Skeletons in the rental cupboard

Be wary of the issues and legalities related to renting, especially those on sub-leasing

House renting is not a happy prospect — for tenants as well as landlords. As a renter, you may find that the maintenance issues are not being taken care of by owners who often demand high security deposits and deduct a chunky bit of it when you vacate. For some tenants, such as single people, finding a place may be an issue as owners may not prefer them.

Home owners also have their share of headaches, such as finding a suitable tenant quickly without losing rental income, monthly rent collection on time and taking care of any issues raised or caused by the tenant.

Intermediaries

Given these problems, there have been many third-party service providers that have come up to offer solutions.

Property management firms help owners with renting out and ongoing management, for a monthly fee. This may be about 10-15 per cent of the monthly rent for upkeep and rent collection.

The rates may be higher if the house is furnished by the firm. Broker services are charged at market rate — typically half a month’s to a month’s rent — or waived.

The financial value to the owner is that with better maintenance support, the house may fetch a higher rent.

Also, with a better reach of tenants, it may not remain vacant for long. Firms may also use market data on demand and prices to determine the optimal rent for the house. So, rental income may be higher overall (by 20-30 per cent), even after paying the commission.

For example, Bengaluru-based home rental start-up NestAway charges 12.5 per cent of the rent as commission and ensures that the rent is paid by the 5th of every month, and all issues are taken care of.

Besides the commission model, some may also lease the property from the owner and rent it out. In this case, there is certainty of rent whether there is a tenant or not.

ZoloStay leases property from owners, and rents it out as co-living spaces — shared rooms or shared apartments — to individuals. ZiffyHomes, CoHo and StayAbode are other companies that offer similar services on a commission or a lease model.

Tenants get value, too. For one, the security deposit charged is two months’ rent, instead of the 8-10 months’ with landlords, freeing up cash.

The house may also be available on shorter term rentals of, say, six months, instead of the standard 11-month agreement. There are also other options such as furnished houses, shared houses/rooms, and options to move within the agreement period to a different property with the same company.

Bad experiences

But people have also had bad experiences of third-party services. One recent example is that of Homigo Realty based in Bengaluru. In this case, the company had taken properties on monthly rent from different landlords.

They then gave the houses on multi-year leases to tenants, collecting lump-sum payments. Homigo did not pay the home owners and decided to close down. The owners wanted the tenants — with whom they had no agreement — evicted.

There have also been issues of third parties subletting the place to earn more rent, without informing the owner.

Tenants have also faced unaddressed maintenance issues, and cases where amenities/facilities promised were not provided.

There are many online forums where tenants have shared their woeful tales.

Legal issues

There are also legal implications of subletting a house that owners and tenants should be aware of. Renting out a house comes under the ambit of the Rent Control Act, and the rules vary with the State. Sub-letting is not defined under the Rent Control Act.

In many States, subletting is not legal, especially without the consent of the owner.

In some States such as Uttar Pradesh, subletting is defined strictly — occupation of a property by a person who is not the tenant’s family member is considered sub-letting. The owner does not have to establish that there was rent payment or any agreement/arrangement between the tenant and the sub-tenant.

The Supreme Court has ruled that a tenant can be evicted for subletting. Legally, an explicit sublease clause must be included in the agreement and the permission must be given in writing.

The court has also ruled that a written deed between a tenant and a sub-tenant noting that the owner had permitted sub-letting is not binding and is meaningless.

Also, even if a general written permission is given, specific consent must be given by the landlord before sub-letting each portion of the accommodation to different subtenants, indicating their names.

Even if the law is favourable to the owner, getting possession of the house from the tenant/sublet tenant is not easy.

In the case of Homigo, where there was non-payment of rent, tenants can still seek remedy by approaching the court when the landlord tries to evict them.

There may also be liability issues to owners if tenants are involved in illegal activities. In many States, it is mandatory for landlords to carry out police verification of their tenants.

For instance, homeowners in Chennai are required to submit the details of their tenants in the format prescribed by the police within 15 days of renting out the premises, and this must be adhered to if the tenants change.

So, it is best for owners to not allow a sublease clause in your rental agreement, and know the details of your current tenants. While working with third-party service providers, be sure that there are procedures in place to notify you of any changes in occupation of the house.

If you are a tenant considering sub-leasing through a third party, find out who the landlord is, and unless you are very sure, do not prepay the intermediary large deposits or lease amounts.

The writer is an independent financial consultant

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