Contract basics for landlords and tenants
In this guide we will:-
- Define what a contract is.
- Understand how the law affects a contract.
- Understand the implication of having a contract.
- Understand how the contracts are to be performed.
- Understand what happens in case of a breach of contract.
The purpose of this guide is to inform you about the basics of contract law with a special emphasis on tenancy contracts. If you are wondering why you need a rent contract then please read the importance of a rent contract.
Table of contents
- What is a contract
- Enforeceablity by law
- The performance of contracts
- Breach of contracts
When it comes to discussing legal topics one of the most difficult aspects is to give a formal definition of the topic being discussed. One would want a definition to cover as much detail about the subject as possible and yet it must be short and to the point. Therefore with this guide we start with a very simple definition of contracts. Then we examine this definition in the light of things that we learn as we progress through with a special emphasis on contracts formed between landlord and the tenant.
What is a contract?
“A contract is an agreement enforceable by law”. This definition is quite simple and gives us two points of discussion right at the start.
An agreement starts with an offer. An offer to do something or to abstain from doing something. The person making such an offer is said to be the promisor and the person to whom such an offer is being made is called the promisee. An offer is therefore a proposal from a promisor to a promisee to do or to refrain from doing some act.
Now when the promisee accepts such a proposal then a promise is formed. Once a promise has been made there is a consideration or a regard for that promise.
For example: If you are a landlord and a tenant makes a promise to pay you $5 each month in exchange for living in your property and you accept that promise. Then the act of paying $5 by the tenant is the consideration for his/her promise. And the act of letting the tenant live peacefully in your property is the consideration for your promise.
Coming back to the discussion on agreements, every promise and every set of promises, forming the consideration for each other is an agreement. The promises may have classifications like say a reciprocal promise where one party will fulfill a part of promise when the other party fulfills a part of theirs. The example of landlord and the tenant that we discussed above is a reciprocal promise. The landlord will let the tenant live in his house as long as the tenant pays rent to him. Every month both the landlord and the tenant fulfill a part of their consideration to each other.
The offer and the acceptance of the offer must be communicated. But the knowledge of the terms of the offer is essential for the acceptance. For example consider an advertisement by a landlord of his property:-
To let a two bedroom set in civil lines,gurgaon. For more details contact:0000000000
A tenant can not claim an acceptance of the offer unless he first calls the landlord of the number given and gains information about the details of the offer. After knowing the details of the property to be rented the tenant may make an offer to the landlord which the landlord may accept or reject. Similarly when you go to a grocery store to buy vegetables the items on display are not an offer to sell rather you have to make an offer to buy them to a shopkeeper.
An offer may be communicated to the whole world. But once more the knowledge of the offer is necessary if you are to accept it.
Similarly the acceptance of the offer must be communicated before the agreement is formed. Now it is important to note that the acceptance must be communicated to the right person. Taking the example above if A has advertised his property and you call him asking for details about the same and then communicate the acceptance to, say Sir James Paul McCartney (?), then the acceptance is invalid. With such an acceptance no agreement can be formed. You must communicate the acceptance of the offer to the landlord for it to be valid.
There may be a mode of communication. The landlord may accept only the proposals that are sent to him on his email. In these cases it is necessary to follow the mode that is set by the other party.
When is communication complete?
The communication of the acceptance is complete when it comes into the knowledge of the proposer. The communication of the proposal is complete when it comes into the knowledge of the person who has the power to accept it. The proposal may be revoked at any time before the communication of it’s acceptance is complete. The acceptance may be revoked at any time the communication of the acceptance is complete,against the acceptor.
Let’s take the example of the advertisement above and apply the communication scenarios that we discussed. Once the tenant has got all the details of the house by talking with his landlord on the phone:
- He may make a proposal.
- The proposal may be retracted any time before it reaches the landlord.
- The landlord may accept the proposal and communicate the acceptance.
- The landlord may retract the acceptance before it reaches the proposer.
One thing to keep in mind is that the acceptance must be absolute an without condition. If there are conditions in an acceptance then it is not an acceptance but a counter proposal.
A contract is enforceable by law
We defined a contract as “An agreement enforceable by law”. We already discussed what constitutes an agreement. Now we will talk about the second part of the definition of a valid contract. It’s enforce-ability by law. For an agreement to form a contract it must be enforceable by law. For example consider this scenario:-
“For a sum of $5000 A hires B to kidnap C. B kidnaps C. A refuses to pay the money agreed upon. Can B go to a court of law and sue A for payment of the sum?”
Not unless kidnapping is legal in that country. What A and B have in this case is an agreement. But this agreement can not be enforced in the court of law and hence B can not sue a for the recovery of payment. The courts usually give a free hand to the parties of the contract to form the agreements as long as those agreements are within the scope of the law.
This means that while a court will enforce a contract which may favour one party over the other it will not enforce any contract which is against the law of the land. But before we discuss the enforce-ability of contracts any further let’s fist talk about void and voidable contracts. :
Void and voidable contracts
A contract is voidable if the consent to form a contract is caused by fraud or misrepresentation or undue influence at the option of the party whose consent was so caused. This means that the party on whom the misrepresentation or fraud on undue influence was performed is free to choose whether to enforce the contract or not. For example consider this scenario:-
“A agrees to let the house to B. A and B enter into a contract which stipulates that the cost of all the small repairs will be borne by B during the time of his stay. The landlord assures him that there are no defects in the house at present. After signing the contract the tenant finds out that the pipes on the roof are leaking. He asks landlord to have the pipes repaired. The landlord refuses and instead asks the tenant to get the pipes repaired. The tenant also refuses.”
