Landlord’s Guide: Should you notarise or register your 11-month rent agreement? 7 things to consider
Expert Speaks by: Mr. Sunil Tyagi, Managing Partner at ZEUS Law
Published in https://www.hindustantimes.com
Landlords entering into an 11-month rent agreement should ensure it is properly stamped to be admissible as evidence in court, say legal experts.
Amit Sharma plans to rent out his house in Greater Noida West for 11 months at a rent of ₹15,000. To avoid additional costs, he considers opting for a notarized agreement on a ₹100 stamp paper instead of registering the lease. Is he making the right choice? Will his notarized rent agreement be admissible in court if a dispute arises with his tenant?
While notarizing an agreement may seem cost-effective, it does not exempt the parties from paying stamp duty, say legal experts. For shorter rental periods, ensuring the correct stamp duty is paid is essential. However, for long-term leases, registration is crucial to safeguard legal rights and prevent future disputes, they said.
Sunil Tyagi, Zeus Law, Managing Partner at ZEUS Law Associates, is of the opinion that while under the provisions of Registration Act, 1908, the registration is optional for the lease deed/ rent agreement of an immovable property for an eleven month term. However, it needs to be ensured that appropriate stamp duty is paid on such eleven month lease/ rent agreement, under applicable laws of the state where the property is located.
An eleven month rent/ lease agreement which is not appropriately stamped is not admissible in Indian courts as evidence and may be impounded. On the other hand, an eleven month rent/ lease agreement which is appropriately stamped and duly executed can be admitted as evidence in court of law for enforcing the terms of a lease, he adds.
Experts advise that the cost of registration and stamp duty should be seen as an investment in legal security, rather than a deterrent.
1. Notarising versus registering a rental agreement – what’s the difference??
When signing an 11-month rent agreement, it’s important to understand the difference between notarizing and registering the document. Notarization simply involves a notary public verifying the identities of the parties involved and witnessing the signing. It does not make the agreement legally binding in case of disputes, especially if adequate stamp duty has not been paid.
On the other hand, registering the rent agreement with the local sub-registrar makes it a legally enforceable document. It provides greater protection in case of legal disputes and ensures that both parties have a record of the agreement with the government. While notarization is quicker and less expensive, registration offers stronger legal validity and is recommended if you’re looking for long-term security and protection, as per NoBroker.
It should be noted here that in Maharashtra, it is mandatory to have a registered rental agreement. So 90% of landlords get it regardless of the rental value. In other states, it is not compulsory to get it, so most landlords and tenants go for a notarised rental agreement.
2. Short term and long-term agreements
Under Indian law, lease agreements lasting more than one year must be registered. Agreements shorter than one year do not require registration. While agreements shorter than one year are exempt from registration, they still attract stamp duty. Many landlords and tenants opt for an 11-month agreement to avoid the cost of stamp duty and registration fees, which can amount to thousands of rupees for residential properties and lakhs for larger or commercial spaces.
“A non-registered rental agreement (for leases of one year or more) can be legally ineffective. If an agreement is not registered as required under Indian law (for leases of one year or more), it is considered legally invalid. Non-registration cannot be rectified. However, inadequate stamping can be corrected by paying the deficit duty along with a penalty, which can be up to 10 times the payable amount,” explains Kunal Arora, Partner, Lakshmikumaran and Sridharan attorneys.
For instance, in Noida:
Monthly rent: ₹10,000
Lease Tenure: 11 months
Typical stamp paper used: ₹100 (inadequate)
Deficit stamp duty: ₹2,100
Maximum penalty: ₹21,000 (subject to the discretion of the stamp collector)
While notarisation is not legally required, a notarised rental agreement can serve as supporting evidence in court, provided the registration is not required and correct stamp duty has been paid. The notary can testify to the authenticity of the document, he said.
3. Is it easier to terminate a 11-month rent agreement?
A non-registered lease agreement is not necessarily easier to terminate. The notice period depends on the terms of the agreement. For instance, even a long-term lease may include a 30-day notice period. However, in standard lease agreements of 5 to 10 years, a three month notice period is typically considered fair. Having said that, a non-registered lease agreement is not even valid and thus enforceability of any provision may pose a challenge, he explains.
4. Stamp duty varies from state to state
Stamp duty varies based on the lease tenure, with most states applying a rate of 1.5-5%. Also, as the lease tenure increases, the quantum of stamp duty increases as in addition to increase in the applicable rate, even the base amount is linked to a multiple of annual rent or even market value of the property in certain cases, explains Arora.
In Noida and Greater Noida, the stamp duty on lease agreements for one year is typically 2% of the annual rent. Stamp duty on similar agreements in Gurugram is 1.5% of the annual rent.
For example:
Monthly rent: ₹10,000
Annual rent: ₹1,20,000
Stamp duty in Noida and Greater Noida at 2%: ₹2,400 (which can be shared between landlord and tenant)
5. Why is it important to pay the right amount of stamp duty and get the document registered?
Stamp duty and registration are governed by separate laws in India and do not depend on each other. Not registering a rental agreement does not exempt the parties from paying stamp duty. However, since unregistered agreements are not enforceable, it is advisable to register lease agreements as non-registration can have significant financial repercussions, especially for long-term leases.
6. Registration of lease agreements not permitted beyond four months
Under Section 17(1)(d) of the Registration Act, agreements for more than one year must be registered. A rental agreement must be registered within four months of execution; beyond this period, registration is not permitted. In contrast, inadequate stamping can be rectified by paying the deficit duty and penalty, explains Arora.
7. When should you opt for a registered agreement?
For long-term commitments, such as setting up a business or settling in a property for an extended period, a registered lease agreement is essential. It ensures legal protection and enforceability, securing the tenant’s rights and investment in the leased property. Only leases for less than one year are exempt from registration, says Arora.
Saurabh Garg, co-founder and CBO of NoBroker, adds that landlords should evaluate their needs carefully to make the right choice and ensure a hassle-free rental experience.
