- What is a Leave and License Agreement?
- Difference between Leave and License and Lease
- Difference Between Leave and License and Rent
- Leave and License Agreement in Maharashtra.
- Leave and License Agreement for Commercial Premises
- 20 Clauses in a Leave and License Agreement
Leave and License Agreement : A Brief Introduction
Leave and License agreement is a legal bond between a property owner ( the licensor), and a temporary occupant of the property, (the licensee), allowing the latter to use the premises for residential or commercial purposes for a specific period. There can be residential leave and license agreement, which are for residential purposes, and there commercial leave and license agreements that are tailored to cater to the various aspects involved in commercial activities.
A leave and license agreement include the terms and conditions regarding license fee, license duration, security deposit, maintenance responsibilities, and any restrictions or limitations imposed on the licensee’s business activities. This agreement provides a legal framework, ensuring the rights and obligations of both parties are clearly defined and protected. They grant the licensee, the right to utilize the premises for commercial or residential activities while allowing the licensor to retain ownership and control of the property.
What is a Leave and License Agreement?
As per section 52 of the Easement Act, of 1882, leave and license is an easement right granted from one person to another about the occupancy of an immovable property. In the absence of such a right, the occupancy of the immovable property shall be unlawful. An agreement of leave and license is entered between the Licensor (owner or legally authorized person to license the property) and the Licensee (person who temporarily ocupies the property). There can be a Residential or a Commercial Leave and License Agreement as well.
Keys Features In A Leave and License Agreement
It is regulated under section 52 of the Easement Act, of 1882 (Not applicable in the state of Maharashtra)
• Leave and License is a personal right granted to a person and cannot be transferred to a successor.
• It is a maximum of 11 months.
• Leave and License does not create any tenancy rights.
• It cannot be sublicensed to any third party whatsoever.
People often believe that leave and license, lease and rent are interchangeable terms. They don’t understand the difference between the same. To understand Leave and License with clarity it is important to understand how it varies from lease and rent.
Difference between Leave and License and Lease
|Sr No||Points of differences||Leave and License||Lease|
|1||Regulation||Regulated by the Indian Easement Act, 1882.||Regulated by the Transfer of Property Act, 1882|
|2||Period||It is created temporarily for a period of maximum 11 months. Service lodges, banquets, paying guests etc. also fall in the ambit of leave and license.||It is created for 1 year or more.|
|3||Rights||It does not create any tenancy rights, therefore excessive escalation in the license fee cannot be questioned and sudden eviction is not protected.||It creates tenancy rights, therefore escalation in the rent amount should be by the guidelines provided in the Rent Control Act of the concerned state.|
|4||Transferability||It grants only a personal right to the licensee therefore the right cannot be transferred to the successors of the licensee. The license automatically is terminated on the death of the licensee.||In the case of a lease agreement, the rights can be transferred to the successors. Death of the lessee does not terminate the least if specified in the agreement.|
|5||Sub-licensing||Sub-licensing is not allowed in case of a leave and Licensing agreement.||Sub-licensing is allowed in case of a lease, but only after a mutual agreement with the lessor.|
|6||Stamping and Registration||Only stamping is required in a leave and license agreement.||Stamping as well as registration is required in a lease agreement.|
|7||Common Area Maintenance charges ( CAM charges )||No separate document or registration is required for CAM charges in the Leave and License Agreement. CAM charges can be incorporated as a clause in the Leave and License Agreement.||A separate document is made for CAM charges which requires mandatory registration.|
|8||Dispute Resolution||Negotiation being cost-effective is the mechanism commonly resorted to in case of a dispute arising between the Licensor and Licensee.||Arbitration is the dispute resolution mechanism resorted to in case of a dispute arising between the lessor and the lessee.|
|9||In case of a sale||In case of sale of the licensed property, the licensee has to vacate the premises||The interest of the lease is protected throughout the lease period even if the Licensed property is sold. |
Difference Between Leave and License and Rent
|Sr. No||Points of Difference||Leave and License||Rent|
|1||Regulation||Regulated by the Indian Easement Act, 1882.||Regulated Rent Control Act of the concerned state.|
|2||Rights||No tenancy rights are created.||Tenancy rights are created.|
|3||Transferability||It grants personal rights and is not transferrable to the successor.||Rights can be transferred to the successor|
|4||Escalation||Escalation is not stipulated by law.||Escalation should be by the guidelines set in the Rent Control Act of the concerned state.|
|5||Jurisdiction||In cases of dispute, between the licensor and licensee, the aggrieved party can move to the Consumer or Civil Court.||In cases of dispute between the landlord and tenant, the aggrieved party can reach the Rent Control Board of the concerned state or can move to the small causes court.|
|6||Purpose||Leave and License can be for commercial as well as residential purposes.||The rent Agreement is only for residential purposes.|
|7||Favourable||License is more favourable to the Licensor||The rental Agreement is more favourable to the Lessee.|
Leave and License Agreement in Maharashtra.
