Why do property managements have 11 month agreements?
Property management companies operate legally and therefore manage properties under lease
agreements, signed by both owners and tenants. This makes it easier for both parties to trust the system
and are obligated to color within the lines of the norms laid down in the rental agreement. A rental
agreement usually includes rent, security deposit, property details, overhead charges, utility services,
a period of validity of agreement etc.
As to why property management companies choose to go with the 11-month agreement, is basically to
avoid stamp duty and registration charges. Since Section 17 of the Registration Act 1908, declares
compulsory registration of those documents such as mentioned in clause (d): the leases of immovable
property from year to year, or for any term exceeding one year or reserving a yearly rent.
Also Rent Control laws laid down in the Karnataka State Rent Control Act states that the rent dictated should cover the construction costs, year of construction as well as the land’s market price. This gives owners little space to manipulate the rent according to market prices. Once the lease agreement is registered the ownership is transferred into the hands of the tenant and it becomes harder for the owner to evict tenants.
On the other hand, if owners sign a rental agreement for 11 months, they can leverage their right to an annual rental hike and market rents, and won’t have to succumb to rent control laws, giving them the freedom to exercise rent according to market prices. Even though most tenants prefer a longer lease period, the crux of the matter is that the 11-month duration also works to their advantage, to circumvent payment of stamp duty and other registration charges.
Lease documents may not be accepted as valid court submissions, if not registered. In order to add a layer of security to your property, it is insisted that the lease agreements be registered in case of disputes or disobedience of a tenant to vacate the property. However, not all members of the judiciary consider these 11month lease agreements as invalid as these documents may still have a certain degree of validity as a contractual proof. Some rental agreements are made renewable/extendable for longer periods but may incur different charges (registration and stamp duty) based on the period of validity.
Rentprop4U is a one-stop solution for all your rental and property management needs, assuring security and maintenance for your property for a period of 11 months.