- What is a leave and license agreement?
- Leave and license agreement: The legal definition
- Characteristics of a leave and license agreement
- Leave and license agreement format
- Registration of agreement: Making a leave and licence agreement legally valid
- The advantages of a leave and license agreement
The leave and license agreement governs the relationship between the licensor (landlord) and the licensee (tenant).
It is an agreement or contract where the licensor gives the licensee permission to use a property for a specified time. The leave and license contract is usually valid for an 11-month duration, with an option to renew it for another 11 months.
If there is any dispute, for example, over how often rent can be increased, it is the document that can put the matter to rest. However, often there isn’t enough care taken by tenants to ensure they are getting a fair deal. As with any other agreement, it creates certain obligations, both upon you and the licensor.
In this article, you can learn what these obligations are, why such an agreement is different from a lease and why it needs to be registered. There is also a format you have to follow when drawing up a leave and license agreement, as well as ensuring that it is legally valid. Read on to find out all about all this and more.
What is a leave and license agreement?
A leave and license agreement is a legal document that allows one party (called the licensor) to allow another party (called the licensee) to use their immovable asset or assets (property). This agreement is set for a specific time period. There is to be no change in the ownership of the asset. In India, the leave and license agreement is usually used between a landlord and their tenants. It is used primarily in the house rental segment. When dealing with commercial realty, lease agreements are usually used more often.
What are the differences between a lease and a leave and license agreement?
According to leave and license agreements, the landlord has the right to enter and use the property. The licensee cannot dispute this. However, with a lease agreement, the landlord has given the entire possession of his property to the lessee (tenant) for a particular period of time for a fixed amount of money. Here are some points to keep in mind:
- A lease creates an interest in the property, unlike a leave and license agreement.
- A lease gives the lessee or tenant exclusive possession of the property for that specifically stated time period. On the contrary, a leave and license agreement only gives the tenant the right to occupy the landlord’s property.
- Leave and license are revocable. A lease is not revocable.
- Leases are transferable while leave and license are not transferable.
- With a lease, inheritable rights are created. With leave and license agreements, inheritable rights are not created.
Leave and license agreement: The legal definition
The definition of the leave and license agreement can be found in the Indian Easements Act, 1882. Section 52 of the Indian Easements Act states:
Where one person grants to another, or to a definite number of other persons, a right to do, or continue to do, in or upon the immovable property of the grantor, something which would, in the absence of such right, be unlawful and such right does not amount to an easement or an interest in the property, the right is called a license.
According to the Supreme Court (SC), if a leave and license agreement permits only the usage of a property in a specific way or under specific terms, while it is in the possession and control of the owner, it will be a license. This means that no interest in the property is transferred to the tenant.
So the owner of the property still maintains legal possession of his or her property. The Supreme Court states, “The legal possession, thereof, continues to be with the owner of the property but the licensee is permitted to make use of the premises for a particular purpose. But for this permission, his occupation would be unlawful. It does not create in his favor any estate or interest in the property.’
As there is no easement right granted, the landlord of the property can revoke the permission granted to the tenant at any time. The landlord can choose to let out his property for short periods by working out a leave and license rental agreement. This benefits tenants as well as they will not have to give extended notice periods when they want to vacate a property.
Characteristics of a leave and license agreement
The Leave And Licence Agreement agreement creates various rights and obligations on you and the property owner. Without a contract to decide what happens when one of these rights is breached or obligations are not performed, problems will surely ensue. If you’re not familiar with the procedure, you should pay a lawyer to take you through it. A range of disputes could arise from a badly drawn-out leave and license agreement. The contract should address all the key issues and state what the consequences will be in case of a dispute.
Leave and license agreements have similar elements, but what’s important is how it has been worded. So don’t just check to see it’s all there, read carefully to check its meaning. Here’s what you need to look out for.
Always look for the names mentioned in the agreement. The names of the licensor and the licensee should, of course, be mentioned. Ensure that the person presenting himself as the owner genuinely is the owner. Also, ensure that the agreement doesn’t create a relationship with any other person or entity.