In Maharashtra, the concept of Leave and License is very much similar to the concept of Lease. All the obligations to be performed and rights to be enjoyed are the same as in the case of a lease deed. Rules of leave and license are different from all the other states on the following grounds;
• Period– The leave and License agreement in Maharashtra can be up to 60 months.
• Mandatory Registration– Even if the agreement is less than 11 months, it requires a mandatory registration along with stamping as per section 55 of the Maharashtra Rent Control Act,1999. Section 55(2) of the Act makes the licensor, or the landlord responsible for getting the registration done. As per the Maharashtra Stamp Act, the stamp duty shall be a fixed 0.25% of the total amount of the license fee payable by the licensee during the entire term of the agreement.
• Tenancy Rights– Tenancy rights are created in the favour of the Licensee.
• Sublicensing– Sublicensing of the licensed property is allowed to the licensee only with the consent of the Licensor.
• Transferability– Rights can be transferred to the permittable assignees or successors.
Leave and License Agreement for Commercial Premises
When a leave and license agreement is entered to occupy commercial properties like shops, warehouses, restaurants, office buildings or industrial properties taken on a license to carry out business activities, then such an agreement is called a Commercial leave and license Agreement. In Maharashtra, the commercial leave and license agreement can be for a period of up to 60 months and in other states it can be for a maximum of 11 months.
20 Clauses in a Leave and License Agreement
- Parties Clause– In this clause details of both the parties such as name, residential address, age, Adhar/ PAN, occupation, as well the date on which the Commercial Leave and License Agreement is made to be provided. Along with their details, refer to them as Licensor or Licensee.
• Mention the position of each party with respect to the Agreement, for eg who is the owner of the property or is legally entitled to license the property and who is desirous of taking the property on license.
• Mention the willingness of both parties to enter into the Commercial Leave and License Agreement.
• The details of the licensed premises can also be given in the recital clause or it can be provided separately in a schedule attached with the agreement.
- Representation by the Licensor– This clause should talk about the representations made by the Licensor in the capacity of the Licensor. For example;
The Licensor represents that,
(a) he is the lawful and absolute owner of the Licensed Premises situated on the 3rd Floor, ‘B’ Wing, bearing Flat no 307 and having a carpet area of 600 Square feet in the ‘Mountain View Apartments’, Sunshine Colony, Mumbai 400010;
(b) he enjoys all rights, title, and interest therein;
(c) the said property is free of all charges and encumbrances;
(d) he has the legal authority to license the property;
(e) he has conducted all due diligence with regards to the Licensee, including a police verification of the licensee before licensing the said premises to him.
- Representation by the Licensee – This clause should talk about the representations made by the Licensor in the capacity of the Licensor. For example;
The Licensee represents that,
(a) He is in the legal capacity to enter into this Agreement.
(b) He is in the financial capacity to pay the security deposit and License fee for the Licensed Property.
(c) He has complied with all the statutory requirements and has all the licenses necessary for running his business.
- Period– Mention the period for which the Commercial Leave and License Agreement is entered. Generally, the term is 11 months maximum, but in the state of Maharashtra, it can be up to 5 years. Please mention the date of commencement of the Agreement which can be different from the date of execution of the agreement. Also, provide the date on which the agreement expires.
- Lock-in Period- A Lock-in period clause is essential in a Commercial Leave and License Agreement. It restricts both parties from unreasonably or suddenly cancelling the Agreement before its expiry. A Lock-in period clause also talks about the penalties entailed due to the sudden and unreasonable cancellation of the Agreement either by the Licensor or the Licensee. Such a penalty is not regulated under any law but is decided mutually by both parties at the time of entering into the Agreement. For example, this penalty could be double the amount of the remaining License fee payable during the Lock-in period. It is paid by the defaulting party whether it is the Licensor or the Licensee. However, such a Lock-in period clause does not apply to the Force Majeure crisis. you may also include the situations of Force Majeure.
- Payment and Security deposit- This clause specifies the amount of the License fee payable by the Licensee to the Licensor in consideration of the occupancy of the Licensed Premises and performance of his obligations as per the terms and conditions of the Agreement. It should also specify the frequency of the payment and the date by which the payment has to be made. It also specifies the amount to be paid as an interest-free security deposit to the Licensor at the time of execution of the Agreement. Such security deposit is refundable to the Licensee on the expiry or cancellation of the Agreement after reasonable deduction made due to arrears of License fee, maintenance or CAM charges, other dues or penalties payable by the Licensee during the License period.
