A lease is a contract or an agreement under which one party agrees to rent the property owned by another party. It guarantees the lessee, also identified as the tenant, the use of an asset and supports the lessor, the property owner or landlord, regular payments for the period of exchange. Both the lessee and the lessor face consequences if they fail to upload the terms of the contract.
Lessor- A lessor is the owner of an asset that is rented under an agreement to the lessee. Here the lessee makes a one-time payment or a series of periodic payments to the lessor in return for the use of the asset.
Lessee- A lessee is a person who rents land or property from a lessor. They are also known as tenants, may have different restrictions depending on the space, as is the case with commercial and residential properties.
What is a lease agreement?
A lease agreement is a contract between a landlord and a tenant that covers the terms of renting out a property, for some time, usually 12 months or more. The lease agreement also includes the responsibilities of both parties, and it involves all the required information to ensure that both parties are protected.
Advantages of Lease and Rental Agreement
Fosters Business Relationships
A general agreement, protecting the benefits of both the landlord and the tenant, is important to a good business relationship among the two parties.
When a deal includes such a huge asset, it will require a document in place that grants legal security, in case any action of the opposing party denies its terms.
Benefits of the lease agreement
- Liquidity: The lessee can use the asset to obtain cash, without spending money on the asset. He/she can employ funds for capital needs.
- Convenience: Leasing is easy for financing fixed assets. No mortgage or hypothecation is required. Restrictions included in long-term borrowings from financial institutions are avoided. Formalities connected in leasing are much less than in case of borrowings from financial institutions.
- Time-saving: The asset is available for use immediately without loss of time in applying for the loan, waiting for approval and sanction, etc.
- Cost-saving: Lease rentals are deductible from taxable income. The lessee has a lower obligation in bankruptcy than under debt investment.
When to use a lease and rental agreement?
- The owner or property manager, who wants to rent or lease the property to one or more residential tenants.
- The tenant will occupy or maintain the property for a fixed term or periodic terms, such as week-to-week, month-to-month, or year-to-year tenancy.
- You want an agreement that protects your property from careless tenants with options for security deposits, co-signers, standard fees, and sharp responsibilities.
Checklist requirements for lease and rental agreement
- Names of all the tenants.
- Limits of occupancy.
- Terms of the tenancy.
- Should specify the amount of rent.
- Security deposits and fees.
- Repairs and maintenance.
- Entry to rental or lease property.
- Restrictions on tenant illegal activities.
- Allowance of pets.
- Other restrictions by the landlord.
What is a rental agreement?
A rental agreement is an agreement or a contract between an owner and the one who gets a temporary possession over anything rented by the owner. The rental agreement could be concerning anything. It could be real estate, vehicles, personal properties or things such as musical instruments, clothes or things like skates or shoes, CD, DVD, or digging machines tools or appliances.
A rental agreement is calculated as a monthly basis. It is a possession of a short period usually of 11 months. For these monthly rents are charged by the landlord and the tenant handles it according to said terms of the agreement.
The rental agreement is a contract of rental which is written among the owner of the property and a renter who desires to have temporary possession of the property. It is distinguished from a lease, which is more typical for a fixed term. The agreement identifies the parties, the property, the term of the rental, the amount of rent for the term. This is typically known as the written agreement involved to specify the terms of the rental, which are organized and managed under contract law.
Benefits of the rental agreement
Securing unpredicted expenses
A rental agreement is an understanding which has advantages for both the landlord as well as the tenant by securing unpredicted expenses.
Through the rental agreement, there develops a strong bond between the landlord and the tenant as the advantages and obligations are streamlined and specifically defined.
Provides legal protection
There is always a requirement of a legal document if the value of the asset involved is high. Therefore it serves as legal protection in the form of the rental agreement.
Rental Agreement Format
A rental agreement is a legal document and also known as the contract between the landlord, owner of the property, and the tenant for a fixed period, that contains the pre-discussed norms and requirements under which the tenant has temporary ownership of the property. The rental agreement is also found online, where you can register the format and apply for it.
