Minimising landlord-tenant disputes
In this second part of a series on drafting a lease deed, we discuss issues such as renewal, stamp duty and property transfer
In this second part a series on drafting a lease deed which is fair to both the lessor and lessee, we look at more issues and areas that parties must keep in mind while negotiating the terms of the lease deed.
Renewal: If either of the parties or both want to keep open the option of renewing the lease deed for an additional term after its expiry, they may also specify in advance the manner of renewal of the lease and the conditions to which the renewal of lease will be subject to.
Transfer: When the lessor sells his property to a third party during the subsistence of the lease, tenants tend to raise objections, fearing that their lease may automatically terminate. However, upon transfer of the property, all rights of the lessor stand transferred to the buyer by statutory attornment (agreeing to remain as tenants after transfer of ownership). The buyer (new lessor) simply steps into the shoes of the original lessor and the existing lease of the property continues between the lessee and new lessor. To prevent any dispute, the parties should incorporate a clause on attornment.
Stamp duty: If the parties want to share the burden of paying stamp duty, they may include a clause to this effect. Unless otherwise specified by the parties in their lease document, it is the lessee’s responsibility to pay stamp duty on lease deed. If a lease agreement is not adequately stamped and/or registered, it may amount to being a month-tomonth lease. To protect their interests, the parties must ensure that stamp duty is fully paid because a monthto-month tenancy can be terminated at any time by the lessor after issuing notice to the lessee, irrespective of the term given in the lease.
Registration: In addition to stamp duty on lease agreements, every state also requires payment of applicable registration fee. Under the Indian Registration Act (IRA) 1908, lease documents for month-to-month tenancy not exceeding 11 months do not require compulsory registration. Under the IRA, lease of a property from year to year, or for a term exceeding one year, or reserving yearly rent, requires compulsory registration.
Last year, in the case of Mohammad Ahmad vs Atma Ram Chauhan, the Supreme Court laid down certain norms and guidelines to be considered by lessors and lessees while concluding their lease transaction. The objective behind these guidelines as to reduce litigation in such cases. The court observed that rent must be enhanced by at least 10% after every three years of the term of the lease, or enhanced according to the terms of the lease deed. Also, if the tenant is paying the prevalent market rent, the landlord will not be entitled to bring any action for eviction against the tenant for at least five years. That is, for five years the tenant will enjoy immunity from being evicted subject to proper and timely payment of rent. Also, major structural repairs in the property should only be carried out after obtaining prior permission of the landlord.
Day-to-day maintenance of the leased property will be carried out only by the tenant, and the money spent by the tenant for such mainte- nance work will not be reimbursed. Crystallising these terms while negotiating and setting out the parties’ rights, obligations and entitlements in the lease deed will definitely minimise landlord-tenant litigation.