Leave and License Agreement vs Rental Agreement

Updated: Jun 18, 2020

With this article, we have put together some of the important aspects considering leave

and license agreement vs rental agreement. If you are owner of multiple properties then it is highly likely that you might have allowed people to use your property in return of some amount such transaction is generally referred as renting your property or giving your property on leave and license basis. The terms rent and/or leave and license are many a times used interchangeably and we hardly bother to know what exactly each term means.

Rental Agreement also known as Tenancy or Lease Agreement

Section 105 of the Transfer of Property Act, 1882 defines a lease of an immovable property as a transfer of a right to enjoy immovable property for a certain time, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee who accepts the transfer on such terms. The transferor is called the lessor and the transferee is called the lessee. The price is called the premium and the money, share, service or other thing to be so rendered is called the rent.

In rental agreement, owner of the property is referred as landlord or lessor whereas the person being allowed to use the property is referred as tenant or lessee. Most importantly rental agreement refers to transfer of interest from lessor to lessee and lessee can be evicted only on the grounds mentioned in Rent control act. Additionally lessee remains in juridical possession of the leased property as long as lessor accepts rent or otherwise assents to his continuing in possession. That leads to two important terms tenant holding over and tenant on sufferance which broadly arise when tenant remains in continuous possession of property even after expiry or determination of the lease agreement. Hon'ble Supreme Court of India has discussed difference between tenant holding over and tenant on sufferance in AIR 1996 SC 140 R.V. Bhupal Prasad vs State Of Andhra Pradesh & Ors.

Leave and License Agreement

The term license was defined in Section 52 of the Indian Easement Act, 1882 as: "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 right, be unlawful, and such right does not amount to an easement or an interest in the property, the right is called a license"

In leave and license agreement, owner of the property is referred as licensor whereas the person being allowed to use the property is referred as licensee and the amount licensee pays to licensor for use and occupation his/her property is referred as license fee. License is merely a grant by Licensor(s) to specific person(s) called licensee(s) to use and occupy the licensed property and such grant does not amount to transfer of interest from licensor to licensee. Licensee remains in mere occupation of the property whereas juridical possession of property remains with licensor which is important difference between lease and license.

Licensee is not allowed to make any alterations in the property and licensee have to vacate the licensed property compulsorily on expiry or revocation of license by licensor. Generally leave and license agreement mentions 30 days notice period for both licensor and licensee so as to allow both the parties sufficient time to make alternate arrangements. As granted license is for specific person(s) called licensee(s) hence licensee is not further allowed to create sub-tenancy. Additionally use of premises i.e. Residential or Commercial use is decided right at the beginning and this use can not be altered later by licensee.

You may explore our Online Leave and License services to avail hassle free execution and registration of your leave and license agreement from the comfort of your home. In case you have special requirements and you want to register your rent or leave and license agreement through offline process then you are advised to explore our Legal Drafting services.

The question whether a certain agreement to occupy an immovable property is lease agreement or leave and license agreement has been a subject of many court judgments and it has been observed that various clauses of agreement are to be read as a whole to determine whether it grants leave and license rights or whether it creates tenancy. Merely assigning title as Leave and License to your agreement does not make it leave and license agreement unless the clauses inside agreement are also adhering to leave and license terms and are not granting any tenancy rights.

Disclaimer: This article is for information purpose only and you are suggested to seek opinion from your legal advisor considering your specific case. You may explore our Legal Counseling services in case you want specific advise based on your unique scenario.

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