How long should the relationship last

We invariably come across doubts and apprehensions with respect to the ideal tenure of your contract when renting an apartment. While some insist on having an 11-month long tenure, others are comfortable with a 5-year contract. We at SimpLease attempt to unravel the mystery behind the 11-month contracts as well laying down the logic for a 5-year contract.

The legal position: The legal position is that a contract (called the Leave and License agreement) can before a maximum period of 5 years. If it exceeds 5 years, it is treated as Lease as opposed to a Leave and License .The rationale for restricting the contract term to less than 5 years is primarily on account of the sharp variation in stamp duty payable. If the contract is for less than 5 years, the rate of stamp duty is 0.25% of the total rental receivable including notional interest on security deposit. However, if the contract exceeds 60 months, it is treated as a lease as opposed to license wherein the stamp duty rate is 5% computed on 10% of the market value of the property. We give an example below to illustrate:

Market value of property:  Rs 2 crores

Annual rent: Rs 40,000

Security deposit: Rs 2,00,000

Stamp duty for 5 years under Leave and License agreement:

= 0.25% X (40,000 rent X 12 months X 5 years +10%notional interest X 200,000 deposit X 5years)

= 6,250

Stamp duty for 5 years under Lease:

=5% X 10 % X 2,00,00,000 market value

=100,000

The 11-month contract: There are several owners who insist on having an 11-month contract and renewing it every year. This belief stems from the old era when undertaking a 11 month contract would result in (1) saving on stamp duty by not registering the documents as only documents with 12-month had to be registered and (2) bypassing the Bombay Rent Act which gave protection to tenants from eviction.

However, in the current scenario, both the above premises are not applicable. The law has made it compulsory to register all Leave and License agreements irrespective of the tenure. In addition, Section 24 of the Maharashtra Rent Control Act gives specific power to the house owner to recover possession of the premises through summary proceedings before the Competent Authority. In addition, it makes a licensee is liable to pay damages at double the rate of the license fee or charge of the premises fixed under the Agreements of License. Thus, it is pointless to have an 11-month contract in the current scenario although the practice still continues in Mumbai. All we can say is that ‘Old habits die hard’.

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Just not married as yet

“Bachelors should be heavily taxed. It is not fair that some men should be happier than others.“   Oscar Wilde

The Mumbai rental market seems to have taken Oscar Wilde rather seriously as it is becoming extremely taxing for bachelors to find a rented apartment in Mumbai. This bias based on marital status impacts the bachelors in the following forms:

Higher rentals for the same apartment

The first burden to be borne by bachelor tenants comes in the form of higher rent. The owners tend to charge differential rents for married tenants as opposed to bachelor tenants. This differential could range anywhere between 5-10%. We have come across all sorts of reasoning for this differential (some justifiable but mostly not) and have listed some of them below:

  • Higher rental is justified as the burden of rent has to be shared by each individual.
  • Higher rental covers for the risk of presumably lower maintenance by bachelors as opposed to a family.
  • Higher rental covers for the risk of any potential nuisance or disturbance that may be created by bachelors.
  • Higher rental is justifiable as the owner has to deal with administrative hassles of early termination of leases or early vacation by one or few of the housemates.

Significant lower availability of apartments

The second hurdle faced by bachelors relates to lower availability of apartments. This is on account of restrictions imposed by several societies and/or owners on giving the apartment on lease to bachelors. Many prime societies in Mumbai have placed a blanket ban on renting apartments to singletons. To know if bachelors are allowed in a society of your interest, contact a SimpLease representative today.

Higher brokerage charges

Sometimes the tenants are forced to pay brokerage charges as high as two months rent because they find it difficult to find apartments for themselves. This is a typical case of some brokers exploiting the situation. We would urge bachelors not to give in to such exploitative demands and pay the normal brokerage charges only.

The fine print: Hidden charges that you need to be aware of

While most of the rental deals are negotiated around rent and deposit, it is pertinent to keep in mind the following costs that may increase the cost of living for the lessee.

Parking charges

Given the paucity of space in Mumbai, most residential complexes levy a charge for parking space for tenants. These charges could vary between Rs100-Rs1,000/month. Typically, these charges are payable by the licensee and are over and above the rent for the apartment.

Society NOC

Several societies in Mumbai levy a charge for providing NOC for renting out the apartment. This charge varies from a nominal charge of Rs100 to Rs10,000. The levy of such charges is typically borne equally by the licensor and the licensee. However, this is always subject to negotiation.

Move-in/Move-out charges

These are the charges levied by some societies as a cover for any damage that could happen to the facilities on account of bringing furniture into the apartment or at the time of moving out of the apartment. These charges are typically borne by the licensee.

Non-occupancy charges

Non-occupancy charges are payable by the owner to the housing society for renting out the apartment instead of occupying the apartment themselves. These charges can vary between Rs1,000-Rs20,000. The quantum of charges and the sharing of the same between the licensor and licensee should be clarified in advance.

Club usage charges

All residential complexes with amenities levy a charge on the tenants for the use of the facilities. These charges typically include— (1) a refundable deposit and (2) monthly usage charge. Both these components may vary significantly across various complexes. These charges are also borne by the licensee over and above the monthly rent.

