Meta – Discover essential details of lease and rental agreements for residential properties, including terms, responsibilities, and legal protections for landlords and tenants alike.
Generally, the “Lease Agreement” and the “Rent Agreement” are used interchangeably in regard to let out of a residential property. Both are legal documents but there are subtle differences between them. However, before going through such differences, let the terms “Lease” and “Rent” be understood.
LEASE
The word ‘Lease’ basically means ‘to rent’. There are two parties, a ‘Lessor’, who owns the property and a “Lessee”, who uses the property. The term “Lease” may be defined as a contractual arrangement by which the rights to use his property are granted by the lessor to the lessee for a consideration for a specific period on the specified terms and conditions. Thus, it can be said that a lease is a written agreement by which one party i.e. lessor grants a right to use his property to another party i.e. lessee in return for regular rental payments, for an agreed period of time, on the stipulated terms and conditions. The term “Lease” finds a place in The Transfer of Property Act, 1882 (Section 105), where it has been defined. As per this Act, following are the elements of a lease of immoveable property:
- It is a right for enjoying such property gets transferred;;
- it can be a certain time lease or in perpetuity;
- it can be expressed or implied;
- the transfer is made inconsideration of a price, which can be either paid or promised, or of money, a share of crops, service or any other thing of value;
- Such consideration is to be rendered to the transferor by the transferee periodically or on specified occasions;
- The transfer on such terms is accepted by the transferor.
Here,
- The transferor is named as the lessor;
- the transferee is is named as the lessee;
- the price is named as the premium, and
- the rendition of share of crops, money, service, or another thing, is known as the rent.
RENT
A few words are synonyms of rent like lease, hire and charter etc. These words basically mean “to grant for use at a price”. Any rendition of share of crops, money, service or other thing is called the rent as provided in 1882 Act relating to Transfer of Property, the applicable Section of which is 105. Like a “lease”, here are also two parties namely a ‘Landlord’, who is a owner of the property and a “Tenant ”, who takes the property on rent. The term “rent” can also be defined as an arrangement, where the owner of the property i.e. landlord transfers the possession to another peron i.e. tenant, who uses the property by periodic payments, generally for a short time.
From the above definitions of the terms “Lease” and “Rent” It will appear that, these terms “lease” and the term “rent” are similar but difference is there especially on two aspects, which are mentioned below:
- A lease is a fixed-term agreement, which provides stability and predictability i.e. flexibility is limited. On the other hand, in the case of Rent, more flexibility is there but the long-term security is lacking.
- In the case of a lease, the responsibility of maintenance lies on the lessee whereas in the case of rent, such responsibility lies on the landlord.
DIFFERENCE – A LEASE AGREEMENT AND A RENT AGREEMENT
| ELEMENT | LEASE AGREEMENT | RENT AGREEENT |
| Definition | The term “Lease” has been defined in 1882 Act, pertaining to Transfer of Property, the applicable Section being 105. | Rent is any rendition of share of crops, money, service or other thing, as mentioned above under the heading “Rent”. |
| Duration | Generally, a lease agreement is a longer-term commitment, which often lasts for a year or more. Moreover, more often, the duration of a lease is usually fixed but can be changed in case both parties agree, | A rent agreement is a short term commitment and is often on a month-to-month basis. It has more flexibility and can be terminated with a proper notice at the instance of either party. |
| Application of Accounting Standard | Accounting standard 19 (AS-19) is applicable. | In the case of Rent Agreements, no particular accounting standard is applicable. |
| Lessor | The two parties are the Lessor, who owns the property, and the Lessee, who enjoys the property, | The two parties are Landlord & the Tenant, the former being owner of the property, and the latter takes on rent the property. |
| Consideration | Generally, installments are paid on monthly basis. | Rent is paid monthly/quarterly as agreed between the parties.. |
| Maintenance | Maintenance charges of the property are borne by the Lessee. | Generally, Minor Maintenance is done by the Tenant but major maintenance is the responsibility of the Landlord. |
| Change in agreement | After entering into the lease agreement, there is no change for a fixed time. | After entering into the rent agreement, change can be done with the consent of both parties |
| Purchase of property – Offer | Offer to purchase the leased property may be given, when lease term finishes. | Any offer of such nature is not there. |
ADVANTAGES OF A RENT AGREEMENT OVER A LEASE AGREEMENT
p style=”text-align: justify;”>For a landlord
- As per lease agreement, the ownership of the property as well as possession for a certain period is transferred to the lessee, whereas in the case of a rent agreement, full control over the property lies with the landlord.
