Wednesday, January 28, 2015

Things to remember before you sign a rent agreement

vFacts Research Services
When Kshitij Nadekarfinalised the house he wanted to rent in Pune a year ago, he thought he would stay there for 2-3 years till he bought his own house. "The place was in a reasonably good condition and was very close to my office. So, I immediately signed the agreement with the landlord," says the 37-year-old management executive. Nadekar had agreed to pay a monthly rent of Rs 5,000 and furnished Rs50,000 as deposit money. However, six months later, the landlord wanted to increase the rent by Rs 500 as the rentals in the area had gone up.
"I had two choices—pay the extra money or hunt for another house. My landlord told me that such an increase was the norm, and since nothing was mentioned in the lease agreement, I had little option but to pay the additional money," he adds. Nadekar could have avoided this hassle if he had scrutinised the rent agreement carefully and made changes that could have served his interests better. However, most tenants are not even aware of the points that should be included in the rent agreement. Here are the things you should check while sifting through the contract.
Is the lessor the actual owner? Before you sign the agreement, be sure that the person you are transacting with is the actual owner of the property. Often, NRIs or investors hand over their property to caretakers, who may lease it to a third party without the knowledge of the owner. So, you should verify the title documents, such as the sale deed and share certificate, besides obtaining a no-objection certificate (NOC) from the housing society where you want to lease the property.
These papers will help ascertain that you are dealing with the right person. Utility bills also come in handy as they specify the name of the owner. "If the apartment is mortgaged, the original sale deed will be in the custody of the bank. In such a case, an NOC should be obtained from the bank. This will mention the rightful owner's name," advises Om Ahuja, chief executive officer, residential services, Jones Lang LaSalle India.
Shveta Jain, executive director, residential services, Cushman & Wakefield, says that tenants should be wary of arbitrary eviction if they deal with an unsolicited party. "A case of trespassing can be filed against such a tenant if he refuses to vacate within a given time frame. The tenant cannot challenge eviction in this case," she adds.
Consider that the person who offers the property for rent, say, Mr. A, has slyly inserted a clause stating, 'The tenant has verified the title papers of the property and confirmed and satisfied that Mr. A is the rightful owner of the property'.
If you fail to check the agreement and sign it, you could be held liable for trespassing. "Of course, if such a clause is not mentioned, the tenant can hold the other party responsible for cheating and committing fraud," adds Ahuja.
What does the rent agreement contain? A rent agreement includes the terms and conditions under which the property is given on rent. It specifies the rent value and the tenure for which the agreement is made, as well as the security amount that needs to be deposited with the landlord by the tenant.
The agreement should also clearly mention the day before which the rent is expected to be paid. For instance, it could be the 5th or 10th of every month. If the tenant fails to pay the rent before the predetermined period, the penal charges that he would be liable to pay should also be defined in the agreement. The rent agreement could also mention the facilities, such as parking space or the usage of society's gym, included with the property.
There could also be additional monthly charges, such as the society maintenance charge and club fee. It's best if the additional charges for using such facilities are clearly spelt out, along with the person who is supposed to bear them. If either party fails to honour the terms and conditions of the agreement, it will become void and the aggrieved party could claim penal charges. The tenure of a rent agreement is usually 11 months, unless otherwise specified in the contract. If it's for more than a year, it's mandatory for the owner to get the document registered. The agreement should also specify the notice period and penalty for cancelling the agreement without completing the specified period. Typically, a two-month notice is served in case of high rental properties, while one month's notice is sufficient for low rental ones. What should you check? A tenant should verify whether the owner has included a rent escalation clause in the lease agreement, which could be used to increase the rent after a couple of months.
"The best way to safeguard yourself is to ensure that the agreement specifies the dates on which the rent escalation will be applicable and the percentage of increase," says Ahuja. You should also make sure that there is a clause on the sale of the house. If the owner decides to sell the house during the term of the rent agreement, you should know how many months you will get to search for another suitable accommodation. It's also important to check that all the appliances and the connections in the house are working properly before you sign the agreement.
Usually, minor repair work for installed electrical appliances is the responsibility of the tenant and he has to pay for them. However, if the property is damaged because of negligence on your part, the landlord can rightfully use the security money deposited with him for carrying out the necessary renovation. You also have the right to see the documents that prove all previous bills related to the house have been paid, especially the electricity, water and gas bills. While you are at it, make sure to peruse the papers that state the property tax has been paid by the landlord.

