LEAVE & LICENSE AGREEMENT
Every day, many people leave their cities in search of food, clothes, and shelter, we know finding a shelter is a difficult task and a different experience if your family members are moving along. The first thing which comes to our mind is finding a good rental house for temporary needs. We simply hire a good broker who takes care of it, again, good thought but as an individual, some things you should take into consideration, and most importantly it is your leave and license agreement.
To brief you, a Leave and License agreement is a temporary document made between a licensor and a licensee which allows the licensee to use the licensor’s 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 as per their mutual understanding decided and accepted. The main purpose of this agreement is to avoid breach of contract or to take action against the licensee like when rent is paid on a monthly basis, then the licensor can go to a court for the same. In a leave and license agreement, the tenant cannot claim any ownership of the property as this agreement doesn’t come under the rent control act of India. In this agreement, the owner licenses the property to the “tenant” and leaves the property. For example, if you rent a short-term rent at Airbnb or a yulu bike, you can use it, but you can’t claim it’s yours and you own it.
Following are the essential clauses for the Leave and License agreement
- The party clause: A clause identifying the parties is necessary to mention. The name of the landlord and tenant is mandatory, along with their addresses and identity proofs. If any commercial agreement, ensure the business name is identified and the company identification number (CIN) is mentioned.
- The definitions clause: This clause gives clarification about various terms and conditions used in the agreement for clarification.
- The premise Clause: The place of the rental property should be mentioned in detail, along with space, price, built-up areas, etc.
- Duties and Responsibilities: The duties and obligations for both parties should be mentioned, also both the parties are legally bound to follow the terms.
- Dispute Resolution: This clause defines and provides the means of dispute resolution. Arbitration, Conciliation, and way to court are the most common ways to dispute resolution.
The Indian Rent Control Act
A leave and license agreement is governed by the Indian Easement Act, 1882. Here, it says that the owner leaves the property with various facilities, the same is given to the licensee for use, while the owner is on a leave for a specific period of time. Once the leave is over, and the owner returns, the licensee leaves. When he leaves, it is his duty to leave the home in the same condition it was given to him. He can’t make any major changes and everything that the property was given with needs to be there as the agreement is temporary. The property has to be used only for the activity that was originally intended or mentioned in the agreement. As for payment, a large sum is paid by the tenant at the beginning of the tenancy, and no monthly rents are paid after.
In the Rent Control Act, the tenant takes the property on rent from the landlord, paying a fixed amount as rent, for commercial or residential use. Legally, as long as the rent is being paid the landlord cannot evict the tenant. The tenant pays a deposit and the monthly rent that was decided upon in the agreement.
The rent agreement also includes the term, usually, it is of 11 months (can be extended as per negotiation). If the rent agreement is for more than a year it is necessary for the owner to register the agreement by paying the necessary stamp duty registration charges.
The rent agreement also mentions the security deposit which is going to be kept with the landlord during the tenancy, it is for emergency and safety reasons if a tenant does any damages, the money kept can be used for the same, also the same amount is refunded by the landlord once the term is over.
The agreement should also have a date mentioned when the rent should be paid, in case if the tenant fails to pay the rent before or on time, the penalty charges are levied on him(which also should be mentioned in the agreement)
A tenant should also verify whether the landlord has included *The Rent Escalation Clause * in the agreement, which could be used to increase the rent after a certain period of time, say example after six months. Please verify whether the agreement mentions it or not, if it does, see if it mentions a date after which rent charges will be changed, also check the percentage of increase, if it is not as per standard rate, kindly have a word with the landlord in advance.
Also, check if the landlord has mentioned a clause of sale of the house, a tenant should be well versed with the idea of sale of the property, it is advisable to mention it in the deed, if the landlord has any wish to sell the property during the tenancy. It should also mention how many months a tenant will get to find new accommodation. It also should include who is going to be in charge of regular repairs of the property. Typically, any minor repairs are taken care of by the tenants only.
Also, the following are the things that should be checked before coming into a contract together.
- Names: Check if all the names are properly mentioned in the agreement, reach out to the landlord if any query, always ensure that both the parties are genuine, verify the KYC as well (even of witnesses)
- Address: In agreement with immovable property, the address should be mentioned in detailed manners. The details of the property, floor, location, build-up area, other description of the property should be mentioned.
- Alteration: A tenant cannot make unnecessary changes in the property, there must be some guidelines like dos and don’ts, usually structural changes are not allowed.
- Mode of payment: A detailed description is required when it comes to payments, some like cheques predated so the date isn’t missed or some like online transfer as it’s easy, however, it is, both the parties should be agreed upon the same.
- Annexure-II – Details of things provided by the owner accompanied by the apartment i.e. movable goods – furniture, fixtures, electronic items, etc.
- Escalation – A year-on-year escalation on rental after 11/12 months, 23/24 Months which is usually in the range of 5% for rental above Rs. 80,000/- and 7%-10% in rental above Rs 20,000/-
- Security Deposit – This is to safeguard the owner in default of rentals or damage done will vacate the apartment the damages or recovery of rental should be recovered from the said deposit which is usually 3 months of monthly rental of an unfurnished/semi-furnished apartment. In the Leave and License agreement, it’s advisable for both Licensor and Licensee to look for a sub-clause of this section in case of physical agreement.
- Power of attorney – If an owner has a POA or Power of attorney where he gives the right to an individual to sign the Leave and License Agreement in his absence (mostly in the case of NRI or Outstation clients)
- Lock-in – A clause that states both parties can’t vacate or viz the apartment during a certain period. It’s mostly for 6 months for a 12 months tenure. A penalty is applicable for both parties if broken.
Since 2020, The pandemic has created a financial burden to the licensor for now, due to the inability to pay the license fee, rents, etc., even rents were freed by the government for some period, It has burdened the licensee to manage his expenses, this is going to create a large number of litigation cases in the country, the court is going to consider the pandemic as an act of god/ natural calamity, in this the licensor is the one who is at loss.
Also, Licensor and Licensee are moving into online agreements which is a hassle-free process for both parties we have seen a growth of 800% of online Leave and License agreement during the pandemic of Covid-19. It has its own drawbacks in terms of word criteria which is a minimum of 200-300 words of alteration.
If you need help with Rental Agreements or Leave and License Agreement, just leave it to the experts at The New Door. We are here to make your documentation process easy and stress-free.