House Rent Law in Nepal: Civil Code, Tax & Tenant Rights (2026)

Most rental disputes in Nepal could be avoided with a single written page — a Civil Code-compliant rental deed signed by both parties, dated, and witnessed. Without it, the relationship is governed by oral agreements that fail at the first disagreement and by statutory defaults that neither side reads until the dispute lands at the ward office.

Under the Muluki Civil Code 2074, Chapter 9 (Sections 383 to 405) governs hire and lease — covering rental contract requirements, the 5-year maximum residential lease, the 35-day notice rule for termination by either side, and the obligations of landlord and tenant. The federal Income Tax Act 2058 read with the post-2074 federalism reform places rental tax collection with local ward offices at rates that typically run 10 to 17 percent depending on the municipality.

This guide covers both ends — the contract law and the tax position — at the level a landlord pricing a property, a tenant signing a deed, or a corporate occupier negotiating an office lease in Nepal needs to operate.

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Our team has handled rental matters across both ends of the relationship — drafting Civil Code-compliant rental deeds for landlords, reviewing commercial office leases for corporate tenants, defending eviction proceedings at the District Court, and resolving rental tax disputes at the ward level. The most frequent friction point is not the law but the absence of a written deed where one was required — pricing above NPR 20,000 a month without a Section 386 deed is the source of most landlord-tenant disputes that reach our office. As a full-service law firm in Nepal, our property and corporate-real-estate teams write deeds that pass both Civil Code requirements and the local ward's tax-registration check.

Legal Framework — Muluki Civil Code 2074 Chapter 9

Nepal's rental relationship is governed primarily by Chapter 9 of the Muluki Civil Code 2074, which consolidates the older patchwork of rental statutes into a single chapter on hire and lease. The chapter spans Sections 383 to 405 and covers rental contract requirements, lease duration, rights and obligations of landlord and tenant, termination, and dispute resolution.

Beyond the Civil Code, three other instruments interact with the rental relationship: the Income Tax Act 2058 (rental income tax and Section 88 TDS), the Local Government Operation Act 2074 (rental tax authority devolved to ward offices), and the Stamp Duty Act for higher-value or longer-term lease deeds.

The full Civil Code text and supplementary statutes are published at lawcommission.gov.np. The federal income-tax interface for rental income lives at ird.gov.np.

Key takeaway: The Civil Code Chapter 9 is the substantive backbone — Sections 385 (5-year cap), 386 (written deed), and 392 (tax liability) carry most of the operational weight. Read those three together when drafting or reviewing any rental agreement.

Written Rental Agreement — Section 386 Threshold

The single most important threshold in Nepali rental law is NPR 20,000 monthly rent. At or below this level, an oral agreement is legally enforceable; above this level, Section 386 makes a written agreement mandatory. The threshold catches the bulk of urban residential leases and almost all commercial leases — meaning written deeds are the practical default in Kathmandu, Lalitpur, Bhaktapur, Pokhara, and the larger municipal centres.

A Section 386-compliant rental deed must capture certain core elements. Missing any of these in writing exposes the deed to arguments at the District Court that the parties never agreed on that term.

• Property identification — full street address, kitta number, ward, municipality, floor and unit if part of a building, and a brief description of what is included (parking, garden, terrace, basement).
• Parties' details — full names, citizenship numbers, permanent addresses, contact mobile numbers, and (for company tenants) the company's PAN, OCR registration number, and authorised signatory.
• Rent amount and payment schedule — monthly rent figure in NPR, payment date each month, mode of payment (bank transfer, cheque, cash with receipt), and currency clause where any party is foreign-linked.
• Lease term and renewal — start date, end date (within the 5-year ceiling for residential), notice period for termination, and the renewal mechanism if any.
• Utilities and shared costs — electricity, water, internet, garbage collection, common-area maintenance — explicit allocation between landlord and tenant.
• Security deposit — amount, conditions for return at the end of the tenancy, and the timeline for refund. The Civil Code does not prescribe a fixed maximum but typical practice is one to three months' rent.
• Subletting and use — whether the tenant can sublet, the agreed purpose of use (residential, commercial, mixed), and any restrictions on alteration.
• Maintenance and repair — landlord's obligation for major structural repair, tenant's obligation for ordinary upkeep and damages caused by tenant's use.
• Termination and eviction — the Section 386-prescribed grounds plus any specific contractual triggers (extended absence, bankruptcy, breach of community rules).
• Witnesses and execution — at least two witnesses with citizenship copies, dated signatures of both parties, and clear identification of any guarantor.

For deeds covering longer lease periods or higher-value commercial premises, registration of the deed at the District Land Revenue Office and payment of stamp duty become relevant. Short residential deeds at typical urban rents do not require formal registration, but voluntary registration adds evidentiary weight if disputes later arise.

Key takeaway: Treat NPR 20,000 monthly rent as the bright line. Above it, the deed must be written with the elements listed above; below it, write a deed anyway because the cost of preparing one is trivial compared to the cost of arguing about oral terms at the District Court.