Property laws in India

Pro-tenant laws in India often inhibit rental market

India colonial houses
Even with the application of the Lease and License Agreement system, it is still difficult for a landlord to protect his property from unwanted overstaying tenants. Even if contracts are enforceable in courts, the actual enforcement takes years or decades to accomplish.

Rents: Can landlord and tenant freely agree rents in India?

There are two types of tenancy agreements in India, Lease Agreements which are covered by rent control laws and Lease and License Agreement which are not.
A Lease (or Rental) Agreement is covered by restrictive rent control laws. The amount of rent that can be charged is based on a formula devised by the local executive, legislative or judicial government, as the case maybe. For Delhi, the maximum annual rent is 10% of the cost of construction and the market price of the land, but the cost of construction and the price of land are both based on historical values and not the current market valuation. So the older your property, the smaller the rent you can charge. Rents can only be increased by a fraction of the actual cost the landlord has incurred in improving the property.
The Lease Agreement transfers the right of ownership to the tenant for an indefinite period of time, which can be problematic because it encourages the tenant to claim the right to permanent occupation. In numerous cases, tenants have refused to relocate. When brought to court, these cases can take 10 to 20 years to resolve.
Most landlords prefer a Lease and License Agreement. This agreement only grants the tenant a license to occupy the property for a period of 11 months, with an option for periodic renewal. Because the rent control laws (which are largely in favor of tenants) only apply for lease agreements of at least 12 months, establishing an 11-month agreement serves as a pre-emptive measure.
To avoid complications, since landlord prefer these agreements, we will only discuss Leave and License agreements for the rest of the article.


India vacation homesPrior to occupancy, tenants usually pay a security deposit of three months’ rent. This is usually refundable at the end of the contract, if no other liabilities have been left unsettled. Deposits are expected to be returned within a month after the end of the tenancy, or as stated in the contract. Until the deposit is returned, contracts commonly stipulate that interest must be charged on the deposit, computed at a daily rate. Advance payments for six months up and full payment for 11 months are popular.

What rights do landlords and tenants have in India, especially as to duration of contract, and eviction?

Since Lease and License Agreements are designed to escape restrictive regulations, all terms are governed by agreement between landlord and tenant. Aside from the most basic condition that the tenancy is only for 11 months, everything must be stated in the contract. (For a copy of a sample l Residential Lease & License Agreement, click here.)
Typical contracts include a provision that, if either party wishes to prematurely terminate the contract, three month’s notice must be given.
The typical agreement also prohibits subleasing. To deter tenants from overstaying, experts recommend including a clause quadrupling the rent if the tenant does not leave when the contract ends.

How effective is the Indian legal system?

Court proceedings of any type should be avoided at all times. Well-defined contracts will greatly help landlords to convince tenants that they (the landlords) are likely to win the case in court. As stated above, eviction cases can last up to 10 or even 20 years.


Local laws cover landlord and tenant agreements. Many local rent control laws such as the Maharashtra Rent Act 1999, Delhi Rent Act 1995, Tamil Nadu Buildings (Lease and Rent Control) Act 1960, strictly regulate rental agreements that are 12 months or longer in favor of tenants. If the monthly rent payable on a property exceeds Rs3,500 (US$76), the agreement is subject to the Transfer of Property Act (TPA), which assigns the landlord responsibilities including i) disclosure of information regarding material defects in the property and ii) uninterruptedoccupation of the property for the agreed period (subject to periodic visits by the landlord for inspection). In this case there are more grounds for evicting tenants, but the situation is still disadvantageous to the landlord.
India taj mahal

Brief History: Recent changes in Indian landlord and tenant law

The laws on landlord and tenants in India are archaic. The national government is encouraging local units to relax these laws to encourage investments in housing and construction. How fast will India will move to abolish its old system is very much questionable. The Maharashtra Rent Act 1999, for example, is slightly more pro landlord than the Bombay Rent Control Act 1947, but it does not still sufficiently protect landlords’ rights.

Know How Employee Frauds

vFacts Research Services

Harshad Mehta – the name immediately brings back the memories of the most popular scam of India. The fraud cost 5.5 billion to the 10 major commercial banks of India. An employee fraud is not a new concept or term for India. The annual survey by KPMG (a leading management consultant) has provided many interesting insights to the recent scenario concerning employee frauds. The sample of the survey covered more than 1000 public and private organisations in India. According to the survey, 47 percent of the frauds in the organisations have been done by either the employees or the senior executives with a decision making authority.

