Drafting Lease and License Agreement

A leave and license agreement is a legal instrument that allows one party to provide another party access to their immovable assets, such as property, for a specified length of time without changing the asset’s ownership. In India, landlords and renters frequently utilise leave and license agreements, particularly in the rental housing sector. However, in the commercial real estate sector, leasing agreements are more frequent.

A lease provides an exclusive stake in the property in the tenant’s favour, but an agreement of leave and license does not.

The leave and license agreement is governed by the “Indian Easement Act, 1882.” This act gives the tenant the right to make use of the premises for a certain purpose, as per the terms of the agreement. The legal possession, however, remains with the property owner.

1. Leave And License Agreement

The Licensor (Property Owner) and the Licensee enter into a contract known as an Agreement of Leave and License (a person taking property on rent). It primarily comprises terms and conditions about the start and finish dates, total length, deposit, monthly remuneration, lock-in time, use of premises, termination notice period, list of furnishings and fixtures, and maintenance of the same, among other things.

The main essential clauses to the leave and license agreement are as follows:

1. Party clause: A provision specifying the agreement’s parties is required. The party name clause is a crucial provision that includes the names of the licensor and licensee, as well as their addresses and evidence of identification. The licensee’s business must be named, and the commercial agreement must include the licensee’s Company Identification Number (CIN), if applicable
2. Definition clause: This clause explains the meaning of the particular and varied terms/words mentioned/used in the agreement to provide clarity. This sentence should be self-explanatory. For example, the term “premise” will be interpreted the same across the agreement wherever it is used.
3. Premise: The location used/occupied for residential or commercial purposes must be described in full, including the complete address, all sides and borders, and the purpose, such as in a commercial agreement, what sort of business will be conducted. The area that should be used appropriately should be explicitly stated in the agreement.
4. Rights transfer: This phrase is crucial because it states that the lessor (a person who leases) is surrendering the lessee’s (a person who rents land or property) rights to his property for a certain length of time. This clause outlines the agreement’s principal objective and is also required under the agreement.
5. Security deposit and rent: The clauses for security and rent amount are described in this clause. Rent is the monetary payment agreed upon by both parties, and in some commercial agreements, in addition to the base rent, one party is required to split a percentage of the profit with the other. The security deposit is to be given to the lessor as security in the event of a dispute or default arising out of the lease agreement. This should preferably be paid once both parties have signed the agreement and refunded after the term.
6. Term of the Contract: The term is usually set at 11 months, and this must be stated explicitly. In a business arrangement, however, the period may be extended and mutually agreed upon.
7. Duties and obligations of both parties: The landlord’s responsibility is to provide adequate amenities, such as water and electricity, to the tenant on the premises for the duration of the lease. This paragraph in the Agreement of Leave and License should explicitly state both parties’ responsibilities and obligations about this Agreement. The terms are legally binding on both parties. The tenant’s responsibility is to take excellent care of the property, preserve peace, law and order in the area, and pay the rent on time, among other things.
8. Termination: This clause specifies how the agreement will be ended, as well as how notices will be issued, and it can be terminated by both or any of the parties. Both parties have the option of extending or renewing the agreement after or before the termination.
9. Dispute settlement: In the case of a disagreement arising out of the agreement or during the term, this provision is the most significant. This section specifies the methods for resolving disputes. The most frequent methods of conflict settlement include arbitration, conciliation, and going to court.

2. Characteristics Of Leave And License Agreement

The Leave and Licence agreement, which is a common choice among landlords, contains the following features:

• There is no interest transfer from the owner to the renter.
• There are no property rights generated.
• Participating persons can contractually set the amount payable as a license fee, deposit, and other expenses.
• When it comes to tenant cancellation and eviction, the owner has more discretion and privileges.

