Successfully managing your property requires as much diligence as any business. Without experience, you can end up making these common mistakes while renting out your Flat.
AGREEMENT: Download draft copy HERE
Making lease agreement instead of Leave and Licence agreement.
In the Lease agreement, the legal possession gets transferred to the tenant. He becomes the owner for the duration of the Lease. On the other hand, leave and license gives only the right of usage (and not legal possession)
As far as the provisions of the rent control act are concerned, it is easier to evict an errant tenant on leave and license, in case of any problem.
Also in the case of the unfortunate demise of the Licensor or licensee, the agreement ceases to exist in leave and license. On other hand in the Lease agreement, it gets transferred automatically to the legal heir, which is best avoided.
The heading should NOT be Rent Agreement. It should be “Leave and Licence Agreement.”
Do not use these words in the agreement -Tenant, Landlord, Rent, Lessor, Lessee, Lease deed.
Instead, use – Licence fees (instead of Rent), Licensor, Licensee, etc. Also do not use words like “giving Possession” Instead, you should include “Absolute/exclusive possession is NOT with the Licensee.”
Not running adequate checks on a potential tenant
Do not ever rush ahead without checking your tenant’s credentials. Check the credit reports of possible and verify references including employers and former landlords. The tenant may be “desperate” to move in and can give you the deposit amount immediately. however, it is important to first check out their background. Insist on Aadhar Identification and address, as well as employers certificate or Identity Card. Don’t allow yourself to feel rushed or pressured into making a potentially costly mistake.
Underestimating the cost of maintenance and repairs
Make sure you are charging enough to cover the maintenance costs. Include the clause in your agreement for making good the damage caused by the tenant.).
Not Taking Tax Laws into account
If possible establish a separate bank account for deposits and expenses, to ensure that you are correctly handling (and paying!) taxes. Take into account the tax laws and Deductions For Rental Property Owners. Do not forget to reflect your property in your tax returns. Also in the case of Joint Ownership, reflect in all the tax returns along with ownership percentage to facilitate tax filing and saving. Remember, you have to also reflect rental income and pay a tax of 20% after standard deduction as authorized in the tax laws in India. Do not lapse on this as it would create problems during the disposal of property.
Relying on a Handshake
This is one of the biggest common mistakes while renting out your Flat. REMEMBER, You cannot rely on promises, relationships, and past organizational associations. For your own legal protection, your tenants must sign a REGISTERED lease agreement to reside in the property and ensure that they understand the terms of the contract.
Do not fall for no agreement, plain paper agreements, as well as notarized agreements. They have NO STANDING in a court of law. Brokers will try to get these done because it involves more money for them.
Getting a registered Leave and Licence agreement is very easy which you can do from the comfort of your home at a marginally higher cost that can be shared with the tenant. You can do it by clicking HERE and registering with Anulom, a Government-approved agency. It is better to be safe than sorry as you can never know when things go wrong!
Not Carrying out the screening IN PERSON.
Many times deals are struck by agents or over telephonic calls. Remember your house is worth Lakhs! Do not be in a hurry. Meet the potential tenant or at least have someone you know to meet and finalize the deal.
Neglecting your house once rented
If you do not regularly check or visit your house, you will have no one to blame but yourself if something goes wrong. Include the clause of visiting the house for frequent checks, in your agreement. However, do not go unannounced.
The housing societies must ensure that full police verification is done before anyone is invited to stay in your house.
Not Catering for Society by-Laws.
Do not blindly sign agreements. As a landlord, you should ensure that clauses about society by-laws are included (e.g. not using common areas like corridors as personal space, ensuring everyone employed as house help, etc has a pass, adhering to maximum permissible tenents, etc). Clearing of fines levied by society for any lapse or compensation for damage or injury due to tenants’ neglect or also needs to be included in your agreement.
Delaying an Eviction
In case of default, not beginning the eviction proceedings as soon as legally possible can be one of the very costly common mistakes while renting out your Flat. If you run into problems with a tenant take the help of an eviction attorney if required, as soon as possible.
Not Enforcing Agreement Terms
Terms like timely payments should be ensured, and if you outlined a penalty, charge it. Similarly, if you agree that no pets or subletting are allowed; and your tenant keeps one, enforce the penalty. If your tenants realize that you are lax about the terms of the lease, they will likely follow suit. Set – and enforce – the standard you want to be upheld.
Not Writing It Down
You must keep written documentation (and emails, chats, etc) of interactions with your tenants if you ever need to take them to court. Note down or record the phone conversations and keep copies of emails, voicemails or text messages, etc. to be able to support your allegations.
Informing The RWA Society
Keep your RWA informed about your tenants by giving them a copy of your leave and license agreement. The RWA Society is obliged to issue a temporary tenants ID card that covers only the period mentioned in your agreement. This makes it safer for you as well as the society when the tenant overstays.
Kindly leave you comments in the comment box below, in case you have other positive inputs.