A Brief Introduction About the House Rental Agreement
What Is House Rental Agreement?
A rental agreement is a legal contract between the tenant and the landlord. The agreement includes details like the tenure of the contract, the rent payable and the rules to be followed by the tenant.
The tenant needs a space on hire either for residential or commercial use. The landlord has space which they want to rent out. Both parties need to agree on the rental, the period of rental, provisions for extension and termination of the agreement. Once all clauses are agreed upon, the agreement is drafted and signed.
There are 3 different types of the contract. The first type is month-to-month rental agreements where there is no specific time limit. The tenancy ends with one party issuing a notice to another party. The second type is a one-way lease where either a termination fee or waiver of the deposit is made by the landlord if the tenant moves out before the end date of the tenancy. Fixed-term leases are rental contracts that are for a specific period of time.
Who Takes the House Rental Agreement – People Involved
When an individual or an entity requires a space to be used either for residential use or commercial use, they get in touch with the owner of the property or the landlord who has space to be let out either for residential or commercial purposes. When those who require the space or tenants and the landlord come to an understanding, they take the rental agreement for a house.
Purpose of the House Rental Agreement – Why Do You Need It
When an individual or entity has extra space which they want to rent out, either commercial or for residential purposes, they need to find a tenant willing to pay the price they want as a rental.
If the landlord and tenant mutually agree to the terms and conditions of the contract, they sign it and it becomes a legally binding document. If the tenant fails to pay the rental on time, then the landlord can take legal action against the tenant.
If the landlord fails to provide the facilities promised to the tenant in the agreement, then the tenant can seek a legal remedy.
The Purpose of a house rental contract is to protect the interest of both parties to the agreement. The tenant should have the right to use the property till the end date of the agreement and the landlord should get a steady flow of income in the form of rental.
If there was no rental agreement, then the tenant could default in payment of rental dues and the landlord would have no legal recourse. The tenant could refuse to obey the rules laid down by the landlord regarding noise levels or damage the property of the landlord, but the landlord cannot take any action against the tenant.
Contents of the House Rental Agreement – Inclusions
You can determine the contents of such an agreement by referring to an agreement template. The contract should include the clauses which would protect the interests of both parties to the agreement.
Such agreements should include the following information:
- Names of parties to the agreement: The names of the landlord and the tenant and their communication details
- Effective date of the agreement
- The address of the property being rented out
- Term of the lease: The start and end date of the lease agreement
- Rent payable: The total rent payable by the tenant as well as the detailed rent payment schedule. The payment method will also be mentioned as well as the due date. The late payment consequence clause and the returned check clause should be incorporated. For short rental terms, the rent should be paid in a lump sum
- Security Deposit: The security deposit is to be paid on the date this agreement is signed. This deposit will be returned to the tenant subject to returning the house in an acceptable condition. The use of the security deposit for unusual cleaning purposes is to be adjusted by the landlord while returning the deposit
- Occupant limit: The upper limit for the guests or occupants and the extra charge per guest beyond that limit
- Assumption of liability: The tenant holds the landlord harmless from any injury or damage due to the occupancy of this house
- Rules and regulations: The tenant agree to abide by the rules and regulations laid down by the landlord
- Keys: The keys of the house are the property of the landlord and not the tenant
How to Draft the House Rental Agreement – Points to Consider While Preparing the Agreement
While preparing a house rental contract, you can refer to the agreement form to find out the standard clauses. The agreement can be modified as per your specific requirements.
The points to remember while drafting the agreement are:
- Eligibility to participate: The landlord and tenant must be competent to contract; they should be over the age of 18 and not be under the influence of alcohol or drugs. Coercion should not be used
- Consideration for the contract: The rental amount which should be paid by the tenant, the rent payment schedule and penalty for delayed payment. The security deposit and the conditions attached to returning it should be incorporated
- Terms of the contract: The terms of the contract should be fair to both parties to the contract. The agreement should be made in good faith and there should be no deception
- Confidentiality clause: Information which is confidential in the contract should not be shared by either landlord or tenant with a third party
- Dispute resolution clause: If there is any dispute should the parties go for litigation or arbitration, charges for an attorney and the jurisdiction where the violation will be resolved
- Termination of contract clause: If the contract is to be prematurely terminated, then the notice period that needs to be given by either party.
Key Terms of the Agreement:
- Consideration payable
- Dispute resolution clause
- Assumption of liability
- Occupant limit
- Effective date of agreement
Negotiation Strategy
In case of a house rental agreement, the landlord should prepare the draft agreement including all the relevant clauses.
The tenant should examine all the clauses and then make a counteroffer to the landlord. After taking into account the needs of both parties a mutual agreement should be arrived at. Once both parties approve all the clauses, the agreement should be signed.
Benefits & Drawbacks of the House Rental Agreement
The Benefits:
- Protection of interest: The interests of both parties to the agreement are protected. The landlord can expect a steady flow of income from the monthly rental and the tenant has the right to use the space as mentioned in the agreement
- Recovery of costs: There are certain repairs which can be adjusted against the security deposit
- Increase in rental: If there is a provision for increase in rental, then the landlord can get a higher flow of income every month
- Extension of agreement: The parties can extend the agreement if there is a clause to that effect
- Higher profits: The tenant can use the property under the commercial lease and earn higher profits
Here Are the Drawbacks:
- Default in payment: The tenant can either delay payment or default in payment of the rent
- No legal remedy: Since there is no written agreement, neither party can take any action against the other party in case of violation of the contract
- Security deposit: The landlord may refuse to return the security deposit
- Unacceptable actions: The tenant could willfully damage the property of the landlord or disturb the neighbors
- Poor facilities: The landlord could provide substandard facilities in the property.
What Happens in Case of Violation of House Rental Agreement?
In case of violation of a house rental contract, the landlord can try to settle the matter amicably with the tenant. If the tenant does not heed the landlord’s advice, then the landlord will send a notice of eviction to the tenant pointing out the clause that has been violated. If the tenant does not respond to the eviction notice, then the landlord will take the tenant to court.
Here are the remedies available to both parties:
- Money Damages: If there are any financial losses due to the violation of the contract, then the injured party will claim money damages. The damages will depend on whether it is a total breach of contract or a partial breach of contract. For a total breach, the injured party has to be compensated for the amount they would have received had the contract been fulfilled and lost profits. For partial breach, the cost of finding a new tenant
- Restitution: In case of restitution, the injured party has to be restored to the position that they were in before the contract was signed.
- Rescission: If either party entered the contract by mistake or fraud, then the contract is cancelled. Neither party has any contractual obligation.
- Reformation: If the court finds that the contract is unfair, a fresh contract is drawn up to correct any inequity
- Specific performance: The party who has violated the contract has to perform the contract. Monetary compensation will not be accepted
If you are a landlord wanting to rent out your property or a tenant looking to take property on rent, a house rental agreement should be entered into.
The agreement should be drafted in such a way that both parties are on favorable terms. In order to ease the resolution of disputes, a dispute resolution clause should be incorporated which should state whether the legal procedure and sharing of costs between parties.
If the parties to the contract want to prematurely end the contract, then there should be a termination clause. The number of days of notice to be provided by either party should be stated in the agreement. This will ensure that both parties have the flexibility to exit the contract.
The legal remedies available in case of violation of the contract should be incorporated including the circumstances under which they would be applicable.
If there is any clause which seems unfair, it should be rectified so that there are no disputes in future.