Many NRI and PIO’s purchase real estate in India as an investment and perhaps with the aim of returning to India at some point. Instead of keeping properties free, a rental is an option that some people consider.
Rents in the major cities have risen in recent years, and it makes good economic sense to rent resident real estate. However, many people shy away from the rental, since they are concerned about tenants who do not leave premises once they have occupied them.
While there are no full proof methods to protect the landlord in India from tenants who refuse to leave their property after their rental contracts have expired, there are some steps with which rental owners can protect themselves and their property.
Landlords can protect themselves from unwanted tenants to a certain extent by the use of a lease and license agreement in the rental of their property.
There are usually two types of contracts that are used in the leasing of real estate.
- Rental contract
- Leave and license agreement
While both types of arrangements seem to be similar with the objective of renting property, there is a considerable difference when legal aspects are taken into account.
In the case of rental leases, a transfer of interest from a lessor to a lessee is simplified. On the other hand, a lease and license agreement does not create any interest in the premises for the licensee.
Lease and license agreements provide a higher level of protection for landlords against tenants. In general, rental tax laws do not apply to Lease and licensing agreements. Expulsion, under lease and license, is subject to the law on relief.
NRIs and PIOs who want to rent their properties should consider a leave and license agreement.
Real Estate in India – Benefits of Leave and License Agreements
Tips when you leave property on Leave and License
- Don’t let out your property to anyone, unless you check the person who is renting the property. While it is not possible to get in India background check made easy, you could take some precautions, such as checking the person’s employment record, previous address, etc.
- Don’t hand over your property in trust and good faith to everyone independent of how well they impress you, without checking the right documentation and figuring out who exactly will occupy your property. When renting to a foreigner, the local police should be informed. This is now required by law in many cities.
- Use a professional to create the contract. A lawyer is preferable than just a real estate agent who has a pre-written template for an agreement and simply fills the blanks.
- Pay the required stamp duty for your agreement and register it legally. If the agreement is not registered, you have no protection.
- If the property is in a company, then take a No Objection Certificate (NOC) from the company to avoid problems in the future.
- It may be advisable to enter into an agreement of only eleven months and renew if you find things that work well for you.
- In cases where a landlord, as a broker, brings the client, you may consider in the agreement that no further brokerage fees will be paid if and when the license agreement is extended. Dealers in India usually charge a monthly rent as their fee.
Difference between contract and leave and license
Repatriation of rental income
Non-resident Indians and PIO’s who rent their homes in India can easily repatriate the rental income in their countries of residence once payable taxes on rental income are paid.
Rental prices in the main cities have increased quite a bit. Many prestigious companies also rent apartments and houses to hold as guest residences as hotel prices in India have risen significantly.