Difference between Lease agreement and leave and license agreements

Why is a lease/rent agreement for less than 12 months ? Learn the nitty gritty behind rent agreement, lease agreement and leave and license agreement.

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Mumbai earned the sobriquets Maximum City, City of Gold, even the rather unflattering Slumbay because of its one quality — an ability to attract people from all over the country looking for work. As these immigrants arrive in Mumbai, accommodation problems loom large. Here, housing expert, Ameet Mehta points out the laws and flaws about living on lease and Leave & License agreements.

An interview:

Q: Ideally, if I rent a flat and live on lease does the lease have to be for 11 months?
A: Earlier, Leave and License agreements were signed in multiples of 11 or 12 months. However after ‘The Maharashtra Rent Control Act, 1999’ came into force from 1.3.2000 there is no stipulation as to whether Leave and License agreement should be in multiples of 11 or 12 months, and there is no stipulation as to total time period. However Leave and Licence agreement generally does not exceed three years. But the new rule effective from May 7, 2005 states that you can do a Leave & License agreement now for a period up to five years and in multiples of 12 months each. An instrument creating a lease of immovable property for a term of one year and above was required compulsorily to be registered by virtue of provisions of Section 17(d) of the Indian Registration Act. Therefore, such Leave & License Agreements were being executed for a period of 11 months with the dual intention, namely, to avoid the stamping of such an agreement and its registration and secondly to avoid interpreting such Leave & License Agreement as a lease of the immovable property to avoid protection against vacation of the occupier, as per the provisions of the said Bombay Rent Act.

Negotiating a leave and license agreement

Q: Why is the lease for 11 months and not 12 months?
A:  The basic reason for making it on an 11-month basis by the property owner is to shy away from the law of giving six months notice. If the owner makes it for one year i.e. 12 months, then he has to give notice of six months at the end of those 12 months. If he makes the agreement for 11 months then there is no compulsion of giving notice, he can give him a minimum period of notice which he may think fit, say, seven days notice. The 11-month Leave & License agreement pre-empts the Rent Control Laws, which apply after 12 months. However, the execution of agreement is done on the basis of mutually agreed terms. Also, an agreement for less than 12 months need not be registered. This saved the stamp duty and registration money for the lessor and the lessee.

Q: Can the lease for a flat be renewed after 11 months?
A: The lease of the flat can be renewed after 11 months if both parties mutually agree.

Q: If so, how many times can lease be legally renewed?
A: There is no such provision on how many times lease can be legally renewed. The general practice is that the lease is renewed at least thrice consecutively.

Q: What is the basic difference between possession and occupation?
A: As per law, there is a distinction between possession and mere occupation. ‘Possession’ implies control of the property. It could be actual or possession in law. On the other hand, the term, ‘occupation’ is understood in the sense of a physical presence in the premises concerned, usually for a period of time. At times, occupation may amount to possession also; but possession need not always be accompanied by occupation of the premises concerned.

Q: Often, we see owners of the flat removing the person living on lease after 11 months and refusing to renew the lease agreement because they are scared the person might claim ownership rights. Does this happen?
A: Yes, this has happened quite often. However, an owner cannot be forced to agree upon renewing the agreement. There is no such compulsion and provisions in the law. Owners may refuse to renew for various reasons since they may be uncomfortable with their lessee.

Q: Can an owner/landlord terminate a lease agreement mid-way? Are there certain grounds on which he can do this?
A: We need to separate the words owner and landlord. A lease can be terminated midway by the owner, if there are violations related to agreement. These could be exit clauses. However, the grounds of termination by a landlord can be challenged in court since a tenant is occupying the premise for a longer period. It is not easy to terminate midway. The landlord can go for eviction if and only if the grounds are serious and violate the terms of agreement, which have to be proved in court. In Mumbai, the provisions contained under the then Bombay Rents Hotel and Lodging House Rates Control Act, 1947, popularly known as the ‘Bombay Rent Act’ was considerably in favour of the tenants and protected their rights.

Q: Do they have to give the person some notice if they want to terminate the lease? If so, how much notice does an owner have to give a person?
A: Normally, the notice has to be given for at least 30 days. It also depends upon the terms in the Leave and License agreement. The terms of notice clause may vary from agreement to agreement since a Licensee may have shifted with lot of furniture and would have also spend on some part of renovating the flat with permission of the Lessor. In such cases the notice period may be longer than one month.

Q: Are there any kind of guidelines/rules about how much a person can charge as rent?
A: A person can derive the rate of rent based on the Ready Reckoner. However it can sometimes be higher or lower than the Ready Reckoner depending upon furnishings and amenities provided. The common words used while providing furnishings are ‘Hard Furnishings’ and ‘Soft Furnishings’. The Lessor provides these and the rates may hence vary depending upon this factor.