Now this is a very tricky scenario. If this case goes to the court the lawyer for the landlord will stipulate that under the contract the tenant is bound to make any repairs to the house. The tenant will contest that the pipes were broken prior to his occupancy and that the landlord had in fact misrepresented the state of the property.
If the court finds that the property was in fact misrepresented then it can make the contract voidable at the option of the tenant. That is the tenant can choose to either end the tenancy and not do the repairs or he may insist to stay and have the pipes repaired by the landlord.
The due diligence
The illustration above gives us an opportunity to expand a bit upon due diligence. When parties are signing a contract it is assumed that before giving a consent they perform their due diligence with regards to the object of the promise.
In the above example it will be assumed that the tenant before agreeing to rent the landlords house the tenant satisfied himself that there are no defects. And that he had no means of knowing that the pipes were leaking before he actually started using them. And on using them he found that the landlord had not informed him of defective pipes and has also refused to repair them.
If on the other hand the defect would have been something more easily discover able like a crack in the wall of the dining room that the tenant could have seen just by walking into the house then it will not be considered a misrepresentation by the landlord and the repair of the wall will have to be done by the tenant.
The damage to the property is one of the major causes of contention among the landlords and the tenants. And in some countries there is a practice of “Entry condition report”. An entry condition report contains a record of every detail of the property which serves as an evidence in case a dispute arises between a landlord and a tenant.
Secondly the consent has to be given without any duress or outside influence. If it is found that the consent is force then again the contract becomes voidable at the option of the party who gives such a consent.
Void contracts are ones which will not be enforced under any circumstance. Where as in voidable contracts the party is given an opportunity to either enforce the contract or make it void, in void contracts there is no such choice. A contract which is void can not be enforced under any circumstance.
An agreement is void if:-
- If considerations and objects are unlawful in part.
- An agreement without consideration is void unless it is in writing.
- Agreement in restraint of marriage or trade or legal proceedings are void.
- Agreements are void for uncertainty.
- Agreements by wager are void.
- Agreement contingent of impossible events are void.
A contract with a minor is void. But in some countries a minor may enter into residential tenancy contracts where they are bound to pay rent to the landlord in exchange for living in their homes. Generally the landlords in these countries ask for a guarantor who is to pay the rent if the minor is unable to do so.
Any person who gains an advantage when a contract becomes void is bound to restore that advantage from the person he got it.
The sources of law
We discussed void and voidable contracts in the section above. Voidable contracts are the ones which are enforced at the option of one party in the case of say fraud or coercion. Void contracts are not enforceable at all. Void and voidable contracts give us an idea to what kind of contracts a court of law honors. It is all very well to say that “A contract is an agreement enforceable by law.” But the scope of law is very large. So then the question arises should a person drafting a contract have knowledge of entire law?
Not really. Law is huge. I would say it is too big for anyone to master all of it. Most lawyers specialize in a particular field of law. When parties enter into a contract they don’t have to consult the entire law of the land. They just have to know about the statutes which will govern their contract.
A rent contract for instance between a landlord and the tenant has the follow the statues laid out by the rent control (or other such act in your country) act. This means that a lawyer who has sufficient knowledge of the act governing the rent and the basics of contract (like which contracts are void, which are voidable and which are illegal) is very much competent to draft a contract for you.
Why you should not draft a contract yourself
Wait so does that mean if I know about these things I can draft a contract for myself?
Well things are not so simple. Statutes are just one of the sources of law. Sure you can read the relevant ones and have a good grasp over what rights and duties a statue gives but you won’t be (as) aware about it’s application. Practising lawyers know about the various interpretations that are derived from the act. They know about the common points of contest between parties. They can help you by their experience of extensive study to avoid those disputes all together. So it is always best to have a lawyer draft a contract for you.
If you are a landlord and looking for a rent contract try contacting a few agents in your area. They will know good lawyers and help you draft a contract according to your needs.
The performance of contracts
Up until now we have discussed what forms a contract. Now we will discuss what is the effect of the contract.
A contract creates rights and duties for the parties that have entered into it. A party in a contract is obliged to perform the duty and in exchange it earns a right. A tenant earns a right to live in the house for the duration agreed upon in the rent contract as long as the tenant fulfills the duties of paying the rent and other duties that are defined in the contract. The key takeaway here is that once you have signed a contract you are obligated to perform the promise which you agreed to.
By whom the contractual promise is to be performed?
That depends upon the nature of the contract and the intention of the parties making it. If in the contract the intention of the parties was that the promise contained in it should be performed by the promisor then the promisor must perform that promise. Otherwise a competent person may be employed to perform it on his behalf.
For ex: If A is hired to draw a painting for B then by the nature of the contract A must be the one who completes his promise.
Where as if in a rent agreement it is agreed that all major repairs will be done by the landlord this does not mean that the landlord himself will repair the building but rather that he will employ a competent person and pay for that cost.
Breach of contract
When a contract has been broken, the party who suffers by such a breach is entitled to receive from the party who has broken the contract compensation for loss or damaged caused. The compensation is given only for the direct loss or damage sustained by the reason of the breach. Thus an obligation to perform the promise in a contract is guaranteed by the punishment for breaking it.
A party who rightfully rescinds a contract is entitled to any compensation which he has sustained from non fulfillment of contract.
For example:- In a rent contract it is agreed by A and B that both the parties will give a notice of 2 months before leaving the premises. A leaves 1 month after giving the notice. B rescinds the tenancy agreement. A can be made to pay the rent of second month.
- On January 26, 2020