- Maintenance and CAM charges– This clause states that maintenance charges such as electricity bills, water supply charges etc., as well as the Common Area Maintenance charges, have to be borne by the Licensee. It also specifies that the small wear and tear damages in the Licensed property up to a certain mutually fixed amount should be taken care of by the Licensee. Whereas, big structural repair requirements should be borne by the Licensor.
- Usage- This clause talks about the purpose for which the property is taken on License. It stipulates that the Licensed Premises should be used for the business of the Licensee and not for any other purpose.
- Alteration– This clause specifies, that any alteration or material addition cannot be done in the Licensed Premises without the prior written consent of the Licensor. And if such alteration or material addition is desired by the Licensee for his business purpose then the cost of it should also be borne by him. Or, the Licensor may undertake such changes at his cost but these shall be later deducted from the security deposit.
- Sub-Licensing– Mention that no sub-licensing is allowed in a Leave and License Agreement, whatsoever. In the State of Maharashtra, sub-licensing is allowed after receiving written consent from the Licensor as tenancy rights are created in the favour of the Licensee in Maharashtra.
- Transferability- Leave and License grants personal rights to the Licensee only therefore such rights cannot be transferred to the assignees or legal heirs of the Licensee.
- Inspection– This clause should state that after giving a prior notice of () days and between ()am to ()pm, the Licensor shall have the right to enter and inspect the Licensed property either by himself or by any other person appointed by him with the object of examining the physical condition of the said property, or check to on the activities carried by the Licensee or on account of any complaints of private or public nuisance made by the neighbours of the Licensed property against the Licensee.
- Obligations of the Licensor– Incorporate the various obligations of the Licensor as follows;
• That he shall refrain from undertaking any action about the licensed property that may harm the interest of the Licensee ;
• That he shall serve a notice of 30 days before the cancellation of the Agreement.
• All the municipal taxes and statutory duties levied on the licensed properties shall be borne by the Licensor himself.
• He shall not cause the Licensee to vacate the premises before the expiry of the Agreement unreasonably or suddenly.
- Obligations of the Licensee– Incorporate the various obligations of the Licensor as follows;
• The licensee shall make the timely payment of the fixed monthly licensed fee before the 5th of every month;
• The licensee shall use the property with reasonable care and ensure the physical well-being of the property;
• the licensee shall not conduct any illegal activity on the licensed property;
• the licensee shall refrain from causing any kind of nuisance to the neighbouring people/properties.
• The Licensee should park only his car and only in the allotted area. Mention the time whether only during the day time or for twenty-four hours parking is allowed.
- Increased License fee– This clause states that any escalation made in the License fee in case of the renewal of the Agreement after its expiry, should be within the prescribed per cent as set out by the guidelines in the Rent Control Act of the concerned state.
- Cancellation of the Agreement– The Licensor by serving a notice before 30 days, shall have the right to cancel the Agreement before it’s expiry and demand the Licensee to vacate the Licensed Premises. The following can be the grounds for the cancellation of the Agreement.
(a) if the Licensee is found guilty of conducting any illegal activity on the premises;
(b) if the Licensee is guilty of causing any nuisance to the neighbours;
(c) if the Licensee has made any material addition or alteration in the premises without the consent of the Licensor.
(d) if the Licensee fails to make the timely payment of the monthly Licensed fee or fails to pay the same consecutively for 3 months whether or not such fee was demanded.
(e) If the Licensee breaches any of the terms of the Agreement;
(f) If the Licensor urgently needs to retain his premises for self-use;
then Licensee shall be duty-bound to vacate the said premises and hand over the peaceful possession of the same.
- Possession– The Licensee shall vacate the Licensed Premises and hand over the peaceful possession of the licensed property if demanded by the Licensor upon a notice served by him before 30 days.
- Dispute Resolution– In cases of dispute, Negotiation is the dispute resolution mechanism resorted to, as it is more cost-effective.
- Signature and Date– Lastly the Agreement should be signed by both the parties and even the date on which it was signed should be mentioned with the signature.
Before entering into a commercial leave and license agreement, it is vital for both parties to thoroughly understand its terms and legal implications. Seeking legal advice and conducting due diligence on the property is crucial to ensure a transparent and secure transaction.
In conclusion, commercial leave and license agreements provide a structured approach to leasing properties for commercial purposes. They offer flexibility to business owners while safeguarding the interests of property owners, making them an essential tool in the realm of commercial real estate.