LPG versus piped gas

Piped gas is now available in most of the residential complexes in Mumbai. However, some apartments within the complex do not apply for the piped gas connection. It is always advisable that the tenant insists the owner to apply for the piped gas connection as it can result in saving of Rs200-Rs600/month for the licensee depending on the usage.

Star rating for appliances

The energy consumption as depicted by the star rating can swing your bill fromRs1,000/month to Rs2,000/month. While it may be difficult to ask the owner to replace the appliances for more energy-efficient ones, the tenant should keep in mind the tentative electricity cost that he may have to incur.

Mantras for home owners

Start early

It is advisable to start marketing your property at the earliest as it would ensure that you do not lose any potential rental income from non-occupancy of your apartment. Most of the tenants typically start looking out for an apartment 30-40 days from their tentative date of possession. This should act as a good thumb rule as to the right time to start marketing your property.

Preparation of the house

When it comes to renting a property, first impression is definitely the last impression. Given the limited time within which any prospective tenant will finalize a place to stay, it is unlikely that he/she would revisit a property that did not find approval at the first instance. In that aspect, it is critical that the homeowner keeps his property in a marketable condition to show to any prospective tenants. This would include cleaning of the apartment, repainting of the house if it is already due, repair work related to furnishings or civil work.

The home owner should always keep in mind that any client will form an opinion of the house based on what he sees and not based on how the house might look like if everything is repaired and refurbished.

Background check

It is always better to do a complete background check before giving the apartment on lease. There are several checks that have been put in place by various authorities to take care of this like the police verification, requirement of documentation and reference checks by some societies. We would urge all home owners to strictly comply with these formalities as it is beneficial for them in the long run.

Your Dream home: Is it really out there?

More often than not the search for a rented apartment in Mumbai is not about choosing a house but choosing the factors to compromise on.
Whenever it comes to house hunting in Mumbai, I am reminded of a scene from the movie Matrix where Neo goes to meet the Oracle and sees a boy bend the spoon by merely looking at it. The following conversation takes place between the two:

Spoon boy: Do not try and bend the spoon. That’s impossible. Instead… only try to realize the truth.

Neo: What truth?

Spoon boy: There is no spoon.

Neo: There is no spoon?

Spoon boy: Then you’ll see, that it is not the spoon that bends, it is only yourself.

I see this scene enacted on the streets of Mumbai day in and day out where the bent spoon reflects the dream house and the spoon boy reflects the real estate consultant and Neo reflects the house seeker.

Real estate consultant: Do not try to find the perfect apartment in Mumbai. That’s impossible. Instead… only try to realize the truth.

House seeker: What truth?

Real estate consultant: There is no perfect house.

House seeker: There is no perfect house?

Real estate consultant: Then you’ll see, all you need is to make some compromises and your mind will bend to convince you that you have found your perfect house.

The search for an apartment in Mumbai will always involve a compromise on the one/some/all of the following factors:

Compromise on budget

This compromise on budget can be is quite sizeable for people who are relocating to Mumbai from places like Gurgaon, Bangalore, Hyderabad, New Delhi etc as the concept of space has a completely different connotation in Mumbai. Therefore people relocating to Mumbai from these cities take about a week and a visit to 15-20 apartments to get used to the concept of space and budget in the city.

A plush fully furnished 2 BHK (with an area of over 1,000 sq.ft.) in Gurgaon in a premium locality might cost you about Rs20,000, but you would not even get a plush 1 room kitchen (area of about 300-400 sq ft) in that budget in Bandra, and that too in an old building without lift.

Compromise on travel time

This is a very important consideration in deciding the location for residing in Mumbai as daily commute can eat a significant amount of time in Mumbai. However, this is a factor which may be non-negotiable for a lot of people. Typically, families with kids tend to minimize their travel time as every minute saved on travel gives them an extra minute with the kids.

On the other hand, bachelors who have recently started their careers in the city tend to compromise more on this factor to reduce the compromise on the first factor and rightfully so, as saving early in your career is always a good advice.

However, one must always remember that distances in Mumbai are not measured in kms but in minutes. Thus, while evaluating the travel time do not look at distances as traveling 2 km from BKC to Sion may take you the twice the time as compared to traveling 20 kms from Priyadarshini, Chembur to Thane.

Compromise on quality of building

The choice for the right building is also a tough one to make in Mumbai. You will find three kinds of buildings in Mumbai— (1) old buildings with no amenities, (2) standalone towers without amenities or some amenities like a gym and (3) residential complexes with all facilities.

All three have their own pros and cons. While most of the old buildings are not very attractive to view but offer some benefits like (1) maximum space in terms of carpet area, (2) easier on financial budget and (3) at times very good quality of interiors within the house. On the other hand complexes offer the luxury of all facilities but they are definitely a big stretch on the budget.

Compromise on locality

The choice for a locality is dependent on several factors like proximity to office, proximity to children’’s school, proximity to social circle, general attractiveness to a locality for places like Bandra, Powai, social status etc. This factor is hard to compromise if the choice is account of proximity to children’’s school. However, people do consider compromise on the locality for other factors to find a place that fits in the budget.

In a nutshell, as a house seeker in Mumbai, it is better to do detailed research upfront about Mumbai rental market, various residential localities and complexes, cost of living in various areas.

You can always call up a simpLease representative to get this information.
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