Decoding lease, rent
agreements: What you should know
There have been times when you would have come across terms like rental agreement, lease agreement, leave and license agreement, though they may sound similar but there are some crucial differences between them all.
Before getting into core details, let us understand some important often used terms:
Lessor/ Licensor: A person who leases or lets a property to another; a landlord
Lessee/Licensee: A person who holds the lease of a property; a tenant
License: The word ‘licence’ has been defined in section 523 of the Indian Easement Act, 1882 “where one person grants to another, or to a definite number of other persons, a right to do or continue to do in or upon the immovable property of the grantor, something which would, in the absence of such a right, be unlawful, and such right does not amount to an easement or interest in the property, the right is called a licence.
Lease: A lease is defined in section 105 of the Transfer of Property Act, which provides that “A lease of immovable property is a transfer of a right to enjoy such property, made for a certain time expressed or implied or in perpetuity in consideration of a price paid or promised, or of money, a share of crops, service or any other things of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms.”
A rental agreement also referred to as a tenancy or lease agreement. In these agreements, there is a transfer of interest from the lessor to the lessee while in case of a leave and licence agreement, there is no transfer of interest, but only a permission is granted.
In a leave and licence agreement the legal possession of the premises remains with the licensor and the licensee is said to be in constructive possession of the said premises.
Therefore, a leave and licence agreement does not create any interest in the premises in favor of the licensee but gives the licensee the mere right to use and occupy the premises for a temporarily defined period.
A leave and license agreement is also the mostly used for renting property as it mentions the limitation of use and ownership of property within the agreement. Which would include details about fixtures and fitting, maintenance, term of agreement, penalties etc . These terms are generally accepted by both the parties at the time of signing of agreement.
The right of termination of agreement lies with the landlord, it is a common practice of not registering a leave and license agreement as a specific amount of stamp duty has to be paid. The benefits of registering the agreement include putting the landlord on the stronger side in case of any issues with tenant. Therefore, a leave and licence agreement should always be registered, ignoring the miniscule expense at the time of execution of agreement.
Renting a residential or commercial property seems to be an easy task to do and most people follow the standard agreements available in the market yet it is wise to consult a lawyer to prepare your agreement for renting the property to avoid any future issues.
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