How to choose the right tenure for your rental contract

Bhansali prefers an 11-month rental contract because it does not need to be registered. “This saves the registration fee, as well as the hassle of closing a deal. If you enter into a two-year contract and the tenant decides to leave in ten months or earlier, you will have to go through the process of registering a new contract again, obtaining witnesses, finding an intermediary for registration, etc.”, he says. “However, I make sure to rent the apartment only to a family.”

Tenants and landlords consider several factors when deciding the length of a rental agreement. While some prefer an 11-month pact because agreements less than 12 months do not need to be registered unless specific state laws require otherwise, others choose to register agreements regardless of the length of the mandate. Some also prefer agreements with a longer tenure, as they give predictability to both the tenant and the landlord.

However, not having a registered agreement with appropriate terms and conditions can sometimes backfire. Take the case of Keerthi Sanagasetti. When she moved out of her apartment in Chennai, her landlord refused to refund her deposit and instead raised several charges related to general wear and tear.

“We ultimately had to take the matter to the local police station. The cops finally told the owner that he couldn’t charge us for these reasons and that he had to refund our deposit,” the 31-year-old recalled.

She says she would have preferred the rental agreement to be registered, but until 2019, registration of the rental agreement was not mandatory in Tamil Nadu for 11 months or less. As per the Tamil Nadu Regulation of Rights and Responsibilities of Landlords and Tenants Act, the rental agreement must be registered, irrespective of its duration. “I would prefer a 12-month term, as it 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 term.

Mumbai-based Bruhadeeswaran R., who has been living on rent in Mumbai since 2014, says he has rarely had any problems with a landlord. “I have always found landlords in Mumbai very willing to register the rental agreement,” he says.

Section 55 of the Maharashtra Rent Control Act, 1999 requires all rental agreements, regardless of their duration, to be in writing and registered.

He said he preferred to register his agreement for a period of two years. “This gives me visibility into rental expenses in the coming months and I don’t have to worry about moving my family every year,” says Bruhadeeswaran.

He says that outside Mumbai he had an unpleasant experience. He cites a brief stint on the job in 2022 in Noida. “This owner just had a rough deal with me and didn’t even share his PAN number. So I couldn’t claim the HRA deduction at the time of submitting the income tax proof to my employer,” he recalls.

“The owner only accepted cash and expected me to make his appointment every month and drop off cash at his house. The agreement specifies that payment can be made between the first and fifth of each month. But when I couldn’t deposit money on the first of a given month, which I usually did, he would call me and talk rudely to me. That’s when I decided I needed to find a new home,” he says.

“There were also other problems… like drinking water. I ended up paying the cost of repairing the RO,” he added.

Also read: How to claim deductions and save on rental income taxes

Legal view

According to the Registration Act 1908, a tenancy agreement of less than 12 months does not need to be registered. However, if the laws stipulated by the state government require registration of the lease agreement, it is mandatory as the land is a subject of the state.

An 11-month unregistered agreement, for which the required stamp duty is paid, may still be a legally permitted document, but either party can challenge its enforceability in court.

“An unregistered rental agreement, although legally valid for 11 months or less, presents risks to both landlords and tenants. For landlords, this can weaken their ability to enforce eviction or collect unpaid rent through legal channels. Tenants, on the other hand, find it difficult to claim refunds of security deposits or deal with arbitrary changes to terms,” said Asha Kiran, partner at King Stubb & Kasiva, Advocates and Attorneys.

“Conversely, a registered rental agreement provides greater enforceability, but carries its own considerations. For landlords, this locks them into agreed terms, limiting flexibility, while tenants are bound by legally enforceable rent and occupancy terms,” she added.

For example, a registered contract may stipulate the lock-in period for the tenant, which essentially means the minimum period for which the tenant is required to stay. This can usually last between three and six months and if the tenant decides to vacate before the lock-in, they are required to pay the pending monthly rent under the lock-in clause.

Similarly, a registered contract will lay down other rental conditions, such as the minimum notice period to be given to the tenant, the tenant’s refundable deposit, the PAN number of the tenant and landlord and other details.

“The tenant could legally challenge any deduction from the refundable security deposits, which they believe to be unjustified, and the landlord may have to prove the validity in court,” Suresh Palav, Partner, IndiaLaw LLP.

Stamp duty must be paid in both cases. “A rental agreement for a period of 11 months or less does not require compulsory registration, but the applicable stamp duty must be paid,” points out Niraj Kumar, partner at DSK Legal.

Fees and charges

Registration fees and stamp duty charges differ from state to state. And it also depends on the duration of the contract and the rental amount.

Here’s an example to show what this could cost. A property with monthly rental of ₹65,000 in Maharashtra, will be subject to stamp duty of ₹3,950, registration fee of ₹1,000 and document processing fees ₹300. For the same rent and duration, the stamp duty in Gujarat is equivalent to ₹1,820.

In Maharashtra, the rental agreement can be registered by anyone online using a biometric reader. So, brokers can also create rental contracts for their clients.

Drafting an agreement

The first step is to ensure that the rental contract is drafted correctly.

Rental contracts can fall into different categories and be governed by completely different laws; it all depends on the construction of such agreements, explains Soumya Banerjee, partner at Aquilaw.

“Various states in India have state-level tenancy legislations, which govern tenancy agreements. Further, tenancy agreements may fall under the Transfer of Property Act, 1882 and are considered to be a lease. Further, lease agreements may be deemed to be an agreement of permission and license under the Indian Easements Act, 1882, if the rights granted under such agreement are only permissive in nature.” he explains.

A rental contract is the transfer of the right to the other party to enjoy the property concerned for a predefined period or in perpetuity. It is defined under Transfer of the Property Act. In a lease, actual possession is transferred to the tenant. It creates interest on the rented property in favor of the tenant.

However, a permission and license agreement is a legal document that allows one party to allow another party to use their real estate, i.e. property, for a specified period of time without any change in the ownership of the property. This does not create any interest in favor of the other party. Leave and license agreements are commonly referred to as lease agreements and are defined in section 52 of the Indian Easements Act.

Notarization is an option if you do not want to record a rental agreement of 11 months or less, but it does not have the same enforceability as a registered rental agreement.

“Notarization is not legally required for leases of less than 12 months. However, many people have these agreements notarized as an added measure of authenticity and to create basic legal recognition of the terms of the lease,” said Abhilash Pillai, partner at Cyril Amarchand Mangaldas.

Therefore, it is advisable to register a tenancy agreement regardless of tenure to ensure full enforceability of all terms and conditions.

Also read: Rent growth slows in India’s biggest cities due to increased housing supply

Long and short

If you are a tenant, a longer-term rental contract would generally be advisable because it allows you to set your rental costs, as well as the rent. escalations, for a longer period. You don’t have to worry about fluctuations in the rental market or the need for new negotiations with the landlord every year.

On the other hand, if you are an owner, a shorter duration contract gives you the possibility of renegotiating the contracts each year to ensure you obtain the best rate on the market. However, the downside is that it doesn’t offer the predictability of a long-term rental.