When Ashish Srivastava, a graduate in information technology, was offered his first job in Mumbai by a software consultancy firm, his excitement knew no bounds. Having lived with parents or in a hostel all his life, little was he aware of the problems he could face while renting a house, especially in Mumbai.
Mumbai not only has high rentals, the security deposit at the time of taking a house is also on the higher side—usually 12 months of advance rent.
While finding a house was itself a challenge, he was flummoxed when the broker gave him the options of a personal lease and a company lease. Fortunately for him, lack of funds made his decision easy. He opted for a company lease because his company was ready to pay the initial security deposit. He didn’t pause to find out whether a personal lease would be better. Faced with the same situation, what would you do? Here is a lowdown on what works for you—a personal lease or a company lease.
What is the difference?
A lease agreement is a document specifying the person in whose name the house is taken, the amount of rent you pay and the period for which it is valid, apart from other legal clauses.
When the agreement is signed by you and the owner only, it’s called a personal lease. A personal lease would have terms and conditions that are mutually agreed upon by the tenant and the owner.
By contrast, a company lease is one where the deal happens through your employer. This means the company pays rent on your behalf and deducts the amount from your salary, according to the policy it may have. Here, the document is signed by the company and the owner.
In both cases, the lease has to be registered at the local sub-registrar’s office.
If you have opted for company lease, the company will do all the running around for you. In a personal lease, you may have to do it yourself or pay a little extra to the broker to take it easy yourself.
When a company lease works for you?
The fact that most companies agree to pay the initial security deposit on your behalf is the biggest advantage. “It would have been really difficult for me if my company hadn’t given me the initial Rs40,000,” says Srivastava.
Some companies ask you to pay the deposit back in instalments, but even then it would be like taking an interest-free loan. Sachin Vasudeva, senior partner, SC Vasudeva and Co., a New Delhi-based accountancy firm, says: “Mostly, the amount is paid to the employee as interest-free loan. And if the company has to fix a rate of interest, it has to take the current rates offered by State Bank of India. This is later repaid as instalments or through bullet payments. This solves the problem of cash flow.”
Having a company lease also gives a sense of security—to the tenants as well as owners.
There have been several instances where owners have refused to return the full security amount on one pretext or another when the tenant finally vacates the house. Since in a company lease the company would have paid the deposit, the tenant would have a sense of security. Sunder Khatri, a Supreme Court lawyer, says: “In this case, seeking a court’s help would solve the matter. However, in a company lease, chances of this kind of fraud are minimum.”
A company lease would also protect a tenant from being evicted before completion of the term without notice.
Says Khatri: “In a company lease, the firm becomes responsible in case of any legal dispute arising from damages or non-recovery of the property. From the tenant’s perspective, it is always better to go for company lease as the landlord cannot evict him before the completion of the tenure without notice.”
For owners, it is a way to ascertain the identity of the person he is taking in. Says Pradeep Mishra, an independent real estate analyst: “Owners prefer such an arrangement as the company has a face value. It authenticates that the tenant is not an anti-social element.”
When a personal leaseworks for you?
For the self-employed, a personal lease is the only option available for taking a house on rent. Doctors, lawyers or businessmen can’t possibly produce a company lease. Even government employees who are unable to avail government accommodation, would need a personal lease.
Says P. Solanki, a Ghaziabad-based real estate dealer: “If the tenant runs a company or holds the shares of a company, he can sign a lease deed with the owner as a company lease. The payments will go as per the rules under the company lease.”
Students, too, need to rent a house on personal lease. Then there are companies that do not have a policy to give a lease at all.
“In such cases, a person can take a guarantee letter on the company letter head mentioning the name, employee code and other personal details, such as permanent address,” says Mishra.
However, there are other ways to ensure verification, too. “The person renting a house can ask a friend living in the same area to verify his identity,” says Babulal, a real estate agent who goes by one name, of New Delhi-based Lal Properties.
Since the terms and conditions are mutually agreed upon in a personal lease, you have the option of bargaining the terms to your liking. “The self-employed should be careful while the lease deed is being drafted. It is in favour of the tenant if he puts a grace period of, say, a week to pay the rent. It often happens that salaries get stuck due to a weekend or a bank holiday. This clause saves the tenant from getting harassed by the owner,” says Mishra.
Money Matters likes company lease because it is safer for both the tenant and the owner. But if you have no option but to take a personal lease, make sure you make the most of the flexibility it gives. In a non-transparent and largely unregulated environment, it brings in some semblance of order.