Importance of registration of rent deed

Importance of registration of rent agreement

Gurdip Kaur, a middle-aged woman, residing in the UK had rented out her house here in Punjab. Last year she approached us due to a dispute between her & her tenant in India. Although she did have her rent agreement duly signed by both the parties and authenticated by independent witnesses, the agreement was not registered.

Having suffered mentally and financially due to the dispute, she came to us wanting to know the importance of the rent agreement registration and consequences of non-registration. And of course, she was very keen to seek a solution for her disputes.

In due time, with our able & diligent lawyers, Gurdip was able to sort out her legal issues. However, it made us think about the consequences of ignorance on these laws – and the dire need for people to understand the validity, importance and relevance of these laws.

Also read: Landlord Tenant Disputes

We believe that obeying law always goes in one’s favour. In case of any dispute, the party who has fulfilled all the legal requirements has greater chances of winning the case. We explained to her the provisions in law for registration of rent agreement and the importance of registration.

It stands as follow:

  • Transfer of Property Act, 1882 and The Registration Act, 1908 deal with the registration of rent deed/lease deed.
  • Registration of a document means recording the ownership of the property in Government records.
  • It is mandatory to register the lease deed/rent agreement if rent deed is for a period of one year or more.
  • An agreement where the rent is fixed for a short-term (less than a year) is a rental agreement and an agreement where the rental amount is fixed for longer duration, e. more than a year, is a lease agreement.

Under The Transfer of Property Act, it is provided that the lease deed for a period of more than one year or reserving a yearly rent can be made through a registered instrument only.  Registration of a rent agreement, if rent /lease is for more than one year, has been made compulsory under the Registration Act, 1908. If the rent deed is for a period of 11 months, it is not compulsory to register the rent deed.

Read: My tenants are not paying rent neither vacating the property need solution

Importance of Rent Agreement Registration

Registration of a document: Registration of a document helps to maintain discipline in property transactions. The registered document is legally binding, and violation of its terms and conditions invites legal actions.  Benefits of registration are:

  • Legally defines ownership rights.
  • Strengthens ones claim over the property.
  • Helps to safeguard the owner’s rights and interests.
  • It gives notice to all others about the ownership of the property. Ownership becomes certain.
  • The landlord is more secure if the agreement is registered

Without registration, the new owner is not legally recognized as the owner.

Read: Steps to evict a tenant in India

Consequences of non-registration:

If the document is compulsorily register-able and is not registered, the document becomes ineffective.  Some consequences of non-registration are listed below:

  • The document is not admissible as evidence of the particular transaction in the court of law. It is used as evidence for limited purposes or evidence of collateral transactions
  • Chances of fraud and forgery increases
  • Chances of misappropriation are more
  • Difficult to recover unpaid rent
  • Difficult to effect the sale of the property
  • The document does not create any right or interest.

Rent Agreement Registration is always better:

Registered rent agreement is always preferable over unregistered rent agreement. The rent agreement for a period of 11 months does not require registration. People prefer it to avoid payment of stamp duty and registration fees. Although it is legally valid, yet rent agreement registration safeguards the interests of both the parties. Rent agreement Registration enhances the evidentiary value of the document.

Generally, rent agreement for 11 months is done for residential purposes only. Commercial rent agreements/lease agreements are long-term agreements and are, therefore, registered.

Things to consider before giving property on lease/rent agreement

Lease or rent agreement

Rent has always been considered as a permanent source of income. Most Investment is made in immovable property with the objective of having secured returns in the future.

Many property owners who intend to rent/lease out their properties for generating income approach us with their related issues and we frequently deal with queries which are frequently raised by them are as follows:

What is the difference between the lease and rent agreement?

The lease agreement is an agreement between the parties where the rental period is extended. The lease period and the lease amount are fixed. The terms of the agreement can be revised only when it ceases to operate. After the end of the lease period, parties have to enter into a new lease agreement.

Rent agreement is an agreement between the parties where the rent is fixed for a short period, usually for a month. Every month the agreement expires, and a new agreement is entered into. The terms and conditions can be changed in every new agreement.

How to select the tenant?

The landlord must ascertain the credentials of the tenant. Police verification of the tenant is also a must as it helps to check any criminal record of the person. Tenant must supply his name, family details, place of work and other relevant information. Particulars can be cross-checked from employer or friends or earlier landlord if any.

Also Read: The powers and rights of landlords in India

How to fix the rent amount?

Rent amount depends upon various factors:

  • Purpose of renting out the property – residential or commercial
  • Location of the property
  • Prevalent rent in the particular area
  • Furnishings provided in the accommodation
  • Facilities provided to the tenant

What are the essential points to be taken care of in rent agreement/lease agreement?

Rent/Lease agreement is a legal document stipulating the rights and obligations of the parties, i.e. the landlord (lessor) and the tenant (lessee). Some of the essential points to be included in the rental agreement are as follows: (The list is not exhaustive)

  • Rent amount
  • Mode and time of payment of rent
  • Period of tenancy
  • Penalty if the tenant violates any condition of rent agreement
  • Liability of tenant in case of damage to the property
  • Mode of ending the tenancy – whether notice required or not
  • Notice period for vacating the premises
  • Charges which can be imposed if the tenant does not vacate the property in time
  • Change in rent amount on the periodical basis, if any
  • Renewal of lease, if allowed
  • Maintenance of Property

Rent agreement must be signed by both the parties and independent witnesses.

Also Read: Landlord Tenant laws – Step by Step Understanding

What about registration of rent/rent?

Only a registered agreement can be used as evidence in court in case of any dispute. Stamp duty has to be paid for registration of the agreements as per law. Registration of documents safeguards the interests of both the parties. Registration of rent/lease agreement is compulsory in case of the lease period of more than a year or year to year. If the rental period is less than a year, registration is optional.