In agreements of immovable property, the address is always described in a detailed manner. The full address of the property, a description of the house and the surrounding areas are a must.
3. Term of agreement
The term is the period of the license. Often, it is for 11 months, but this can be increased to five years as well. There isn’t any restriction on the time. There may also be a mention of a lock-in period. For example, an agreement may penalize the tenant for terminating the agreement within a short period of time (usually six months) by withholding the entire or a portion of the deposit. Lock-in periods aren’t enforceable in court, but if you sign an agreement that stipulates a lock-in period, you are bound to abide by it.
The agreement should clearly mention the condition the apartment should be in. This is important because the landlord then has to maintain and repair the home as and when necessary. The rental agreement should mention a clause for regular maintenance of the property. Usually, tenants take care of minor repairs.
Tenants can’t just make any changes to the property. There need to be guidelines as to what can and can’t be done. Usually, structural changes are not allowed. The contract could also specify how often the apartment needs to be painted. However, this would only be with contracts with a term longer than 11 months. If the property owner renews the contract every 11 months, this is usually discussed sporadically.
6. Mode of payment
Some landlords prefer post-dated cheques of a few months, if not the duration of the lease. The agreement should mention the amount to be paid and when it needs to be paid. Payments are usually made by cheque so that transactions are recorded and transparent. In case of a dispute, the owner cannot allege non-payment or late payment. The agreement should also mention the penalty payable in case of delays in the payment of rent.
7. Security deposit
There’s always a deposit to be paid. Usually, the deposit is two to six months’ rent. This money is security in the hands of the landlord. It ensures that the tenant doesn’t just leave without serving the notice period or cause damage to the property. Some owners may wish to deduct a certain sum when you want to move out. The proportion and under what circumstances the money can be deducted should be in the agreement.
8. Notice period
Both parties must serve a notice period. If the landlord wants to terminate the contract or you wish to do so, a notice period, usually of one month, needs to be served. Some agreements, however, may specify a longer time period.
9. Escalation clause
There’s usually a clause in the agreement that the rate will be revised upwards annually. A 5%-15% increase is normal, but this depends on the prevailing market rate in the place the property is located.
Leave and license agreement format
*Disclaimer – This legal form and document is for reference only. Any document that you enter into, should be in consultation with an Advocate or a Solicitor. The Government will not be responsible for any claim arising out of the use of the following document.
LEAVE AND LICENCE AGREEMENT
(To be executed while licencing premises)
This Agreement made at ——- this—– day of ——– between ———— (hereinafter referred to as ‘licensor’) of one part and ——— (hereinafter referred to as ‘licensee’) of the other part;
Whereas the licensor is seized and possessed of or otherwise entitled to the premises at ____________________________(Full Address) (referred hereto as the ‘licensed premises’)
Whereas the licensor has requested the licensee to allow him to use and occupy the licensed premises as licensee and the licensor has agreed to allow the licensee to use the premises as bare licensee and to occupy the same without any right, title, interest or claim in the licensed premises or to any right or interest of the licensor in the licensed premises.
And whereas the licensor has sufficient interest, right or title in the licensed premises and to permit and allow the licensee to use and occupy the licensed premises as bare licensee in his personal capacity for use by him of the licensed premises for residential purposes.
And whereas the licensee is desirous of and represent that, the use and occupation of the licensed premises by him, shall be in his personal right and shall be under a mere permission as licensee by the licensor and shall not amount to claim any right.
NOW IT IS HEREBY AGREED BY AND BETWEEN THE PARTIES AS LICENSOR AND LICENSEE HERETO AS FOLLOWS :
- This leave and license shall commence from the date of the Agreement and shall remain effective for a period _____months/ years from this date.
- The licensor and licensee agree that the licensee shall use and occupy the premises under the permission of the licensor and shall not have or claim any tenancy or any other right, title, interest in the premises and shall always be construed as permissive user as license only.
