Understanding rental agreements and leases is fundamental for both landlords and tenants.
Key Distinction: Rental Agreement vs. Lease (in a general context and in Sri Lanka)
Generally, the primary difference between a rental agreement and a lease agreement lies in their duration and formality:
Rental Agreement (or Tenancy Agreement):
Duration: Typically short-term, often month-to-month, or for a period not exceeding one month.
Flexibility: Offers more flexibility.
4 Terms (like rent) can often be altered with proper notice (usually 30 days) by either party.5 Termination: Can usually be terminated by either party with a relatively short notice period (e.g., one month's notice).
Formality: In some jurisdictions, less formal, sometimes even oral (though written is always recommended for evidence).
Sri Lankan Context: Often considered a "tenancy" agreement. These typically do not require notarial attestation and no stamp duty is payable. They generally provide less security of tenure, and a monthly tenancy can be terminated with one month's notice, unless the property is covered by the Rent Act.
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Lease Agreement:
Duration: Fixed-term, usually for a longer period (e.g., 6 months, 1 year, 2 years, or even much longer for commercial leases).
7 Stability: Provides more stability.
8 Terms (including rent) are fixed for the duration of the agreement and cannot be changed unless both parties agree.Termination: Cannot be terminated early without a breach of contract by one party, or mutual agreement, leading to potential penalties for early termination.
Formality: More formal, legally robust document.
Sri Lankan Context: For fixed-term leases, especially those establishing an "interest in land" for periods exceeding one month, they must be in writing, signed in the presence of a Notary Public and two witnesses.
9 They must also be duly stamped and registered at the relevant Land Registry to confer legal priority and stronger rights to the lessee. The Recovery of Possession of Premises Given on Lease Act No. 11 of 2023 now provides a more streamlined eviction process for notarially attested leases.
Laws Governing Rental Agreements and Leases
In Sri Lanka, the legal framework is complex and depends heavily on the type of property, its construction date, and the rent amount.
The Rent Act (No. 7 of 1972) and its amendments: This Act primarily protects tenants in certain categories of residential premises. If a property falls under the Rent Act, the law often favors the tenant, restricting rent increases and limiting grounds for eviction for the landlord.
Exemptions: Many newer properties, high-value properties, and those let after certain dates (e.g., residential premises occupied by the owner on Jan 1, 1980, and let thereafter; residential premises constructed after Jan 1, 1980, and let thereafter) are exempt from the Rent Act. This means for these properties, the terms of the agreement are largely governed by the common law (Roman-Dutch law) and contract law, giving more freedom to landlords and tenants to agree on terms.
Prevention of Frauds Ordinance: This ordinance mandates that any agreement creating an interest in land (other than a lease at will or for less than one month) must be in writing, signed before a Notary Public and two witnesses to be legally enforceable.
Recovery of Possession of Premises Given on Lease Act No. 11 of 2023: This relatively new act aims to streamline the eviction process for landlords, particularly for properties leased under notarially attested agreements. It requires proper documentation and notice from the landlord to use its expedited court process.
Essential Clauses to Include in Any Rental Agreement or Lease:
Regardless of whether it's a short-term tenancy or a long-term lease, a comprehensive written agreement is paramount to avoid disputes.
Identification of Parties: Full legal names and addresses of both the Landlord (Lessor) and Tenant(s) (Lessee).
10 Property Description: Full address of the rental property, including unit number if applicable, and clear details of what areas are included (e.g., parking space, common areas in an apartment complex).
Term of Tenancy/Lease:
Start date and end date of the agreement.
For fixed-term leases, state the exact duration.
Specify if it automatically renews (e.g., month-to-month after initial lease term) or if a new agreement is required.
Lock-in period: If any, state the period during which neither party can terminate without penalty.
Rent Amount and Payment Terms:
The exact monthly/periodical rent amount.
Due date for rent payments.
Accepted payment methods (bank transfer, cheque, etc.).
Penalties for late payments (e.g., late fees).
Any grace period for payments.
Security Deposit:
The exact amount of the security deposit.
Purpose of the deposit (e.g., cover damages beyond normal wear and tear, unpaid rent).
Conditions for its return (e.g., property left clean, no damages).
11 Timeline for return after the tenant vacates.
Sri Lanka Context: The Rent Act limits security deposits to a maximum of three months' rent for properties it covers. For properties not covered by the Rent Act, there is generally more freedom to negotiate this.
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Maintenance and Repairs:
Clearly define responsibilities: What repairs are the landlord's responsibility (e.g., structural, major appliances provided)? What maintenance is the tenant's responsibility (e.g., minor repairs, cleaning, maintaining garden)?
Procedure for reporting repairs.
What happens if tenant-caused damage occurs.
Utilities and Other Charges:
Specify which utilities (electricity, water, gas, internet) are included in the rent and which are the tenant's responsibility.
Any other charges (e.g., maintenance fees, municipal rates, common area charges for apartments).
Use of Premises:
Residential use only (prohibition of commercial activity).
Rules regarding noise, disturbances.
Policies on pets (allowed/not allowed, pet fees, breed restrictions).
13 Smoking policy (allowed/not allowed indoors/outdoors).
Restrictions on alterations or modifications to the property.
Subletting policy: Whether it's allowed and under what conditions.
Occupancy limits (how many people can reside in the property).
Landlord's Right of Entry:
Specify conditions under which the landlord can enter the property (e.g., for repairs, inspections, showing to prospective tenants/buyers).
14 Required notice period (e.g., 24 or 48 hours notice, except in emergencies).
Termination Clause:
Conditions under which either party can terminate the agreement (e.g., breach of contract, mutual agreement).
Required notice period for termination.
Provisions for early termination by the tenant and associated penalties.
15 Procedure for vacating the premises and handing over keys.
Inventory List: Attach a detailed inventory of all items provided with the property (especially for furnished rentals), noting their condition at move-in.
16 This is crucial for security deposit deductions.Governing Law and Dispute Resolution: State that the agreement is governed by the laws of the country. Include a clause on how disputes will be resolved (e.g., negotiation, mediation, court action).
Important Considerations for Landlords and Tenants:
Get it in Writing: Always have a written agreement, even for short-term tenancies. It provides clear evidence of the agreed-upon terms and protects both parties.
Seek Legal Advice: For complex leases, high-value properties, or if you are unsure about legal compliance, it's highly advisable to consult a lawyer specializing in property law. This is particularly important for landlords to ensure their agreements are enforceable under local law.
Understand the Rent Act: Determine if your property falls under the Rent Act. This significantly impacts your rights and obligations as both a landlord and a tenant.
Certificate of Conformity (COC): Tenants should request a copy of the COC to ensure the premises can be lawfully occupied.
Registration of Leases: For long-term leases, ensure the agreement is notarially attested, stamped, and registered at the Land Registry for maximum legal protection.
Keep Records: Both parties should keep a copy of the signed agreement, payment receipts, maintenance requests, and all relevant correspondence.
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By understanding these aspects, both landlords and tenants can enter into rental agreements and leases with confidence and clarity, minimizing potential disputes and ensuring a smooth tenancy.