Rental Transactions – What is the paperwork procedure? How does it work?

A few years back, a rule was brought that if you are a non-sri lankan passport holder and you are renting out property, be it a house, land or apartment, you are liable to pay 15% tax of the total period you plan on staying as stated in the lease agreement. However, the good news is that this is being reviewed and chances are that this rule would be null and void in a few months, if not, it’s a sorry scene for all the foreigners.

Where there is a will, there is always a way and I don’t know whether this was something that was the brainchild of a lawyer or a property owner. In most cases, we have noticed that a mutual agreement is done and the papers are not sent for registration which in this instance, we are made to understand that neither party can seek recourse in court and that the money credited to the property owner’s account is naturally unofficial as the transaction is not registered in order to avert the tax payment.

Of course, the above is also done to save 1% stamp duty which is generally split into two. So, even if the rule is changed, there will be some naughty property owners lagging around just to save a minute fee. Lawyers on the other hand need to be well versed in explaining the consequences of such acts and keeping the clients well informed. I noticed that there are lawyers who are not aware of tax laws when it comes to foreigners and they are doing lease agreements and so on which is a shame.

If you are renting any property, it’s always best to go with an agent / agency, it gives you that extra bit of security and reliability. Once you have liked the place, ask the relevant agent what the next steps are how to sign up, do not confirm on the spot. Let your agent handle that for you and the best ones in town actually know how to seal the deal without too much hassle.

This can be very tricky if you are looking to have it your way, some of the clauses in the agreement are inserted purely as security layers and have absolutely zero probability of happening for real. This applies to both the client and the property owner and the best advice I can give you is – DO NOT BANK ON THE CLAUSES IN THE AGREEMENT BUT INSTEAD BUILD THAT TRUST AND RELATIONSHIP OF RESPECT AND INTEGRITY where both the client and the property owner feel that they should be honourable and not lose their integrity.

Die hard businessmen may laugh their hearts out what is mentioned above as it’s always advisable to have everything clearly stated in black and white and hence what I have just mentioned above might be contradicting but let me tell you why – As far as I know, according to the Sri Lankan law, as a property owner, you cannot kick your tenant out!!! That is the bottom line. From a tenant’s perspective, yes – you can stay for as long as you like and create as many problems as you like. This does make the property owners slightly vulnerable and hence it does not matter how the zero-probability clauses span out which is why I stress on the importance of the lines in capital letters above – please read them again.

This is quite simple, let me give it a shot in showing it baby steps:

Step 01 – A confirmation e-mail from the client or the client’s agent/ agency.

Step 02 – Vetting the draft of the agreement

Step 03- Finalizing the final draft of the agreement if the deal is still on from both sides. (Yes, the deal can fall through when in step 02. I have observed this many times)

Step 04 – Arranging to meet up and sign the agreements.

Standard duration period of the above is generally between 4 – 7 working days while some deals happen on the day and some in a day or two as well. 

IMPORTANT TIPS

While the above steps take place, it’s important for someone to take the leadership and to ensure that the deal happens. Often, it’s the property owner and that’s the best person to get the job done. The effective property owner will agree that this is the way to go.

Punctuality plays a big role, try to make it 15 minutes before the actual time and be on time. It makes a world of a difference and the impression it creates goes a long way.

Good luck and happy renting!!!

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