- The licensee shall deposit Rs. ——– and keep deposited the said amount as security deposit /money advance / money to be advanced for the due observance and performance of this Agreement with and to the licensor.
- The licensee shall pay to the licensor the license fee of Rs. _____(in words rupees________________) per month/per year, during the aforesaid period of Leave and License Agreement.
- The licensee during the subsistence of this present agreement shall pay all outgoing expenses, and charges including for repairs, electricity and water charges for electric and water consumption.
- The licensee shall cease to use and occupy the licensed premises and hand over licensed premises without demur, protest or objection to the licensor on expiry of the above period of _______month/years, from the date of executing this present Agreement for Leave and License.
- The licensee hereby agree and covenants with and to the licensor that the licensee under no circumstances whatsoever, transfer or assign in any manner, whatsoever benefit of this present to any other person and accepts and acknowledges that licensor has allowed licensee to use and occupy the licensed premises only and in no manner has granted any right interest in the licensed premises or any right to transfer or heritable right in respect of the licensed premises.
- The licensee shall use and occupy the licensed premises for purpose of —-_________only and in no manner cause nuisance, damage, disturbance, annoyance, inconvenience or interference to the occupiers of neighbouring premises.
- The licensee shall not use the licensed premises for any illegal or immoral purpose or carry out any activity or do anything, which constitute breach of any law.
- The licensee agrees and undertakes to the licensor to indemnify and to keep indemnified of any obligations, covenants, and conditions thereof.
All notices, communications shall be sent on following addresses –
- The licensee on termination of the agreement or in case of breach of the conditions hereinabove shall hand over peaceful possession of the licensed premises to the licensor, in normal wear and tear condition.
IN WITNESS WHEREOF THE PARTIES HAVE SUBSCRIBED, SIGNED AND HEREUNTO SET THEIR HANDS THE DAY AND YEAR FIRST HEREINABOVE WRITTEN.
Registration of agreement: Making a leave and licence agreement legally valid
In order to make a leave and license agreement legally valid, it is necessary to register it under the Registration Act, 1908.
- Once the leave and license agreement has been drafted, either the tenant or the property owner can take an appointment at the registrar’s or sub-registrar’s office.
- The owner and the licensee, along with two witnesses should be present.
- Photographs of all persons present and their signatures are recorded in the government database as well as attached to the agreement.
- The authorities examine that all the identity and address proofs are correct and the affixed photographs make it easier to trace any person who has signed.
- The local police station is informed of the leave and license and a copy is given to them.
- After the document is registered, stamp duty will also need to be paid.
Registration is creating a record of the agreement in the government database. In case of a dispute, only a registered agreement is admissible as evidence in court. Its authenticity is presumed unless proved otherwise, whereas a notarised agreement is inadmissible because it is very easy for either the owner or licensee to say that they have not signed it or claim the agreement is fake. This is not possible in the case of a registered agreement as the photos of the people signing are also put and recorded on the agreement and in the government database.
Registration protects both parties. It creates a record of the deposit paid. If the owner does not refund the deposit it would be difficult for the licensee to recover the money without the registered agreement. Similarly, the owner is protected by having the agreement registered as the licensee cannot exaggerate his rights. At the end of the term, if the licensee does not vacate the premises the owner can initiate legal proceedings and have the premises vacated.
The advantages of a leave and license agreement
A registered leave and license agreement protects both the landlord and the tenant of the property. The agreement also slightly favors the owner above the tenant, which is why it is preferred in rental agreements over a lease agreement. Here are some advantages of the leave and license agreement:
- Clearly sets the terms and conditions that both the owner and the tenant need to abide by.
- It makes eviction of the tenant easier as terms are set clearly in the agreement.
- These agreements give tenants permission to occupy the property but do not give them any rights to the property which protects the landlord’s asset.
- There are no property rights stated that favor the tenant and a transfer of interest occurs.
- The agreement is a record of the deposit paid which the tenant can use as proof in case the landlord refuses to refund the money.