Importance of agreement while sharing your rental space

Karthik had moved to his friend Ranjan’s rental apartment in Mumbai around six months ago. He had equally shared the deposit money as well as the monthly rents of the 1RK apartment along with Ranjan. But when Karthik wanted to move to another house, Ranjan denied to return Karthik’s share of deposit money. The rental agreement was made in the name of Ranjan and his former roommate. Karthik was left helpless as he had no evidence to prove that he had contributed 50 percent of the deposit money.

This case is merely an example of one of the consequences of not having a valid agreement.

If any of you are sharing a rented accommodation along with a friend or someone, make sure you have a clear agreement at hand. In many cases, landlords seem to be ignorant, in case of lease documents while some owners pretend to be ignorant in such cases for their personal benefits.

Owners try to evade tax

Several owners are least interested in preparing agreements because they do not want to disclose their exact rental income. By doing so, they try to evade some amount of tax payable on their rental properties.

Some owners may also produce a leave & licence agreement as a service agreement in order to evade tax. The leave & licence agreements of commercial and residential properties witnessed six percent hike in April 2013 as compared to those in April 2012.

Sudden hike in rents

If a tenant and owner enter into an agreement, then most probably, the owner will not be entertained to increase the rent suddenly before the lease term is completed. The lease agreement works as a security and protects the tenants’ rights. The owners cannot unnecessarily demand the tenant to vacate the house before their lease tenure is over, except under certain conditions mentioned in the agreement.

Documentation is time-consuming and costly

Some people would not prefer to renew the agreement when there is a new tenant sharing the space, as it may involve more cost. The cost for getting a lease agreement varies from place to place and the expenses usually range between Rs 500 to Rs 2000. Also it takes a few days to get the work done, as such things generally move slowly at government offices. It is a cumbersome process to get the necessary papers and to get all the seals and signatures of parties involved in the lease, for which many people do not bother to get it done.

Agreement as an address-proof

For many people, agreement becomes important only at times, when they require it to be shown as a proof of their address. If a tenant has to get a new gas connection, apply for a driving licence, etc. then he would start thinking of the house agreement.

Fake lease agreement

Also there are few cases wherein tenants go for fake rental agreements showing higher rent of their residences than actually what they are paying to their owners, just to show it to their companies, in order to prevail some extra benefit under rental allowances. However, on a long-term they might have to face trouble due to such acts.

Police verification for tenants

It is mandatory for the owners to ensure that police verification is done for their tenants before signing the lease agreement. Confirming that the tenant is from a safe background is not only good for the owners but is also healthy for the entire neighborhood. But many owners, who look to evade tax, do not go for police verification as they do not want to disclose their rental income.

Concerns in the absence of agreement

In the absence of a valid agreement, the tenants will not be allowed to claim tax deductions by way of house rent. Therefore, a fresh agreement between the landlord and all tenants sharing the apartment is vital.

Besides landing in troubles with regard to reaping tax benefits and losing the deposit money, failing to get a fair agreement may also result in issues related to sharing regular charges for an apartment. While getting an agreement, one has to confirm that all the dos and don’ts related to the property have been mentioned in it. It should also contain the important clauses that would result in termination of the agreement and also the amount of penalty that the tenants may have to bear in case of any damage to the property.