Lease Duration and Renewal — Section 385

Section 385 caps residential lease at 5 years. Beyond that ceiling, the agreement converts into a different legal instrument and may require registration as a long-term lease deed at the Land Revenue Office, with corresponding stamp-duty exposure. The 5-year cap is a hard ceiling, not a soft suggestion — courts have construed it strictly in favour of the cap.

Within the 5-year window, parties can agree any specific term. Common patterns include 1-year deeds with annual renewal (most flexible), 2 to 3 year deeds with mid-term review (typical for serviced apartments and corporate housing), and the full 5-year term (used for offices and longer-tenancy residential where stability is valued by both sides).

Renewal at the end of the 5-year term requires a fresh deed, not a roll-over. Practitioner advice: document the renewal as a new agreement reflecting current rent (which may have moved since the original deed), updated witness details, and a clean execution date. A roll-over note on the old deed is enforceable in principle but invites argument at the next renewal cycle.

For commercial leases — offices, retail premises, warehouses — the framework is the same Civil Code Chapter 9 plus contractual sophistication. Operating-cost pass-through, escalation clauses, sub-lease rights, and exit options are all permitted within the 5-year window where the parties agree in writing.

Key takeaway: Five years is the absolute residential ceiling. Plan the renewal cycle around fresh-deed dates, not implicit extensions. For long-stay corporate occupiers, the planning question is the chain of consecutive 5-year deeds rather than a single longer instrument.

The 35-Day Notice Rule for Termination

The Civil Code prescribes a 35-day written notice period for either landlord or tenant to terminate the rental relationship. The rule applies symmetrically — a tenant leaving must give the landlord 35 days' notice; a landlord seeking to evict must give the tenant 35 days' notice. The notice must be in writing and dated, and the 35-day count runs from the date the notice is received by the other party.

Where the tenant refuses to vacate after a valid 35-day eviction notice, the landlord cannot self-help — the path is through the District Court for an eviction order. Self-help eviction (changing locks, cutting utilities, removing belongings) exposes the landlord to civil and criminal liability under both the Civil Code and the Criminal Code 2074.

For tenants facing eviction, the available defences include challenging the notice's substantive ground (was rent actually unpaid?), challenging the landlord's bona fide need (is the family-use claim genuine?), and asserting protections under any contractual extension of the notice period beyond the statutory 35 days.

Key takeaway: 35 days is symmetric and non-waivable downward — the Civil Code sets the floor. Parties can contractually extend the notice period upward (often done for corporate offices) but cannot agree to less than 35 days for residential premises.

Rental Tax — Local Ward Office Authority

The post-2017 federalism reform devolved rental-tax collection from the Inland Revenue Department to local government level. Today, rental tax is paid at the ward office covering the property's location, at rates set by each local government within statutory bounds.

The Income Tax Act 2058 still applies to rental income at the federal level — rental income is included in the landlord's annual income-tax return alongside salary, business income, and other heads. The local ward tax and the federal income tax are distinct charges; the ward tax is not a credit against the federal tax. Consult our pillar on income tax rate in Nepal for the federal slab structure.

Key takeaway: Rental tax is a local-government charge. File at the ward where the property is located; expect 10 to 17 percent of gross rent. Add the federal income-tax position on top of the ward tax — the two coexist.

TDS on Rent — Section 88 Income Tax Act

The TDS on rent rule turns on whether the tenant is a natural person or a registered entity (company, partnership, INGO). The distinction is operational, not philosophical — it changes who deposits the rental tax and where.

• Both parties are natural persons — landlord and tenant are individuals, no TDS applies. The landlord pays the local ward rental tax directly to the ward office. The tenant pays the full agreed rent to the landlord without any deduction.
• Tenant is a company, partnership, or registered entity — the tenant deducts 10 percent TDS on the gross rent under Section 88 of the Income Tax Act 2058 and deposits it to the Inland Revenue Department. The landlord receives the rent net of the TDS. The TDS deposited by the tenant is creditable against the landlord's federal income-tax liability for the year.
• INGO and donor-funded tenants — treated as registered entities for TDS purposes; same 10 percent deduction rule applies.
• Embassy and diplomatic tenants — diplomatic immunity and treaty provisions may displace ordinary TDS rules; specific treatment depends on the treaty and the lease structure.
• Tenant fails to deduct TDS — the IRD can recover the missed TDS amount from the tenant directly, plus interest and penalty under the Income Tax Act. The tenant cannot pass the recovery back to the landlord by withholding subsequent rent.
• Landlord declares TDS as credit — landlord includes the rental income in the annual return at gross level and claims the TDS deducted by the tenant as a credit against the year's tax liability.

For the broader TDS framework that applies across rent, salary, contractor payments, and other heads, see our pillar on TDS in Nepal.

Key takeaway: If your tenant is a company, you receive 90 percent of the rent in cash — the other 10 percent reaches the IRD as TDS and credits against your annual tax bill. Plan cash flow around the net amount, not the gross rent figure.

