During a recent apartment visit in Bengaluru, a senior company executive looking for a flat in the upscale Defence Colony area of Indiranagar decided almost instantly that he wanted to rent the property. With the monthly rent set at about ₹2.5 lakh and concerns that other prospective tenants might also show interest, the executive transferred an amount equivalent to one month’s rent as token money to secure the flat, brokers involved in the transaction said.
Real estate brokers note that such token payments are becoming increasingly common in Bengaluru’s highly competitive rental market, where limited supply means homes are often finalised within hours of listing. Tenants are paying this advance to ensure landlords hold the property for them until the rental agreement is signed.
What is token money, and why is it paid?
Vittal B R, an advocate at the Karnataka High Court, said that there is no formal legal concept of ‘token money’ in rental transactions. Instead, it is a practice that has evolved in the market when tenants wish to reserve a property before signing a lease agreement due to the challenge of less supply chasing demand.
“In many cases, a landlord may have already shown the property to several prospective tenants. To ensure the property is not rented to someone else, a tenant may pay a token advance requesting the landlord to hold the house until the agreed move-in date,” he said.
A Bengaluru-based broker, who did not wish to be named, said token payments have become more common after the pandemic due to surging rental demand. “Earlier, before COVID-19, token money was not very common. Today, the demand is so strong that a property available in the morning can be finalised by evening,” the broker said.
The amount can vary widely depending on the property and urgency of the move. In some cases, tenants pay ₹10,000– ₹20,000 to temporarily block the property. For homes available for immediate possession, the token amount may equal one month’s rent and is typically applied to the security deposit once the rental agreement is executed, brokers pointed out.
What safeguards should tenants keep in mind while paying token money
Legal experts say tenants should take certain precautions before transferring token money, as there are no specific laws governing such payments.
According to Advocate Akash Bantia, even the Model Tenancy Act does not contain provisions regulating token advances. The Model Tenancy Act, 2021, is a central framework adopted in 2021 to regularise India’s rental laws, regulating residential and commercial property, protecting both landlord and tenant interests, and ensuring the use of written agreements.
As a result, advocates say the arrangement largely depends on mutual understanding between the landlord and tenant.
Bantia advises tenants to ensure that the payment is accompanied by a written undertaking clearly stating the amount paid, the purpose of the payment, and whether the amount is refundable if the deal does not proceed. Both parties should ideally sign the letter.
Legal experts also recommend making the payment by bank transfer or other digital methods rather than cash, to ensure a transaction record. Tenants should clearly mention in the payment description that the amount is being transferred as a token advance for renting a specific property.
Vittal said that tenants should also follow up with a written confirmation, such as an email or a WhatsApp message, acknowledging the payment, to create a record of the agreement. These communications can serve as supporting evidence if a dispute arises and may even be used to issue a legal notice if necessary.
When is token money refundable?
Whether the token amount is refundable typically depends on the understanding between the landlord and tenant.
In many cases, if the landlord backs out of the arrangement, the token amount is returned to the tenant. However, if the tenant withdraws after reserving the property, the amount may sometimes be treated as non-refundable because the landlord may have declined other prospective tenants during that period, Vittal said.
Real estate brokers say refunds are still common in practice. “In about 90% of cases, the token money is returned if the deal falls through,” they said. However, there can be exceptions, particularly if the landlord has already incurred expenses, such as painting or minor repairs, based on the tenant’s request. In such situations, the cost of the work may be deducted from the remaining amount before the refund.
“In cases where disagreements occur, digital records, payment receipts, and written acknowledgements can help tenants establish proof of the arrangement and may be used when issuing a legal notice. Ideally, both parties should sign a simple written undertaking outlining the terms of the token payment, including conditions for refund or forfeiture, to minimise the risk of disputes later,” Vittal said.
