Rent arrears recovery: demanding and recovering unpaid rent

What it is

Rent arrears are rent that has fallen due and has not been paid. Rent arrears recovery is the process of getting that money: a formal written demand, a date to pay, and, if the tenant still does not pay, a case in court.

The tenant's duty to pay is in Section 108(l) of the Transfer of Property Act, 1882: unless the agreement says otherwise, a tenant must pay or offer the rent at the proper time and place. How much, when and with what late-payment interest is usually set by your rent agreement.

There are two kinds of case that recover arrears:

• a recovery suit: a civil case for the money alone, when you are content for the tenant to stay or the tenant has already left;
• an eviction suit that also claims the arrears, when you want the property back as well. See eviction notice and suit.

When it applies

You need this when:

• the tenant has missed one or more months and has not paid after a reminder;
• the tenant pays part of the rent each month and the balance keeps growing;
• the tenant has left owing rent, and the deposit does not cover it;
• the tenant has stopped paying the rent increase the agreement provides for.

Your state's rent law. Where a state rent control Act covers the property, it may control the rent that can be charged, how the demand must be made, which court hears the case, and when unpaid rent is a ground for eviction. Most state rent Acts are not yet in our statute library. The example we can give is Gujarat, under the Bombay Rents, Hotel and Lodging House Rates Control Act, 1947 as in force there:

• A suit for possession on the ground of unpaid rent cannot be filed until one month after a written demand of the rent has been served on the tenant, in the manner of Section 106 of the Transfer of Property Act (Section 12(2)).
• Where the rent is monthly, the amount is not disputed, at least six months are in arrears and the tenant does not pay within that month, the court may order eviction (Section 12(3)(a)). In other cases, the tenant can avoid eviction by paying the rent due into court on the first day of hearing, or by the date the court fixes, and keeping it up (Section 12(3)(b)).
• Suits between landlord and tenant for rent or possession go to the court that Section 28 names: the Court of Small Causes in Ahmedabad and in areas that have one, and elsewhere the Civil Judge for the area where the premises are.

Other states differ. An advocate will tell you what applies to yours.

The steps and the timeline

1. The advocate checks the papers (first few days). The rent agreement, your month-by-month record of rent due and paid, the deposit, and any messages in which the tenant admits the debt. The advocate also checks whether a state rent law applies, and works out which months are still within time.

2. The time limit. Under Article 52 of the Limitation Act's schedule, a suit for arrears of rent must be filed within three years from when the arrears became due. Each month counts separately, so the oldest months drop out one by one. A suit filed late is dismissed even if the tenant does not raise the point (Section 3, Limitation Act, 1963). If the tenant admitted the debt in a signed writing before the time ran out, a fresh period runs from the date of that writing (Section 18). A message or letter from the tenant that says "I will clear the dues" can matter a great deal.

3. The demand notice (week one or two). The advocate sends a notice by registered post or speed post with acknowledgement due. It:

• sets out the rent, month by month, that is unpaid, and the total;
• adds the late-payment interest your agreement allows;
• gives a date to pay, and says what you will do if the tenant does not;
• where you want eviction too, is drafted to meet your state's rent law, so that it also serves as the demand that law requires.

4. The waiting period. Many tenants pay or agree a plan at this stage. If they offer instalments, put the plan in writing and have them sign it. That writing also restarts the time limit.

5. If unpaid, the suit (after the notice period). A civil suit begins when the plaint, your written claim, is presented to the court (Section 26, Code of Civil Procedure). Civil courts hear every civil suit unless a law bars it (Section 9).

• A suit for money alone is filed where the tenant lives, works or carries on business, or where the cause of action arose (Section 20).
• A suit that also asks for the property back is filed where the property is (Section 16), or in the court your state's rent law names.

In the decree, the court can award interest it considers reasonable on the amount due, from the date of the suit until the decree, and further interest after it (Section 34). The court may also refer the parties to mediation, conciliation or a Lok Adalat if a settlement looks possible (Section 89).

6. The tenant's chance to pay. Where a lease has ended by forfeiture for non-payment and you sue to evict, the court may relieve the tenant if, at the hearing, they pay the arrears with interest and your full costs (Section 114, Transfer of Property Act). State rent laws often give similar chances, as Gujarat's Section 12(3)(b) does. If that happens, you get your money and the tenancy continues.

7. Execution. If the tenant does not pay after the decree, the court enforces it on your application, for example by attaching and selling the tenant's property (Section 51).

Commercial premises. If the premises are used only for trade or commerce and the claim is above the value the Commercial Courts Act, 2015 sets, the dispute may be a commercial one (Section 2), heard by a commercial court. Unless urgent relief is needed, such a suit can be filed only after pre-institution mediation (Section 12A).

A bounced rent cheque. If the tenant paid by a cheque that came back unpaid, you may also have a case under Section 138 of the Negotiable Instruments Act, 1881, with a 30-day deadline for the notice. See cheque bounced: what to do.

Documents needed

• The rent agreement, renewals, and any letter increasing the rent.
• A month-by-month table of rent due, paid and unpaid.
• Bank statements and receipts showing what the tenant paid.
• Proof of the security deposit, and how much of it you hold.
• Every message or letter in which the tenant mentions or admits the dues.
• Proof you are the owner or landlord.
• The tenant's full name and every address you have.
• Copies of notices sent, with postal receipts and tracking.

Typical cost

• The advocate's fee for the notice and, if needed, the suit. The advocate quotes their own fee after seeing your papers, before you pay anything. It varies with the city, the court and the amount. eMunshi does not set it.
• Court fees, if a suit is filed. These are set by each state's court-fee law and usually depend on the amount claimed. They are shown when the suit is filed.

What the advocate does

• Checks your agreement, your rent record and which months are still within time.
• Tells you whether a state rent law applies and what it requires.
• Drafts and sends the demand notice, with proof of service.
• Advises on part-payment offers and puts any plan in writing.
• Files the recovery or eviction suit, appears at the hearings and argues interest and costs.
• Takes the decree through execution if the tenant still does not pay.

The self-serve document that comes before it

Clear terms prevent most arrears disputes. A rent agreement that fixes the rent, the due date, the late-payment interest, the deposit and what it may be used for costs ₹599 with eMunshi, e-stamped and e-signed. See making a rent agreement. For a tenant who will not pay or leave, start with tenant not paying, or won't leave. If you want advice first, a 30-minute call with an independent advocate from our panel starts at ₹999.