Common Mistakes Landlords and Tenants Make

From our property-and-corporate desk in Kathmandu, these are the recurring errors that produce ward-office disputes, eviction friction, and tax recoveries.

• Oral agreement above NPR 20,000 — Section 386 mandates a written deed above this threshold. Oral arrangements at higher rents are unenforceable in their key terms; whoever wants to prove rent, deposit, or duration without a deed loses on the documents.
• No witnesses on the deed — a deed without two witnesses with citizenship details has weakened evidentiary value. Always sign in front of two unrelated witnesses.
• Skipping the 35-day notice — landlords who change locks or cut utilities without serving the 35-day notice expose themselves to civil and criminal liability. Tenants who walk out without notice owe rent for the notice period.
• Treating ward tax as optional — the local ward office tracks rental properties through municipal property records. Non-payment of rental tax surfaces during property sale, loan refinancing, or tax-clearance applications.
• Corporate tenant skipping TDS — a company tenant that pays gross rent without deducting 10 percent TDS faces IRD recovery plus interest and penalty. The deduction is the tenant's obligation, not optional courtesy.
• Landlord refusing TDS credit — some landlords push back on TDS claiming it reduces their cash receipt. Section 88 places the obligation on the tenant; the landlord's recourse is the credit in the annual return, not a refusal of the deduction.
• Confusing security deposit with last-month rent — the deposit is a refundable security against damage, not advance rent. Document refund conditions clearly to avoid disputes at exit.
• Subletting without permission — Section 387 contents include subletting permission. A tenant who sublets without the landlord's written consent gives the landlord eviction grounds.
• Renewal by silent extension — at the 5-year cap, silent extension is not legally effective. Document the renewal as a fresh deed; otherwise the relationship reverts to month-to-month default with weakened protections on both sides.
• Mixed-use tax confusion — properties used partly for residence and partly for shop or office may attract different ward rates on each portion. Confirm with the specific ward office before relying on the residential rate alone.

For deed drafting, eviction defence, and tax-position work on rental properties, our team handles the integrated stack as part of legal-document drafting in Nepal. For corporate-occupier office leases, see our broader corporate practice including company registration in Nepal.

Key takeaway: The most expensive rental mistake is the missing written deed — it converts every subsequent disagreement into a contested factual matter at the ward or court. Spend an hour drafting a Civil Code-compliant deed; it saves months of disputes later.

Related Questions About House Rent Law in Nepal

These are the questions we are asked most often during rental consultations — short answers below, with links to deeper guides where relevant.

Can a Landlord Increase Rent Mid-Lease in Nepal?

Only if the rental deed expressly permits a rent increase mechanism — for example, an annual escalation clause tied to inflation, or a fixed percentage step-up at defined dates. Without such a clause, the agreed rent stays fixed for the term of the deed. At renewal time, the landlord can propose a new rent figure in the fresh deed, and the tenant can accept, negotiate, or decline (with the 35-day notice).

Is the Security Deposit Refundable in Nepal?

Yes, fully refundable subject to deductions for actual damage caused by the tenant or unpaid rent at exit. The Civil Code does not prescribe a maximum deposit, but the conventional figure is one to three months' rent. Document the refund conditions and timeline in the deed; the typical practice is refund within 7 to 30 days of the tenant returning the keys and the property in agreed condition.

Can a Tenant Sublet a Rented Property in Nepal?

Only with the landlord's written permission as recorded in the rental deed under Section 387. Subletting without permission gives the landlord grounds for eviction under the 35-day notice mechanism. Even where the deed permits subletting in principle, specific subleases may require the landlord's consent on a transaction-by-transaction basis depending on how the clause is drafted.

Conclusion

House rent law in Nepal in 2026 is a settled framework — Civil Code 2074 Chapter 9 sits at the substantive centre, the federalism-era ward offices collect rental tax at locally varying rates, and the Income Tax Act Section 88 distinguishes individual-tenant from corporate-tenant TDS treatment. The 5-year residential lease cap, the NPR 20,000 written-deed threshold, and the 35-day notice rule are the three operational provisions that govern most disputes our office sees.

The most common cause of rental friction is not the law but the absence of a Section 386-compliant written deed where one was required. A clean deed with full property identification, parties' details, rent and payment terms, security deposit treatment, utilities allocation, and the 35-day termination clause prevents the bulk of landlord-tenant disputes that otherwise reach the District Court. The ward tax and the corporate-tenant TDS are administrative pieces around the deed — important, but secondary to having the deed itself.

For end-to-end help with rental deed drafting, eviction defence, ward-office tax disputes, corporate office lease review, and the broader property-and-tax compliance stack that surrounds rental relationships, speak with our lawyers today → — Alpine Law Associates is a full-service law firm in Kathmandu with a dedicated property and corporate-real-estate team handling individual landlords, corporate tenants, and NRN diaspora investors across all seven provinces.

Last reviewed: April 2026