This agreement has to be followed by both the landlord and the tenant. Moreover, the tenure of the agreement can be replaced if the owner of the property wishes to. The terms and requirements of the contract or agreement can be modified according to the understanding between the tenant and the landlord. Unless registered, this notarized contract is not legally binding. Therefore, to register the same, the tenant is required to pay stamp duty and registry charges on the agreement.
Security Deposits for the rental agreement.
In India, security deposit or advance is also paid by the tenant to the landlord which is to be returned at the time when the contract has expired. Usually, it is estimated anywhere from 2 or 3 months to up to 10 months of the rent. Security deposits are provided at the time of signing the contract.
A part of the security deposit can be used by the landlord towards any damages caused to the furniture, appliance, electricity, or the property itself, by the tenant. After deducing the security deposit towards damages, the landlord is to return the remaining amount to the tenant at the time of the cancellation of the contract.
Contents of a rental & lease agreement
The following points should be included in a lease agreement:
- Names of the lessee, lessor or their authorised agents
- Property description.
- Rent amount, mentioning the due dates, late charges and grace period.
- Mode of payment.
- Procedure of terminating the agreement before expiry date, and charges applicable, if any.
- Security deposit amount along with account details.
- Utility furnished and charges thereof, if any, levied by the lessor. Method of determining these charges
- Equipment and amenities inside the premises (such as laundry, swimming pool, security systems etc) the lessee is entitled to make use of.
- Rules and regulations such as noise rules, pet rules and the penalty imposed for violation.
- Parking spaces allocated to the lessee, along with related facilities and rules thereof
- Procedure ( both normal and emergency) of managing repair requests from tenants/lessee ,
Terms included commonly in a rental and lease agreement
- Duration: The time period for which the agreement will remain in effect.
- Rent: The payment/consideration made by the lessee/tenant to the lessor/owner as a trade-off for the property leased/rented out.
- Deposits: The amount of security deposit (if required), along with the purpose thereof. The conditions for adjustment/return of the same at the expiry of the lease should also be mentioned in clear terms.
- Utilities: The utilities the tenant/ lessee is accountable for.
- Insurance: Details of insurance, if the lessee is needed to insure the property during his duration of use. This is a common feature in commercial lease/rental agreements.
- Repairs and Maintenance: This section specifies which party (lessor or lessee) is responsible for maintenance and renovations of the property.
Documents to be presented by the landlord for registration
- Original copy of proof of ownership of the landlord’s property.
- Copy of 2 recently taken passport size photos.
- An Aadhar card or its receipt while applying for it is mandatory.
- Any government-issued ID proof- driving license, voter’s ID, passport etc.
- The rental agreement that is printed on the stamp paper of the recommended value.
Documents to be presented by the tenant
- 2 passport size photos.
- Aadhar card or the receipt received while applying for it. If the person is not Indian, then he/she has to submit the original passport.
- ID representing another person for the registration, then a Power of Attorney should be presented.
FAQs on Rent and Lease Agreement
Is leasing better than renting?
The decision to lease vs. rent, depends on what you need. If the asset is essential to your business and you need it there all the time then leasing is your most suitable option. Renting for a precise term period may cost more, but the whole cost to you will be more economical since you won’t have the asset for many years.
Who prepares a rental agreement?
Typically, a rental agreement is done 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 a witness.
How long can I stay after my lease is up?
If a landlord would like to terminate a lease when its term expires, some states require the landlord to give notice to the tenant even though the lease already specifies the termination date. 60 days is normally sufficient notice for a tenant to find a new rental.
What is the deed of a lease?
A deed of a lease is the formal document entered into a commercial property by the tenant and the landlord, after an agreement to the lease is signed. It is prepared based on the information entered on the agreement to lease, after the terms of the contract have been reached by the landlord and the tenant, whether oral or in writing.