Types of frauds:
The most common fraud reported by the organisations is the magnified or the inflated expense account by the employees. In these types of fraud, the expenses incurred by the employees are exaggerated and false invoices are submitted to the organisation for re-imbursement. Such frauds account for almost 50 per cent of the total losses incurred by the organisations because of employee frauds.

Other types of frauds faced by the organisations are:
  • Keeping a secret share of commissions from suppliers for self
  • Counterfeiting or faking the company cheques
  • Purchase of goods for personal use on company expense
  • Manipulating customer’s accounts
  • Using official information for personal benefits
  • Forging financial statements
  • Misappropriation of other company resources
  • Corporate espionage

Frauds related to manipulating and misusing the power to access the confidential information about the customers and the organisation and theft of data were also found to be more common than the rest.

Dimensions of frauds:
Any or every employee/ executive fraud, has the following magnitude or dimensions:
  • The human dimension - There is always a human mind behind every executive fraud. It has been found to be of an internal employee or management in 90 per cent of the cases. Employees use their power and intelligence for corporate espionage.
  • The technology dimension - Technology has emerged as a very important dimension to the employee frauds. New technologies have given way to unethical practices like hacking etc. On one hand, where the information technology can be effectively used to check frauds, it can and is giving opportunities and assistance to the people in planning and executing frauds.
  • The legal dimension – The last dimension is the legal dimension that the legal framework and the institutional system regarding the frauds. It also includes organizational practices and policies regarding frauds.

Detection of frauds
According to the survey report of KPMG, a majority of the frauds were exposed by internal controls or check measures. Whistle-blowers or, many a times, anonymous notifications received also help to detect frauds. What follows the detection is the investigation by the management of the organisation , a review of the entire situation, followed by actions like firing the concerned employee, formal police investigation, and sometimes – letting the employee resign. 

The study by KPMG also sights the fact that most of the Indian organisations are unprepared to detect, handle or deal with fraud. Also, shocking was the fact that as much as 77 per cent of the respondents do not even conduct or has fraud diagnostic review systems in their organisations; nor do 84 per cent of the respondents have a written fraud policy. Assured of their security and internal control systems, 52 percent of the respondents (corporate heads) did not consider frauds as a threat or major problem.

Scenario in Indian sectors
The percentage of risk from corporate espionage of the information communication and entertainment sectors, and financial sector of India (including all the financial service providers) is as high as 84 and 81 per cent respectively. But the sector which is facing the frequent brunt of the problem is the emerging BPO sector in India. Cases of frauds in BPO sector, employees using the customer’s confidential information, manipulation in accounts are getting common. The reasons being quoted for the increasing number of frauds are:
  • Weakening of society's values,
  • The growing economic pressures,
  • More sophisticated technologies to assist criminals
  • Urbane and intelligent criminals and
  • Inadequate punishment for those who are caught

The first and the foremost solution to the problem are the reference checks and affirming the employee details of the employees before their confirmation in an organisation. To reduce the possibilities of frauds, it is advisable to design and incorporate the fraud diagnostic systems in the organisations creating internal detection systems. Also, regular periodic rotation of the staff can help reduce the possibilities of the employee frauds. There are also 185 certified fraud examiners (as on Jan’06) in India. There information is available on the website of Association of Certified Fraud Examiners. (

It is also being planned to create a common database for an industry vertical by all organisations of all employees who have been identified and have been proved as fraudsters in the past. This would help the other companies to check for them before hiring them for their organisation.