Q: What should one inspect in premises before taking it on rent?
A: Before hiring premises one should get detail information about its condition.
The following should be investigated:

  1. >> Foundation, basement and visible structures.
  2. >> Water supply, plumbing systems, drainage condition, sanitary and CP fittings.
  3. >> Walls, ceilings, paintwork, flooring, type of roofing, etc.
  4. >> Continuous electricity supply, electrical systems, functioning of light fittings etc.
  5. >> Quality of doors and windows, latches, locks etc.
  6. >> Furniture, fixtures and fittings.
  7. >> Whether any security systems such as CCTV have been installed for safety.

Q: How often can an owner increase the rent? Can he increase it mid-way or only once in a year?
A: This depends on the terms of agreement. Ideally, the rent is fixed for a period of at least one year. However, in the absence of this clause (increase in rent), it is understood that rent is fixed for a period of one year.

Q: An owner has power over the person who rents his flat. If there is a problem in the flat — maybe there is leakage. Who has to pay for it — the owner or the person renting the flat?
A: Generally, the owner has to pay for the leakages if the leakage is from outside the flat. It is understood that possession has to be given in ‘Vacant and Peaceful condition’. However if the terms of agreement between the Lessee and Lessor state otherwise, then the problem in the flat is to be executed on the basis of these terms and conditions.

Q: Does the person renting a flat have the right to park his car in the building?
A: If the Lessor owns a parking space, then the said parking space can be given to Lessee because that could be part of agreement. However if the open parkings are less, in such scenario the permanent residents have the first right.

Q: Are there certain restrictions an owner can put on a person renting his flat — like no pets, no non-vegetarian food etc?
A: No. There is no such provision in law. This is matter of personal choice whom to lease and whom not to.

Q: Often, we see that people who rent homes abuse the trust of the owner too… how can one stop this from happening?
A: This can be avoided by proper screening before one shortlist’s a Lessee. The Lessor should check the background of a Lessee such as marital status, previous track record, verification of professional status, details about permanent address etc.

Q: If an owner wishes to re-claim his flat mid-way, can he do so?
A: Ideally no, unless the Lessee has violated terms of Leave and License agreement. The common violations that could lead to re-claim are (a) Renovating flat without permission of Licensor (b) Sub-letting (c) Illegal or immoral activities in flat (d) Some anti-national activities carried out in flat and so on.

Q: Does a person renting a flat have to pay monthly rent or the entire sum at one time?
A: This would depend on the terms of the Leave and License agreement. Many Lessors prefer post-dated cheques in advance for the whole year.

Q: The person who is staying on rent, in a building, which has a housing society, is not really the member of the housing society. Does he have any say in housing society matters?
A: The person who is staying on rent in a building, which has a housing society, has no say in the affairs of the society. However, the Lessee can place suggestions in the housing society, which may or may not be accepted by the Managing Committee. It is ideal to keep the owner of the flat informed.

Q: Would you say that a person renting out the flat is a kind of second-class citizen? Without the rights of maybe an owner — even though temporarily at least he occupies the flat?
A: No, but a Lessee is on temporary accommodation. Their suggestions can be considered but not necessary accepted. They are at par with other members of a society, for peaceful use of all services available in society unless it’s a membership of a club in a society, which may not be transferable.

Q: Lots of people who live on rent, do share a happy relationship with the owner…
A: Before signing any Leave and License agreement, a potential Lessee should read the terms and conditions thoroughly. If there are any clauses or sections he or she does not understand, it is important to seek clarification before entering into the agreement. This will help prevent the possibility of misunderstanding regarding the responsibilities and privileges assumed by both parties for the duration of the agreement and help keep the relationship cordial. Like somebody has said, “Having someone wonder where you are when you don’t turn up at your accommodation at night, is a good sign of happy relationship”.

How does ‘Lease’ differ from ‘Leave and License?’
U/s 105 of ‘The Transfer of Property Act, 1882,’ Lease is defined as a transfer of the right to enjoy the concerned property for a pre-defined time period or in perpetuity. The Lessor (owner of the property) gives the Lessee (the one leasing the property) such consideration periodically, usually at the beginning or end of a lease agreement. U/s 52 of ‘The Indian Easements Act, 1882’, License does not allow any interest in the premises on the licensee’s part. It merely gives the licensee the right to use and occupy the premises for a limited duration. A lease deed needs to be stamped and registered. The amount payable as stamp duty towards the lease deeds is generally more than that payable towards the Leave and License’s. For a period exceeding three years, the stamp duty is same for both agreements. A Leave and License arrangement ensures a regular periodic renewal of the terms, which as a rule effectively safeguards the interest of most homeowners as opposed to leasing out a property.

From: Midday newspaper

By Mayur

Mayur is a real estate professional based in Navi Mumbai for the past 20 years. His expertise in real estate includes every sphere of the real estate sector from legal to Building Construction to Vastu to home interiors. When it's not real estate, its either his fight against corruption or pulling focus (film making) with his NIKON D750 that keeps him busy. With over 9 million views of his pictures on Google Maps and over 1.3 crore views of his contributions, he has been designated as a Master Photographer by Google. He can be reached on 9987452642


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