A settlement agreement is a legally binding arrangement made by a tenant and a landlord, through which they acknowledge the conclusion of the rental agreement executed between them. It also states whether their erstwhile rental agreement’s terms have been complied with.

The settlement of lease basically includes the acts of the tenant vacating the rented premises and the landlord returning the security deposit, whether lump sum or partial. And in case the parties have any dispute(s) related to leasing or the terms and conditions they had entered into earlier, the settlement agreement interprets the same and also about how to solve the dispute(s).
When Do You Need A Settlement Agreement?

An agreement for settlement or surrender of lease should be executed when the agreement is terminated mid way. If the tenant completes the lease tenure as mentioned in the rent agreement and then vacates the rented premises, then there is no need of a separate agreement.

When the tenant vacates the house, the landlord is expected to return the security deposit. However, the landlord can deduct some amount of money from the deposit if he has a valid reason and it should also have been mentioned in the rental agreement/lease agreement made at the time of renting the property. Some of the reasons owing to which the landlord can deduct a part of the security deposit include-

The important clauses to be covered in a settlement agreement includes-

    That future claims shall not be allowed on the same subject matter of an existing dispute
    That all prior agreements, understandings and negotiations shall be overridden
    That admissions made during the negotiations earlier will not be valid any more
    The total amount of deduction from the Security deposit along with the reasons for deduction
    The amount of security deposit being returned and the number of instalments through which it will be returned, if the parties agree for the amount being refunded in instalments

    If the tenant has any arrears of rent for a month or more.
    If the tenant has not cleared of the utility bills or owes money to the landlord for any other reason.
    If there are any damages to the property which are caused because of the tenant (other than regular wear and tear).
    If the tenant has not kept the property clean or well-maintained which may end up in the landlord spending some extra money to get the property cleaned
    If the tenant has not given back the property keys or if things like taps, geyser, fans, etc, which were provided by the owner, but would have been missing during the tenant’s stay.

Name : PARAG SHARMA

Law Firm Name : SHARMA ASSOCIATES

Country : India

City : Ahmedabad

State : GUJARAT

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