Employee Fraud Conference - India might be losing $40 Billion to frauds

India's first dedicated conference on Employee frauds was held in Taj Westend on 14th March'2008. This conference gathered a huge response from across the sectors. Participants from the companies like TATA Motor Finace, TATA Steel, Fullerton India, Perot Systems, TCS, Infosys, Wipro, Syntel, ICICI Bank, ICICI Lombard, Centurion Bank, HSBC, Orchid Hotel, FirstSource, Lab Systems, Nokia, Saraansh Software  gathered at this event. It was India's first focused event on Employee Frauds. Banaglore city would be remembered in the history as the hosts of this conference.
Pinkerton Consulting which were the exclusive sponsors of this conference made a impressive start in the industry. Pinkerton focus on the fraud investigations and background verification of the employees mostly in the IT Sector. Pinkerton not only sponsored the conference but under the leadership of Mr. Krishnendu Biswas they also acted as the Knowledge Partners for this conference and played a very important role by offering the knowledge they have gathered from various assignments on Employee frauds. Pinkerton could be a low cost substitute to the services offered by the multinational firms.
The conference focused on various issues and eminent speakers covered the interesting topics in this conference. Capt. Percy Jokhi - CSO of FirstSource discussed the fraud cases across Banking, BPO and Hospitality Industry. Selam Raveendhrun who pioneered the fraud control unit efforts in banking industry in India discussed the financial impacts of Frauds. He alerted the industries about India's economy crossing the mark of $ 1 trillion. Babu Jayendran who mentioned about the software to check the insider data leakage was quoted in Hindustan Times and also in Economic Times. Yash Maruli who shared some of the real life cases with the actually forged documents was also mentioned in this story of Hindustan Times. Vikram Tiwathia CIO of CII was quoted by Business standard in an exclusive story.
All the speaker presentations are available for download till 31st March'2008.
Since it was a very unique kind of a conference media covered this event very enthusiastically. All the mainline newspapers talked about the Quantum of the frauds India is losing out.
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Bangalore on top chart among frauds in job applications

CHENNAI: Shyam worked in Hewlett Packard's (HP) Bangalore office for three years without any issues. And then, he quit. A few months later, Shankar joined the company and when he was in the canteen one day, some employees were surprised that he looked exactly like Shyam. Of course, Shankar denied any knowledge of Shyam. However, in the HR verification, it turned out that Shankar was indeed Shyam. 

What transpired was that Shankar had failed to get his college degree. So, his girlfriend, who worked in the company, used her brother Shyam's degree to get Shankar a job. In the course of his two years at the company, Shankar passed and got his own degree. So, he re-applied, this time with his own degree, and got in. This is just one of those many 'fake identity' cases that unfold when background checks are conducted by companies to avoid such 'events'.

Among Indian cities, Bangalore has emerged at the top when it comes to candidates tampering with their employment or address details when applying for a job. After Bangalore, Mumbai, Chennai and Delhi have most discrepancies in applications.

These findings were presented in a second quarter (April-June) report by First Advantage, a firm specialising in background checks. Almost 4-5 lakh checks were conducted by the organisation in this period for this report, of which 9.3% were fraudulent, that is, 9 out of every 100 applications had wrong details provided by candidates.

Wrong employment details provided by candidates were the biggest cause of discrepancy, accounting for 71.5% of all fraudulent cases. Discrepancies in address and education details were the next biggest reasons.

Bangalore accounted for 24% of all fraudulent cases relating to employment details. Mumbai, with 17%, and Chennai, with 7.8%, followed. Bangalore also had the maximum cases related to discrepancies in address details with 19% of all addressrelated discrepancies in the country. Mumbai with 12.7% and Delhi with 8.2% followed. Chennai was fourth at 4.9%. Candidates in the south zone tampered most with their employment and address details - accounting for almost 45% of fraudulent cases in these categories in the country - but were lowest when it came to providing wrong education details.

Almost 6 million checks are being done in India every year, said Navin Chugh, MD of First Advantage. "The cost of checking is between Rs 2,500 and Rs 5,000 per candidate, which is nothing compared to the potential damage a wrong employee can cause to the company," said Chugh. "While the IT industry is actively using these solutions and the discrepancy is likely to be 10% here, fast growing sectors like retail, health and pharma see discrepancies as high as 20%-25 %."

While companies are checking everything from bank statements, credit cards, social media and even drug testing in some cases, there is an entire industry at the other end of the spectrum. "There are around 3,000-5,000 companies which issue fake certificates and around 2,000 educational institutes grant fake degrees in the country," said Chugh. Employees in India have a right to ask for their background check reports from their employers but very few are aware of this right. This is especially important since not all companies doing background checks are all white. There are around 80-90 such companies in India, according to Chugh, and many of them have no compliance.

The fine print 

Bangalore topped cases relating to job details The city also had the most cases relating to address discrepancies Candidates in the south tampered most with job, address details Candidates in the north topped cases relating to wrong education details Almost 6 million checks are being done in India every year.