Whether you’re a young professional relocating for work or someone planning to earn passive income from your property, you’ll likely come across a lot of paperwork. One such document is a leave and license agreement.
While it is often confused with a rental or lease agreement, it has distinct features that set it apart. Knowing what a leave and license agreement is can help both property owners and tenants make informed decisions in the real estate market.
This article dives into the basics of a leave and license agreement; meaning, purpose, and the circumstances under which it is preferred to other kinds of real estate agreements.
What is a Leave and License Agreement?
A leave and license agreement is a legal contract operating between a property owner (licensor) and an occupant (licensee) and it grants the occupant a conditional, revocable permission to use the property while fully retaining ownership rights in the property.
Difference Between Leave And License And Rental Agreement
The Rent Control Acts that are in place at the state level govern rental relationships. This includes several aspects of a rental agreement, including the amount of rent that a property can accrue, the conditions for periodic inflationary increase in the rent, and the conditions of a valid eviction.
This limits the extent to which parties can freely decide the terms of their agreement, and means that either party may seek judicial redress for any of these issues. This can potentially put both parties in the middle of a long, tedious and expensive litigation process, during which time the property may also have to remain unutilised.
A leave and license agreement, on the other hand, does not fall under the purview of rent control regulations. This means that the parties can, within reason, mutually decide the terms and conditions that govern their contract. The table below summarises key differences:
Basis
Leave and Licence Agreement
Rental Agreement
Legal character
Grants conditional and revocable permission to use the property.
Grants possession of the property.
Duration
Usually entered into for short, renewable terms.
Usually entered into for longer terms subject to renegotiation.
Purpose
Flexible – for residential or commercial use.
Mainly used for residential purposes.
Termination
Often quicker, governed by the agreement itself.
Often lengthier, governed by processes under applicable law.
Why is a Leave And License Agreement Preferred?
1. Protection for the licensor
It offers significant protection to the property owner. For instance, if the licensee refuses to vacate the premises after the agreement expires, the licensor can seek legal recourse under the terms of the agreement itself, without the complexities of a formal eviction process.
2. Flexibility for commercial and residential use
Leave and license agreements are commonly used for both residential and commercial properties. For business licensees, especially startups and small enterprises, this arrangement provides flexibility to scale operations without being tied down by long-term rental contracts.
Format of Leave And License Agreements
While there is no fixed leave and license agreement format, it typically includes the following components to ensure clarity and legality.
1. Details of the parties
The agreement must specify the names and addresses of the licensor and licensee.
2. Description of the property
The property being licensed must be clearly described, including its address, dimensions, and any specific usage restrictions.
3. Duration
The agreement should specify the exact start and end dates. For agreements exceeding 11 months, registration is mandatory.
4. License fee and security deposit
The agreement must mention the monthly license fee and any refundable security deposit. It should also outline the terms for amending the license free, and adjusting or returning the deposit.
5. Rights and responsibilities
Details regarding the obligations of each party, including maintenance, repairs, and utility payments should be explicitly mentioned.
6. Termination
A well-drafted termination clause should outline the circumstances under which either party can terminate the agreement and the notice period required.
7. Indemnity clause
This protects the licensor against losses incurred from certain acts by the licensee.
8. Dispute resolution
The agreement should include a preferred dispute resolution mechanism, such as arbitration or mediation.
9. Additional terms and conditions
This includes the details like the governing jurisdiction, and any penalties for breach of terms.
Summing Up
A leave and license agreement offers flexibility and ease of enforcement. It also protects the interests of the landlord more thoroughly, and provides both parties with a more efficient alternative to lengthy litigation.
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Why is a leave and license agreement for 11 months?
It is not mandatory for leave and license agreements entered into for a period of up to 11 months to be registered. The short duration also allows the parties to frequently renegotiate the terms for renewal.
What is the maximum period for a leave and license agreement?
Legally, there is no fixed maximum period, but agreements exceeding 11 months require mandatory registration with applicable stamp duty.
What is the lock-in period in a leave and license agreement?
The lock-in period, if included, is a mutually agreed duration during which neither party can terminate the agreement prematurely.
Is a leave and license agreement safe?
It is legally binding and ensures the licensor retains property control, while the licensee’s rights are safeguarded through clearly defined terms. It is recommended that a leave and license agreement for any duration be registered to prevent future disputes.
What is the difference between leave and license and rent?
A rent agreement is governed by the state’s rent control laws, including the amendment of its terms, its extension and termination. A leave and license, on the other hand, is governed not by rent control laws, but by terms arrived at by the parties through mutual agreement.
20 February 2025
4 mins read
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