Rent Agreements are for 11 months: But Why?
One of the best and the better method of earning money is to rent a property. If the property is lying vacant then the owner can rent it to someone. But the most important thing while renting a property is the rent agreement. In this article we will study why rent agreement is only for 11 months and not for 12 or more months.
First, let us understand what is rent agreement?
Rent agreement is also known as lease agreement. It is a document or a written contract between the owner of a property (landlord) and the tenant who takes it on rent. It specifies the terms and conditions based on which the property is let out, like address, type and size i.e. description of the property, monthly rent, security deposit, purpose of using the property whether commercial or residential and duration. In case, any dispute arises regarding the property between landlord and tenant, rent agreement act like evidence. The terms and conditions can be negotiated but after signing it and also, it is binding on both the landlord and tenant. Even conditions for terminating the agreement are also mentioned in it.
Why rent agreement is for 11 months only?
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Most of the rent agreements are signed for 11 months, so that the stamp duty and other charges can be avoided.
According to the Registration Act, 1908, lease agreement registration is mandatory if the leasing period is 12 months or more than that. If a rent agreement is registered then it is also mandatory to pay registration fee and stamp duty.
Example: For five year lease in Delhi, the cost of a stamp paper is 2% of the total average annual rent of a year and for more than 5 years but less than 10 years it is equivalent to 3% of the average annual rent. For 10 years or more but less than 20 years, the rate is 6%. If in the contract security deposit is mentioned, then Rs. 100 and Rs. 1100 for the registration fees are also added.
If a property is rented for 2 years in which the first year rent is Rs. 20,000 per month and for second year rent is Rs. 22,000 per month. Then, the charges for registering the rent agreement would be: 2% of the average rent for 12 months which is Rs 5040. This can be explained: the average rent for a month is Rs. 21,000, average rent for one year is 21,000*12 and 2% of this is Rs 5040. In this amount if there is security deposit then Rs 100 and Rs 1100 for registration fee will be added. The total cost will become Rs 6240. Apart from this, the expenses of the lawyer and other paper works will be added and approx. it comes out to be 8 to 10 thousand rupees.
Therefore, to avoid all these expenses, landlords and tenants make an agreement for 11 months only based on mutual consent. Because of this, they don’t have to pay registration fee and other charges. However, if the tenant wants to register a lease, then the tenant and landlord should share the cost.
Now you may have understood why the rent agreement is only for 11 months.
Some important facts about Rent Agreement
- While signing the rent agreement both the landlord and the tenant should take into account some of the essential things such as the landlord should have complete information related to the tenant and the tenant should pay attention that the landlord is not fraud. Also, tenant should know about how long the property is being rented, who will pay the electricity bill, water and house tax, whether it is included in the rent or not.
- In the rent agreement, it should be clearly mentioned when rent to be increased and by how much.