A Leave and License is an agreement temporarily made by a licensor and a licensee which allows the licensee to use and occupy the licensor’s immovable property full or part of the same, for the purpose of carrying on business activity or residential use and pay a fixed amount of rent or as per their mutual understanding decided and accepted.
Here, there is another confusion assumed by people that Leave & License agreement and the Rental or Lease agreement are to be the same. But that’s not the case both are different from each other. In leave and license the term License means limited rights/set of rights given by one party to another to perform certain actions in or upon the immovable property, such rights are personal and non-transferable and in the Rental or lease agreement the rights are being transferred for the enjoyment of the immovable property for a certain period of time by the transferor (lessor) to transferee (lessee) for a consideration (rent).
All these agreements are governed by the Indian Easement Act, 1882. In the case of leave and lease, the owner leaves the place with various facilities and allows the licensee to use it for a specific period of time. Once the leave is over and the owner returns, the entire set of facilities, which are given for use shall be left behind when the licensee leaves the premises.
In this, the owner gives mere permission to the licensee (the holder of a license) without transfer of interest of property by the owner. The main purpose behind making such an agreement is to make the awkward situations like if there is a breach, or the necessary obligations were not performed accordingly. Like when the licensee does not pay the rent on a monthly basis or as mentioned the licensor can go to any court of law for the required relief. The licensor can get the relief within a stipulated period by the said rules and regulation provided by law to the licensor. The licensee also has benefited by unusual payment of rent after this agreement is made. So by making such an agreement there is a generation of obligations on both the parties to the agreement .
The main essential clauses to the leave and license agreement are as follows:
A clause identifying the parties to the agreement is mandatory. Party name clause is an important clause where the names of the licensor and licensee with their address & identity proof are mentioned in the clause. There is a need to ensure that the business of the licensee to be identified and mention the Company Identification Number (CIN), if any in the commercial agreement.
2. The definitions clause:
This clause gives meaning to the specific and various terms/words mentioned /used in the agreement for getting clarity about it in the agreement. This clause is a self-explanatory clause. Like “Premise”, means wherever the word premise is mentioned it will be understood the same throughout the agreement.
3. Premise/the place of use:
The place used/occupied for residence or commercial use shall be mentioned in detail with full address describing all sides and borders of the place and also mention the purpose like in commercial agreement which type of business is going to be carried out. It should be clearly mentioned in the agreement about the space which should be used accordingly.
4. Transfer of rights:
This clause is very important as it clearly expresses that the lessor is transferring the rights of his property to the lessee for a period of time. This clause contains the main purpose of this agreement and is also imperative to the agreement.
5. Rent and Security deposit:
This clause tells us about the security amount and rent amount clause. Rent is the consideration which is mutually decided by both parties and sometimes in commercial agreement along with the base rent the party has to share the profit percentage with the other party.
The security deposit is to be paid in the context of any dispute/default arising out of the agreement by the lessee to the lessor as security. This should be ideally paid after the agreement is signed by both parties and returned at the end of the tenure.
6. Tenure of the Agreement:
The tenure is mostly fixed for 11 months and it is to be mentioned clearly. However, in commercial agreement, the term may be longer and mutually as decided.
7. Duties and obligations of both parties:
The duties and obligations of both parties related to this Agreement shall be mentioned clearly in this clause. Both parties are legally bound to follow the terms. The duty of the tenant is to take care of the property very well, maintain peace, law and order in the place, pay the rent on time etc. The duty of the landlord is to provide proper facilities like water and electricity to the tenant in the premises for the period of the tenure.
The way of termination is mentioned in this clause and also about how the notices shall be served and it can be either terminated by both or either of the parties. After or before the termination both parties can mutually decide for the extension/renewal of the agreement.
9. Dispute resolution:
This clause is the most important in the event of any dispute arising out of the agreement or during the tenure. This clause provides the means of dispute resolutions. Arbitration, Conciliation and way to court are the most common ways to dispute resolution.
The lessee has no right to carry on the possession of the property as the term expires, so he has to vacate the property. If any dispute arises during the term then also the lessee cannot deny returning the possession. In such a situation the lessor has the right to institute a suit for ejection against the lessee for not vacating the property.
The rent control law currently favors the tenant which prevents the landlords from overcharging the tenants. Moreover, the right to ownership of property gets transferred to the tenant in case of a lease which makes it difficult for him to vacate the tenant. Therefore, landlords do not prefer to enter into agreements that are over 11 months.
Under section 55 of the Maharashtra Rent Control Act, 1999, it is compulsory that all agreements bearing 12 months or more of the tenure should be in writing and registered and pay the required stamp duty. The penalty for failure to register is imprisonment up to 3 months, or a fine up to Rs. 5000 or both.
Every state has a Rent Control Act, which lays down the various grounds under which the lessor is legally allowed to evict a lessee. Before this the lessor needs to acquire details about the said Act. In the event of eviction the lessee has the right to challenge the notice and seek help from the Rent Controller of appropriate jurisdiction and stay the notice.
As per the Act, the tenant may take the premises on rent, bearing an amount fixed as rent for commercial or residential use. However, legally the owner or the landlord cannot take back the premises as long as the rent is being paid. As it is a temporary agreement no major alterations in the property is allowed and also not use the premises for any other activities originally not intended or mentioned in the agreement.
In that case, leave and license agreement was executed by the parties on 3.4.2001. The agreement was lodged for registration by the respondent on 31.12.2002, obviously beyond the period of eight months prescribed under the Registration Act, 1908. In paragraphs-11 to 14, it was observed that registration of the Agreement is compulsory and it’s the responsibility of the licensor to get it registered on time or he may be liable for punishment.
The leave and license is an agreement which gives both the parties a relief from any dispute arising out of or in connection with the agreement of living on rent peacefully. As migration has doubled in India, most people prefer to live on a rent basis.
India is a country wherein around 11 million units lie vacant and unused which include properties of residents as well as Non-resident Indians. Landlords do not find it viable to maintain it and choose to let it deteriorate. The profit through availing rent in India being very low in the world and these are low in comparison to the other risk-free market investments. Government of India recently has made the process of registration easier through the process of online registration or e-registration without visiting the Sub Registrar’s office which is going to be very useful.
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