Clauses for Rental /Lease agreements

Source :BL;24th Oct 2011

Clauses to watch out for while preparing a rental agreement. This applies not only to commercial lease agreements but also to residential rental agreements you enter into on behalf of your company.

Repairs

A distinction should be made between major and minor repairs. The normal practice is for the landlord to be responsible for any and all major repairs to be conducted on the property (for example, any leaking / water seepage, major electrical problems, etc), and for the tenant to be responsible for all the minor ones (for example, replacing bulbs, motors, fixing minor leaks in plumbing, etc). The agreement should clearly state the same.

Wear and Tear

Certain features of the property are bound to deteriorate with time (like the paint coating, etc) and the tenant cannot be held responsible for the same.

The covenants should include a clause stating that the tenant will return the property in the condition he or she received it, subject to normal and acceptable wear and tear. This will save the tenant from having to paint the house or replace rusted fitting as long as the same was not caused by any direct act or negligence.

Maintenance / Association Charges

In the case of an apartment, there may be fixed monthly maintenance charges or apartment association charges. The normal practice is for the landlord to pay these charges. The agreement should contain a clause stating the same.

Rent

The agreement must contain the exact monthly rent payable by the tenant to the landlord, along with the method of payment (cheque, demand draft, etc) and details as to when the payment must be made (for example, rent must be paid on the 1st of every month, no later than the 5th of every month, in advance).

List of Furniture / Fixtures

If the property comes with any fixtures (lighting fixtures, paintings, chandeliers), furniture (carpets, beds, tables, chairs) or appliances (geysers, refrigerators, air conditioners), the same must be listed, counted and added as an annexure to the agreement and will form a part of the property.

The tenant must ensure that they are undamaged and in working condition before taking possession of the property, as he or she will be liable for them.

The wear and tear clause must apply to these items as well.

Duration of the Agreement

Strictly speaking, the agreement has to be registered, but as per common practice, it is not. The duration of the rental agreement varies, but is normally for 11 months with a clause for renewal of the lease on the mutual agreement of the parties. Some terms might change on renewal and the same should be mentioned in the agreement (for example, increase or rent, normally by a fixed percentage every year; increase in deposit, etc), or a clause stating that the terms may be modified pursuant to the renewal should be included in the agreement (allows the parties to decide on the terms at a later stage).

Notice of Termination

The agreement must contain a clause stating that the agreement can be terminated by either parties, and must state the manner of serving the notice and the duration (that is, informing the other party in advance if the possession of the property is to be altered. For example, notice must be served in writing, not less than one month in advance). Normally, two-month notice is sufficient.

Lock in Clause

Some agreements have a lock-in clause. This means that even though there is a fixed period of notice stated in the agreement, the tenant cannot leave until the lock-in period is over. (For example, if the lock-in period is five months, even if the tenant gives the landlord two-month notice in writing as per the agreement, he will still have to pay rent for the first five months, no matter when he gave notice). The tenant should be wary of this clause, especially if he is unsure of how long he intends to occupy the property. If the landlord is insistent on this clause, the tenant can try and add a provision for exceptional circumstances and the procedure to determine rights / liabilities in that regard (for example, lock-in clause will not apply if the tenant is transferred to another city, etc).

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