Are you thinking of renting out your property? Or planning to stay/work at a rented place? With rising instances of property grabbing, eviction problems, lengthy litigation and several misuses of property, it is important to choose the correct type of agreement before entering it. Here’s a comprehensive guide about what you need to know.
- Lease Agreements are used to transfer the right of possession for a fixed period e.g. 11 months or more.
Leasing or renting out properties in India can be quite a painful task. Landlords often face problems in finding tenants who are genuine and are willing to pay rent at reasonable rates. They also face tenants who refuse to pay rent and maintenance fees or vacate the premises.
Tenants, on the other hand, often face situations of wrongful termination, arbitrary clauses in agreements etc. In order to avoid these situations, both parties need to carefully choose the type of agreement and review the clauses of these agreements.
There are mainly three different types of contracts for letting out your property in India: Lease Agreements, Rental Agreements and Leave and License Agreements.
What is a Lease Agreement?
Lease is defined under Section 105 of the Transfer of Property Act, 1882. Lease Agreements are contracts between two parties: the lessee (the one who is renting out/leasing out the property) and the lessor (the owner of the property). Such an agreement gives the right to possession of the property to the lessee.
This transfer may be for a fixed period of usually 11 months or more or for perpetuity(If nothing about the same is mentioned in the agreement, it is assumed that the lease exists for perpetuity).
These agreements are transferable and heritable in nature. For instance, a sub-tenancy can be created in favour of the lessee or on the death of the lessee, the same can be transferred to the legal heir of the lessee. While the lease is in existence, it is not possible for the lessor to evict the lessee, until and unless the lease agreement provides for termination of the lease agreement. Such termination can only be done after a notice period(stipulated in the deed) is served by either of the parties.
Leases are unaffected by the sale of property to a third party; the agreement continues till the end of the term under the agreement. Lease agreements are important in determining the rights and liabilities of parties involved and give specific information about the same.
What is a Rental Agreement? What is the difference between Lease and Rent Agreements?
Rental Agreements do not differ greatly from Lease Agreements and contain most of the features of a standard lease deed. These agreements are usually not long-term contracts and they occur on month-to-month basis which expire and are renewed each month by the parties involved.
At the end of each month, the parties can alter the terms of the agreement on mutual consent. Rental Agreements are usually opted by those who only need to stay in an area for a certain period. Whereas, Lease Agreements are opted by those who seek stability and long-term tenure.
Usually, rental agreements are not entered for a term more than 11 months; because under the Rent Control Act, rent for more than 11 months attracts the provisions of this act and therefore, it is used by the owners to circumvent such law.
Problems faced in these Agreements
Both lease agreements and rental agreements cause several problems to the lessor. Lease and rental agreements which are for more than 11 months are governed by State Rent Control legislation which prescribe ceiling rent rates prescribed by the respective State Government. Factors such as market price of property, time and cost of construction etc. are factored into the determination of such rates.
For instance, the older the property, the lesser the rent and vice-versa. These rates, however, are often quite low since they do not reflect current market realities. In addition to this, landlords often face hurdles in evicting their lessee/tenants due to the complete transfer of right of possession to them.
Leave and License Agreements: Your best option!
A License is defined as the right to carry on lawful occupancy and activity on a property allotted by the licensor. The main test for distinguishing between lease and license is that of exclusive possession. That means if the right in property created by the agreement gives exclusive right of possession, then such agreement is a Lease; and if the document merely grants the right to use the property in a certain manner, the agreement is a License.
A License therefore does not create any personal right or obligation and simply creates an express or implied permissive right without conferring any interests in the licensee.
A Leave and License provides an effective alternative in the face of eviction problems and rent-pricing problems faced under these agreements.
These agreements take place between two parties: the licensor (the one who lets out the property under a license) and the licensee (the one who occupies the said property). Since there is no transfer of duties and obligations, revocation of such agreements do not pose any hurdles. Such agreements also allow parties to fix rates of rent (and increase in rent rates upon renewal of license) under the contract.
They also allow for easy eviction of tenants. Unlike lease agreements, these agreements do not allow the agreement to be inherited or transferred to another party. On death of one party, the agreement cannot be inherited by the legal heir of that party.
Under license agreements, if properties are sold to another party, the agreement comes to an end immediately. There is also no statutory requirement to give notice period for termination, though such notice period is usually given in such contracts to ensure fair treatment of parties. Most Leave and License agreements also do not provide for lock-in periods, i.e. the license can be terminated at will and parties are not “locked in” by the agreement for any term.
How to Register Leave and License Agreements
It is essential to register your agreement in case the period exceeds 11 months and to pay the requisite stamp duty and registration fees for the same; Section 17(d) of the Registration Act, 1908 mandates so.
Only registered agreements can be used as evidence in Courts of law in cases of litigation. Most landlords opt for 11 months leave and license agreements to avoid payment of such charges. This provides for a hassle-free arrangement; parties can choose to renew their license every 11 months with revised terms if they find the arrangement to be mutually beneficial.
Registration of such agreements is important, though, to avoid unnecessary legal disputes.
E-registration of these agreements, introduced in Mumbai and Karnataka, has proven to be a huge relief to people. For instance, the steps involved in such registration in Maharashtra are simple:
Online drafting of rent agreement - Here you have to provide details of landlord and tenant (Aadhaar and pan card of both parties is required to be given for the same), rent amount, deposit amount, period of licence, maintenance and utility charges, cancellation and notice period, lock-in period, representations and other such miscellaneous clauses to be included in your agreement.
Verification of Aadhar-based Biometric Verification - Aadhaar cards of parties are verified by use of their biometric information.
Registration Stamping and Delivery - Once such verification is complete, the documents are submitted along with proper stamp duty and registration fees to the sub-registrar. After such documents are checked, the registered rent agreement is mailed to the parties.
What is the difference between a Lease and a Rental agreement?
A Rental agreement provides for a tenancy of a short period (often 30 days) that is automatically renewed at the end of the period, unless the tenant or landlord ends it by giving a written notice. Whereas, unlike a rental agreement, when a Lease expires it does not usually automatically renew itself.
How does a rental lease work?
A lease is a legally binding contract, laying out the rules agreed upon between the landlord or property owner and you, the tenant. ... It gives security to the landlord, in that it contractually ensures that he'll have a source of revenue each month and will receive it at a specific time.
How binding is a rental lease agreement?
When someone agrees to rent or lease a property, they sign a lease or rental agreement outlining the terms of the agreement. It is a legally binding contract between the tenant and the landlord that details the rights and responsibilities of each party.
What makes a lease agreement valid?
Among the states that require written leases, valid ones must include a description of the property. The property's physical address is considered a valid description. Leases must include starting and ending dates, and amount of rent that is due.
How does House lease work in India?
Under a lease, a tenant is given the right to occupy a property for a certain period on a fixed amount to be paid as rent. By signing a lease agreement, the owner transfers some right over the immovable property to the tenant.
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With the use of technological solutions, we match the client’s requirements with the lawyer based on expertise, location etc. Our dedicated team of 60+ in Delhi, Mumbai, and Bangalore strive to do everything to help the client in taking the better-informed decision by understanding his legal situation and requirement. Further, for any queries regarding the operational or financial debtor, you can consult the best lawyer online and also solicit legal advice online.
Want to know more about leave and license agreements and how to register them in India? Talk to the best lawyers on MyAdvo! You can also reach out to us at firstname.lastname@example.org or call us now at +919811782573 for any queries or clarifications.