- In case, for some reasons, a lease agreement is to be terminated, it is very difficult for a lessor to do so whereas a landlord can easily terminate or modify the rent agreement
For a Tenant
- Through a notice, which is normally for a period of one month, a tenant can vacate the property.
- Rent agreements, when compared to lease agreements, are for a short time and tenant can take further decision according to his wishes.
ADVANTAGES OF A LEASE AGREEMENT OVER A RENT AGREEMENT
For a Lessor
- As Maintenance of the Property is the liability of the Lessee, Lessor can relax with respect to this aspect.
- The period of the lease being pre-defined, the lessor can heave a sigh of relief and is not required to look for another lessee for at least that period
For a Lessee
- A greater stability is provided to the lessee as the lessor cannot evict the lessee from the property during the pre-defined period .
- In the absence of an annual rent increment clause in the agreement, the expenses remain the same for the lessee irrespective of the tenure of the lease,
IMPORTANT CLAUSES TO BE INCLUDED IN A LEASE AGREEMENT OR A RENT AGREEMENT
- Whether a Lease Agreement or a Rent Agreement is being entered, it is in favour of both the parties – be it a Lessor/a Lessee in the case of a Lease Agreement or a Landlord/a Tenant In case of a Rent Agreement – to ensure that the agreement contains the following clauses:
- The agreement should have complete information about the entire area for which agreement is being entered into like including the number of bedrooms, study rooms, bathrooms, kitchens, and gardens, etc.
- The Tenure agreed between both the parties as also the lock-in period, i.e., the time in which neither party is permitted to cancel the agreement , should be mentioned.
- The amount of the security deposit, if any, should be clearly mentioned with a forfeiture clause in case property is vacated or got vacated, as the case may be, by the concerned party during the agreed tenure and compensation clause may also be considered to be added.
- The agreement should clearly mention about the liability with respect to expenses relating to maintenance, water, electricity, gas etc.
- Other details of such requirements as agreed to between the parties must be made part of the agreement.
REGISTRATION OF A LEASE
The following types of leases can be made by way of a registered instrument only under the Transfer of Property Act, 1882, as per its Section 107:
- A lease, which is from year to year; or
- A lease exceeding one year; or
- A lease where yearly rent has been reserved;
1908 Act pertaining to Registration {Section 17(1)(d)} also requires registration of leases of immovable property and has same language as above mentioned section 107 of the 1982 Act relating to Transfer of Property.
Thus, above types of lease agreements are required to be registered.
AGREEMENTS FOR 11 MONTHS – NO REGISTRATION REQUIRED
Taking in to account the above mentioned requirements of the Section 17 of the Registration Act, 1908, the registration of rent agreements can be avoided by restricting the duration to less than 12 months and making it for 11 months.
CONCLUSION
A Lease Agreement and a Rent Agreement, although appear similar, are different especially with regard to two aspects, which are as follows:
- a Lease agreement involves a longer-term commitment, whereas a rent agreement offers a shorter-term flexibility and
- in the case of a lease agreement, the liability for maintenance is of the Lessee whereas such a liability is of the Landlord in the case of a Rent Agreement.
It is, however, absolutely necessary for the parties in both the agreements to be watchful at the time respective agreement is being drafted so that all important aspects are covered in the Agreement.
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