Highlights
Property rentals are a good way to earn passive income
However errant tenants can be a problem
The Model Tenancy Act of 2019 is set to revolutionize the rental housing market in india
A well-drafted and leave and license agreement reduces the possibility of tenant litigation. Adv. Aditya Pratap
Passive income from a rental property is a good way to augment your regular income from a job, business or profession. In India, most property rental transactions are carried out through the leave and licence mechanism. In this system the property owner is called the licensor while the renter is called the licensee. For reasons of convenience we will be using the terms owner and renter respectively.
How to protect your rental Income
The best way to protect rental income is to have sufficient safeguards contained in the rent agreement. For instance, there should be a substantial security deposit. By the second month the rent amount can be collected by means of post-dated cheques realised from the renter. When the rent agreement is signed, a small list containing the serial numbers of all these cheques should be attached to the agreement and circulated on record between both the parties to avoid ambiguity.
How to evict a renter who defaults on his payments
If you are in Maharashtra, the legal procedure in dealing with every defaulting renter or tenant is to file an eviction suit under the Maharashtra Rent Control Act of 1999. This is usually filed in the Court of Small Causes in Mumbai city. For other districts in Maharashtra it can be filed in the Court of the Civil Judge, Senior Division.
How to prevent damage to the property
Usually the time-tested method of preventing occupants from damaging the owner's premises is the security deposit. Rent agreements should expressly stipulate that the security deposit will be returned to the tenant only after the owner or the landlord has inspected the premises and is satisfied that no repairs are required.
What about the right of the landlord to inspect the property?
It is advisable for the owner or the landlord to inspect the premises at regular intervals in order to be ensure that repairs and upkeep are carried out. While carrying out the inspection the owner must ensure that the property is being used exclusively for the purpose as specified in the agreement. For example, a residential flat should be utilised only for residential purposes and not for opening a shop or an office. Should there be any violation of the terms and conditions of property usage, the landlord must immediately issue a notice to the tenant to stop the same or vacate the premises.
When can a landlord forfeit the security deposit?
The security deposit is collected by the landlord from the tenant for two purposes. Firstly, it acts as a buffer against any default in the payment of rent by the tenant. If the tenant fails to pay the rent due each month, the landlord can deduct the same from the security deposit after giving him advance notice.
Secondly, the security deposit also serves as a collateral against any damage that may be caused to the property by the tenant to the furniture, fixtures, fittings and plants that usually come with the premises. The landlord can deduct the cost for repairs from the security deposit after giving advance notice to the tenant.
Very often the damage caused to the flat does not become apparent till the time the tenant has left the property after the expiry of the licence period. In such a case the landlord should delay the return of the security deposit till the time he has personally verified and Inspected the flat. A specific provision can be made in the leave and licence agreement to this effect so that there will be no bitterness or dispute between the parties.
How does one manage a property that has been rented out?
When a person has a number of properties which have been rented out, management of the same can become a tedious affair. To efficiently manage such a portfolio it is advisable to appoint a manager who can deal with all issues on behalf of the landlord.
What are the tax implications of rental properties? Will rental income be taxed?
The Income-Tax department has a specified head of income titled “Income from House Property”, to tax the rent received by the owner of a property. So any rent received with respect to a residential house as well as commercial property, is taxable under this head. The property is taxable on the basis of its annual value.
The Future:
Prolonged landlord-tenant disputes have been the bane of India's rental housing market. This is about to change with the introduction of the Model Tenancy Act of 2019. This law, pioneered by the Central Government, would streamline the procress of eviction of rogue tenants who refuse to vacate or pay rent. Its adoption by Indian states would go a long way in incentivising the market for rental housing, providing cost-effective and timely remedies to landlords.