3. Deed Of Cancellation Of Leave and License Agreement Format

According to the Agreement of Leave and License, if the payments are not paid, the license might be revoked, according to the terms and circumstances of the leave and license agreements. By providing a notification to the licensee, the licensor retains the ability to cancel the agreement that binds the licensee and the licensor. The Sub-Registrar must authorise the leave and license agreement after it is signed. There are four options for cancelling or terminating it :

• Automatic Termination: Automatic termination refers to an agreement that is automatically ended after the leave and license time.
• Either party must give the following notice: Every leave and license agreement has a typical termination clause. When the agreement is cancelled before the leave and license time expires, the cancellation procedure is used.
• Newly registered rent agreement: If a new lease and licensing agreement for the same property is signed during the same lease period, the previous lease and license agreement is cancelled or cancelled.

Payment of stamp duty and registration fees to the government, submission of the documents to the Registrar’s office, and receipt of the completed deed from the Sub-Registrar office by the approval of the final stamp by the Sub-Registrar are all part of the cancellation deed registration procedure.

4.How To Make Leave And License Agreement Legally Valid

Many licensors make the mistake of believing that signing a leave and license agreement is required to protect them legally. Others require a notary to sign the deal. This is insufficient in terms of legality. Permission and licensing agreements must be registered before they may be used (Section 17 of the Registration Act, 1908). The Sub-Office registrars must record the agreement. Two witnesses’ signatures are necessary for registering the agreement.

The licensor is responsible for registering the agreement of leave and license with the government; failure to register a leave and license agreement can result in a monetary punishment or jail, as well as the risk of the premises being sued. The registration cost for the leave and license agreement is Rs. 1000.

In short, after you’ve finished composing the deed’s content, print it on stamp paper of the appropriate denomination. The licensor and licensee must then sign in the appropriate areas, along with two (2) witnesses’ signatures.

5.Differences Between Lease And Leave And License Agreement 

The difference between a leave and license agreement and a lease is that the latter creates an interest in the property, whilst the former does not. Furthermore, unlike a Leave and License arrangement, leases are transferrable.

A “Licence” is a privilege conferred by one person to another person or a group of persons, according to Indian law. Such rights generally apply to activities taken in or on immovable property that would otherwise be considered illegal. Personal rights are granted by a license, and these rights are not transferable.

A Licensor is a person who provides the Licence, whereas a Licensee is the one who pays for the Licence and benefits from it. Licenses should not be confused with leases or rental agreements since they differ in many ways.

To sum up, the following are how the two differ from each other. 

• Unlike a leave and license arrangement, a lease provides an interest in the property.
• A lease gives a renter exclusive possession of the property, but a leave and license arrangement merely allows them to occupy it.
• Leases are not revocable, whereas licenses are.
• The grantor does not set the terms of leases, but the grantor does determine the terms of licenses.
• Leases can be transferred, while licenses cannot.
• Unlike licenses, a lease creates inheritable rights.

6.The Advantages Of Lease And License Agreement 

At this point, we’d want to emphasise that this deed benefits the owner rather than the renter. Don’t get us wrong: this deed does not disclose or expose the renter; it just favours the landlord by a set margin.

Let’s have a look at a few of the benefits:

• The Leave and Licence agreement makes eviction and persuading the renter to leave the residence in general much easier.
• Such agreements usually imply permission to occupy another’s property rather than rights.
• There are no property rights generated in the lessee’s favour.
• There is no interest transfer.
• Because this is not a tenancy, the Rent Control Acts are not applicable. The Indian Contract Act governs this situation.

Renting in Today’s Real Estate Market

The real estate market has been complicated and challenging, with parties engaged frequently placing their whole lives’ savings on the line. With so many intricate deeds floating around, the layperson has always been hesitant to become involved in the legal side of things.

The real estate market has changed dramatically during the previous few years. Indian citizens are growing more conscious of the laws that regulate trades and deals. This led to a change in the way deeds and agreements were written.

Renting is one of the most popular real estate functions that even ordinary people like you and me engage in. Renting dwellings and, by extension, rental agreements have become a requirement in metro cities and other densely populated areas. While everyone believes that a rental agreement is required, the majority of people are unaware of the consequences of not having one.

A rental deed, as you may know, is a document prepared and signed by the property owner and the renter who intends to occupy it. The paper goes into great detail on the monthly rent and other fees. This agreement essentially transfers the right to use a property from its owner to a renter for a set length of time and for a set sum of money.

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