What is the Difference Between a Leave and License and Rent Agreement?
If you've been in the process of renting a house, either as a tenant or a landlord, you've likely encountered terms like "Leave and License Agreement" and "Rent Agreement." While they may seem similar, it's essential to understand that they are distinct concepts with notable differences. To understand the key difference and application in between these two things, let’s first clearly understand the difference between both of these
What is a Rent Agreement?
In India, a rent agreement is a legal document that describes the terms and circumstances of renting a property between
a landlord (lessor) and a tenant (lessee). It is also known as a Rental Contract or a Rental Agreement.
The Rent Agreement typically includes information such as the landlord's and tenant's names and addresses,
the lease term, the rent amount and payment schedule, the security deposit, maintenance and repair responsibilities,
rules and regulations for property use, and other important clauses. In India, the Rent Agreement must be written
and signed by both parties. It is advised that the Rent Agreement be registered with the local authority in order for
it to be legally binding and enforceable. The Rent Agreement must be registered by paying a small stamp duty and registration
cost if it is for more than 11 months in tenure. A well-drafted Rent Agreement can help prevent arguments and misunderstandings
between the landlord and tenant by outlining both sides' rights and duties.
What Exactly is a Leave And License Agreement?
A "Leave and License" agreement allows the Licensee permission to occupy the Licensor's property. As a result,
rather than a tenancy, permission to occupy is granted on a leave and licence basis. A contract like this makes
eviction easier and gives the landlord more power overall.
The distinction between a Rent and a leave and licence arrangement is that the former develops an interest
in the property, whereas the latter does not. A Lease, unlike a Leave and License arrangement, can
also be transferred.
A "License" is a right granted by one person to another or a group of individuals under Indian law.
These rights often apply to acts that appear to be illegal on or in relation to immovable property.
A licence grants non-transferable personal rights.
The licensor is the person who supplies the licence, whereas the licensee is the one who purchases the
licence and exercises its rights. Leases and rental agreements are not the same as licences because each
is distinct in its own way.
According to Section 52 of the Indian Easements Act [1], "where one person grants to another,
or to a specific number of other persons, a right to do, or continue to do, something in or upon
the grantor's immovable property that would be unlawful in the absence of such a right, and such
a right does not amount to an easement or an interest in the property, the right is called a
licence.”
The Maximum Period of Leave and License Agreement:
The maximum period for a leave and License agreement in India is typically 11 months.
This 11-month period is standard for most agreements, whether they are for residential or
commercial purposes. However, it is not essential that leave and license agreement has to be
renewed for only 11 months; the tenure can be decided by the lessor and the lessee.
Difference Between Rent Agreement and Leave and Licence Agreement
On the surface, lease and lisence agreement and rent agreement appear to be the same thing, yet there is a significant difference between them.
Interest and Transferability:
Leave and License Agreement: A leave and license arrangement grants permission to use the property but doesn't create an interest in the property itself. It's a permission-based agreement that doesn't confer ownership or proprietary rights to the licensee. Additionally, leave and license agreements typically can't be transferred to another party.
Rent Agreement Similarly, a rent agreement doesn't confer ownership but allows temporary use of the property. Unlike leave and license, some leases might create a leasehold interest in the property, especially longer-term commercial leases. Leases can often be transferred, subject to the terms of the agreement and local laws.
Term:
Leave and License Agreement: Can be signed for varying durations, including shorter periods like 11 months.
Rent Agreement: Can be signed for different durations, not strictly limited to monthly terms.
Assets/Property Type:
Leave and License Agreement: Typically done for immovable properties.
Rent Agreement: Commonly done for movable properties, lands, and immovable properties as well.
Maintenance Responsibility:
Leave and License Agreement: Maintenance responsibilities can vary based on the terms of the agreement.
Rent Agreement: Maintenance responsibilities usually fall on the tenant or renter, who is responsible for the upkeep of the property. In leasing, particularly in commercial leasing, the lessee may bear the maintenance burden, shifting the responsibility to the industry or company that has invested in the lease.
Flexibility of Terms:
Lease & License Agreement: Terms and conditions are predetermined and mutually accepted in the leasing contract.
Rent Agreement: Renting agreements can change terms and conditions at any time, at the landlord's discretion.
Why is a Leave and License Agreement Better for Homeowners than a Regular Rent Agreement?
Squatters are any property owner's greatest fear. It’s quite common to hear accounts of renters unlawfully occupying large houses since owning real estate is out of reach for a large part of the population. If the squatter refuses to vacate your property, it usually leads to a lengthy legal struggle, or an out-of-court settlement that may not be in your best interests. But don't worry; there’s a procedure in place to rescind the Leave and license Agreement.
You have two choices: sign a normal rent agreement or create a leave-and-license agreement. In either situation, as a property owner, you would want to rent out your property with complete confidence that ownership will remain "vacant and unencumbered" at the end of the contract term.
In a Leave And License Agreement, the owner licenses the property to the tenant, and the tenant vacates the premises at the conclusion of the license period. The tenant has no right to claim ownership of the property. The Rent Control Act does not apply to this arrangement.
But in Rental Agreement, Tenants may claim ownership of property after staying for at least ten years and filing a claim under the Rent Control Act. You have a few choices for evicting the renter and raising the rent.
Choose an 11-month Leave and License agreement to make your agreement even more secure. After 11 months, extend the contract for another 11 months. Limit your agreement to 11 months. A renter should not understay or overstay his or her lease because the lessor will have to pay for remodelling, painting, cleaning, repairs, and broker fees again. The recommended tenancy period is 5 years, though with renewed agreements, tenants can stay as long as both parties agree.
Conclusion
In conclusion, understanding the difference between Leave and License Agreements and Rent Agreements is crucial for a smooth rental experience in India. Each type of agreement has its own unique features and implications, with Leave and License Agreements offering more flexibility for landlords and Rent Agreements providing additional tenant protections under the Rent Control Act.
If these seem too much to manage or you seek professional property management and rental services, Agarwal Estates stands out as an exceptional choice. Their comprehensive solutions, including guaranteed rent, utility payment handling, property inspections, and more, offer unparalleled ease and convenience for property holders. Tenants also benefit from having a dedicated company cater to their needs, ensuring a seamless and enjoyable tenancy experience. With Agarwal Estates as your reliable partner, navigating rental agreements becomes stress-free, as they prioritise protecting your interests and ensuring a harmonious rental journey.
