Introduction

The legislature enacted a national Rent Control Act in 1948. It controls the guidelines for renting out a property and makes sure neither the rights of the landlords nor the tenants are violated by the other. It should be noted that each state currently has its own Rent Control Act, and while they are generally similar to one another, they do have a few small variations.

The 1948 Act’s strict requirements and pro-tenant stance have made it impossible for the real estate sector in some regions to expand. Despite inflation and rising property values, some properties that have been rented out since 1948 continue to pay the same amount of rent.

In an effort to prevent the property’s value from declining, the Central Government attempted to change the Act in 1992 through a proposed model. The sitting tenants unfortunately resisted the adjustments, therefore they did not go into effect.

Rental Agreement

In India, renting or letting out of any property for residential or commercial purposes is subjected to various rules and regulations, such as: – Under the law, it is a must to have a written agreement between the two parties enumerating all the terms and conditions of tenancy.

An agreement reached without being expressly put in writing will not be a valid contract in the following cases:

• Any changes regardless of the type of rectification must also be put in writing.
• The agreement must be dated and signed by both parties, i.e. the landlord and the tenant.
• The agreement must be stamped and registered.
• Without a valid rental agreement, the rights and duties of the landlord and the tenant cannot be enforced or protected by law.

Therefore, it is always prudent to enlist the help of a legal practitioner in the making of such an agreement as many complexities entail, especially for commercial leasing.

Rights of a Tenant

The Rent Control Act is established not only to protect the landlord and their property but also to protect the tenant. Under the Act, the few important rights that are given to the tenant are:

1. Right Against Unfair Eviction: The Act prohibits the landlord from evicting a tenant without good cause. Each state has a slightly different set of eviction laws. In some places, the landlord must go before the court and request a court order before they can evict a tenant. If the renter is ready to accept any adjustments to the rent, he or she cannot be evicted in several states.
2. Fair Rent: When renting out a home, the landlord cannot demand exorbitant rent fees. A rental property’s appraisal must take its value into consideration. The tenant may go to court to seek relief if they believe the amount of rent being requested is excessive given the worth of the property. Typically, the rent should range from 8% to 10% of the total value of the property, which includes all costs associated with building and property improvements.
3. Essential Services: It is the basic right of the tenant to enjoy essential services such as water supply, electricity etc. A landlord doesn’t have the right to withdraw these services even if the tenant has failed to pay rent with regards to the same property or a different one.

Rights of a Landlord

The point of interest in a rental agreement is always the property, and the property has to be protected from unfair exploitation. The Rent Control Act entitles the landlord with the following rights:

1. Right to Evict: The ability to evict a tenant varies from state to state as well. Meaning that in some places, a landlord has the right to remove a tenant for legitimate, personal reasons such as wishing to move in. In Karnataka, such a justification is not a valid ground for eviction. In most situations, the landlord must file a court petition to evict the tenant. Additionally, before going to court, the landlord is required by law to give the tenant adequate notice.
2. Charge Rent: The landlord has the authority to collect rent from the renter because they are the property owners. Since there is no legal law establishing a cap on rent, the landlord is free to keep raising the rent fees as he sees fit. Therefore, it is wise to include the amount of the increase and the conditions of the increase in the rental agreement itself in such circumstances. The rent often goes up by 5% to 8% on a yearly basis.
3. Temporary Repossession of Property: The landlord has the right to take temporary possession of the property in order to make repairs, modifications, or improvements. However, such alterations to the property must not do the tenant any harm or seriously interfere with his tenure.

Non-Applicability of the Rent Control Act

There are certain cases where the Rent Control Act is not applicable when the property has been let out. They are:

• Property let out to private limited or public limited companies with a paid-up share capital of Rs 1 crore or above.
• Property let out or sub-let to public sector undertakings, banks or any corporation established under any state or central Act.
• Property let out to foreign companies, international missions or international agencies.

6 Steps for Renting Commercial Property in India

The real estate industry in India faces cut-throat competition from within, and hence rent agreements have to be worked upon smartly. You need to know the right questions to ask and all the laws that are best suited for your business.

1. Title Ownership Validation

Always make sure you have full knowledge of who owns the property, therefore having access to the title deed is necessary to verify the rent. Before entering into a contract with the landlord, conduct more research to make sure there is no sub-rent or other type of rent connected with the property.

2. Sanctioned Plans and Power Of Attorney (PoA)

Verifying the title deed and commencement certificate given by the appropriate authorities is always advised if the property you are renting is a structure that is still being constructed. Make sure to verify the occupation certificate before renting out commercial space in a built-up property. In the case of indirect rent, it’s also crucial to verify whether any kind of power of attorney is in play.

3. Appropriate Renting Agreement

Make sure the renting agreement is adequate based on operations before engaging into any type of mutual commitment with the landlord. Whether it is a rental leasing agreement or an agreement for co-working office space, be precise about the type of rent.

4. Income Tax & Mortgage Verification

In the event of a business agreement, it is usually advisable to investigate the landlord’s income tax history to see whether there are any unresolved issues or illegal activities. This will also confirm to you whether the aforementioned property is classified under the Development Control Regulations of the Income Tax Act of 1961 as “commercial” or “residential.” If there is any doubt regarding this classification, you might later be assessed a TDS.

5. Background Check of the Property Agent

In the event of a business agreement, it is usually advisable to investigate the landlord’s income tax history to see whether there are any unresolved issues or illegal activities. This will also confirm to you whether the aforementioned property is classified under the Development Control Regulations of the Income Tax Act of 1961 as “commercial” or “residential.” If there is any doubt regarding this classification, you might later be assessed a TDS.

6. Validity of Rent Agreement

In addition to other clauses, a business leasing agreement must have the following fundamental information:

• Commencement and termination date
• Location of property
• The whole rental amount as well as the deposit information.
• Payment Intervals
• Terms of lease renewal
• All of the parties involve d’s names, as well as their signatures.

What are the Documents Mandatory for a Commercial Rental Agreement?

• Aadhar card or the receipt received, Any government-issued ID proof
• Submit the original passport, if not Indian
• Power of Attorney should be presented if ID is demonstrating another person for the registration
• Evidence and Nature of Business establishment
• Original copy of proof of ownership (landlord’s property)
• Government Approvals, if any
• Two in recent times taken passport size photographs.
• Get the Commercial rental agreement printed on the stamp paper of the recommended value.
• Memorandum of association ∓ Articles of Association, If any
• Association of person’s understanding, if any
• Bonds and Dealership Proofs, if any
• Shareholder & Listing agreements, if any

What is the Procedure to Use the Commercial Rental Agreement?

The completed document must be provided to all parties, which may also include the guarantor. Each party should be given the opportunity and may need some time to read the agreement to fix this given the length of the document.

1. The Commercial Rental Agreement would require to be printed on ‘non-judicial stamp paper’ or ‘e-stamp paper,’ which is accessible in each state. The value of the stamp paper would be contingent on the state in which it is implemented and the ‘duration’ of the Rent.

2. Both parties should sign the Rental Agreement after printing the document on stamp paper or e-stamp paper, as applicable. Moreover, each party should hold a copy of the Commercial Rental Agreement.

3. If the rental period is more than 11 months, then the Commercial Rental agreement would require to be registered. Both the lessor and lessee must go to the sub-registrar’s office for the objectives of registration.