What is the Difference Between Leave and License Agreement, and a Rent Agreement: Components and Implications

If you are planning to rent a property in India, you may have come across two terms: leave and license agreement and rental agreement. While both are legal documents that allow you to occupy a property for a specified period of time, they have some key differences that you should be aware of before signing any contract. 

In this blog, we will explain what a leave and license agreement and its components are and how it differs from a commonly known rental agreement.

Leave and License Agreement and Its Components

Simply put, a leave and license agreement is a type of contract that grants the licensee (the tenant) the right to use and occupy the licensor's (the landlord's) property for a fixed duration without transferring any interest or ownership in the property. This type of agreement falls under the gamut of the India Easements Act, 1882. It does not come under the rent control act of India.

The licensee pays a fixed amount of money to the licensor as a license fee for the use of the property. The licensee does not have any exclusive possession or control over the property and cannot sublet or assign it to anyone else. The licensee also has to abide by the terms and conditions specified by the licensor in the agreement.

Some of the components of a leave and license agreement are:

• The names and addresses of the licensor (owner) and the licensee (tenant).
• The description and address of the property that is being licensed.
• The duration of the agreement and the date of commencement and expiry.
• The amount of rent or license fee payable by the licensee to the licensor and the mode and frequency of payment.
• The security deposit or advance amount paid by the licensee to the licensor and the terms of refund.
• The rights and obligations of both parties regarding the use, maintenance, repair, alteration, subletting, etc. of the property.
• The clauses related to termination, renewal, notice period, breach, dispute resolution, etc., of the agreement.
• The signatures of both parties and witnesses, along with their photographs and identification proofs.
• The registration of the agreement before the sub-registrar where the property is situated.

Key Differences Between Leave and Licence Agreement and Rental Agreement

The main difference between a leave and license agreement and a rental agreement is that the former does not create any interest or ownership in the property for the licensee, while the latter does create a leasehold interest for the lessee. This has several implications for both parties, such as:

• Taxation: The license fee paid by the licensee is subject to service tax, while the rent paid by the lessee is subject to income tax.
• Registration: A leave and license agreement has to be registered with the sub-registrar's office within four months of its execution, while a rental agreement may or may not require registration depending on its duration and value.
• Stamp duty: A leave and license agreement attracts higher stamp duty than a rental agreement, as it is considered a commercial transaction.
• Eviction: A licensee can be easily evicted by the licensor by giving notice as per the agreement or by terminating the agreement at will, while a lessee can only be evicted by following due process of law under the relevant tenancy legislation.
• Transfer: A licensee cannot transfer his or her right to use the property to anyone else without the consent of the licensor, while a lessee can transfer his or her leasehold interest to anyone else with the consent of the lessor.

Conclusion

Therefore, before renting a property in India, you should carefully read and understand the terms and conditions of the contract you are signing, whether it is a leave and license agreement or a rental agreement. You should also consult a legal expert if you have any doubts or queries regarding your rights and obligations under either type of contract.