover unpaid rent through legal channels. Tenants, on the other hand, face challenges in claiming refunds of security deposits or addressing arbitrary changes to terms," said Asha Kiran, partner at King Stubb & Kasiva, Advocates and Attorneys. “Conversely, a registered rental agreement offers stronger legal enforceability but comes with its own considerations. For landlords, it locks them into the agreed terms, limiting flexibility, while tenants are bound by legally enforceable rent and tenure conditions," she added. For example, a registered agreement can stipulate the lock-in period for the tenant, which essentially means the minimum period that the tenant is required to stay. This typically could be anywhere between three and six months and if the tenant decides to vacate before lock-in, the tenant is liable to pay monthly rental that is pending under the lock-in clause. Similarly, a registered agreement will lay down other conditions of the tenancy, such as minimum notice period to be given to the tenant, the refundable deposit of the tenant, tenant and landlord’s PAN number and other details. “The tenant could legally contest any deductions in refundable security deposits, which they believe are unjustified, and the landlord may need to prove the validity of court," Suresh Palav, partner, IndiaLaw LLP. Stamp duty needs to be paid in either case. “A rent agreement for a term of 11 months or less does not require compulsory registration, but applicable stamp duty must be paid," points out Niraj Kumar, partner at DSK Legal. The registration fees and stamp duty costs would differ from state to state. And it also depends on the duration of the agreement and the rental amount. Here is an example to show what it could cost like. A property with monthly rental of 65,000 in Maharashtra, will attract stamp duty of 3,950, registration fees of 1,000 and document handling charges of 300. For the same rent and duration, stamp duty in Gujarat works out to 1,820. In Maharashtra, the rental agreement can be registered by anyone online with the help of a biometric reader. Hence, brokers can also create rental agreements for their clients. Drafting an agreement The first step is to ensure proper drafting of the rental agreement. Rental agreements can fall under different categories and governed by different statutes altogether; it all depends on the construct of such agreements, explains Soumya Banerjee, partner at Aquilaw. "Various Indian states have state-level tenancy legislations, which govern the rental agreements. Also, the rental agreements may come under the purview of the Transfer of Property Act of 1882 and are considered to be a lease. Further, rental agreements may be considered to be a leave and license agreement under the Indian Easements Act, 1882, if the rights granted under the said agreement is of a nature of permissive possession only," he explains. A lease agreement is transfer of the right to the other party to enjoy the concerned property for a pre-defined time-period or in perpetuity. It is defined under Transfer of Property Act. In a lease, the actual possession is transferred to the lessee. It creates interest on leased property in favour of the lessee. However, a leave and license agreement is a legal document that enables one party to allow another party to use their immovable assets, i.e. property, for a specific period without any change in the ownership of the asset. It does not create any interest in favour of the other party. Leave and license agreements are commonly referred to as rental agreements, and it is defined under section 52 of the Indian Easements Act. Notarization is an option if you don’t wish to register a 11-month or lesser-tenure rental agreement, but it doesn’t have the same enforceability as a registered rental agreement. “Notarization is not legally required for leases less than 12 months. However, many people get such agreements notarized as an added measure of authenticity and to create a basic legal acknowledgment of the lease terms," said Abhilash Pillai, partner at Cyril Amarchand Mangaldas. Hence, it is advisable to register a rental agreement regardless of the tenure to ensure the full enforceability of all the terms and conditions. Long and short of it If you are a tenant, a longer-tenure rental agreement would generally be advisable as it allows you to fix your rental costs, as well as rent escalations, for a longer period of time. You don't have to worry about fluctuations in the rental market or the need for fresh negotiations with the landlord every year. On the other hand, if you are a landlord, a shorter-tenure agreement offers you the flexibility to re-negotiate contracts annually to ensure you are getting the best market rate. However, the downside is that it does not offer the predictability of a long-term tenancy.