house rent agreement

The house rent agreement of a property is one legal document that almost no-one can avoid. You may have to negotiate (if at all you know how to) or at least sign one either for personal or business use. However it’s surprising as to how few people take the opportunity to negotiate or even understand these agreements – property owners and occupiers included. Most people in India have little idea as to what to look out for in these agreements. Hence, we decided to write this comprehensive guide to negotiating and understanding legal agreements dealing with leasing, renting or leave and license arrangements for residential and commercial properties. This is a must read if you own property that you want to rent out, or even if you are staying or working from a rented premises.

While each house rent or lease agreement has its unique situations that can merit unique terms and conditions to be inserted in a contract, there are some crucial terms that should almost always be included in agreements to protect their interests and prevent future misunderstandings that could potentially lead to trouble, disputes, financial losses or litigation.

First let us see what are the most common legal relationships you may enter into while renting a house or a commercial property .

Lease

A lease is a transfer of the right to use the property in question which may be for a specified period, or even for perpetuity provided that a price is paid for the same. If the landlord does not want to create a lease in perpetuity, it would be better to specify a time period in the lease agreement. It is not possible to evict the leaseholder while the lease is in existence – unless there is a provision for terminating the lease agreement provided in the lease agreement itself.

What if a lease amounts to a tenancy?

Most Indian states have enacted tenancy laws or rent-control legislations, which place a ceiling on the rent that can be charged on leased properties, and also severely restrict the grounds on which the tenancy can be terminated. The lessee is called a ‘statutory tenant’ in such cases. Properties in premium locations in Mumbai and other cities have been leased on what is today considered to be a nominal rent – as the pace of inflation and increase in property prices was many times higher than the corresponding increase in rent permitted under tenancy law. This causes severe financial loss to the owner of these properties. While the owners have very valuable property in their ownership, they can not enjoy the value of the same as they can neither charge market rate of rent, nor can they evict the existing tenants.
commercial lease
Therefore, persons leasing their property must ensure that the letting of property on rent does not qualify as a tenancy under rent control legislation, and this has to be done through careful legal drafting.

Leave and License

A leave and license agreement is one of the most popular ways adopted by parties to ensure that the letting of property does not amount to a lease under tenancy related legislation. Unlike a tenancy or lease, a leave and license agreement does not create any property rights in favour of the person who occupies the house (licensee).

In case of tenancy as well as lease, the right to use the property gets transferred from the owner to the person who is renting out the place. However, no such transfer of right to use takes place in leave and license agreements. There is only a license given to the licensee for limited use of the property in a certain way. The terms of the licenses govern what are the rights of the licensee (the person who rented the house). This is the form of agreement most preferred by landlords, and 11 month leave and license agreements for residential properties have become a norm all over India. Lease agreements are common only with respect to commercial properties.

Advantage of leave and licence

Due to the difficulty of getting a tenant or a leaseholder to vacate a place, most landlords prefer to enter into a leave and license agreement for a contractually specified period after which the licensee is obligated to vacate the premises. Under a leave and licence, the amount of rent (and increases in rent in case of renewal of the agreement) can be contractually determined by parties. Further, the lessor or owner has greater freedom with respect to termination of the licence and eviction of the lessee.

It is a common practice to grant leave and license agreement only for 11 months or less to avoid being classified as tenancy. Leave and license agreements also do not attract the rent control acts that once plagued many residential property owners. If the licensee and the landlord agree to continue the arrangement and renew the agreement, they may enter into a fresh leave and license agreement for 11 months at a time.

A lease however, is for a longer duration of time, usually for 1 year or more, although there is no minimum or maximum period specified by law. A lease creates a property right in favour of the lessee (the person taking a lease over the property). Leases are more common for commercial properties as opposed to residential properties which are usually let out on basis of leave and license (lease of commercial property is discussed later).

Checklist to ensure an effective lease deed or leave and license agreement

Following is a checklist for the essential clauses in a leave and license as well as lease agreements:

Find out who is the actual owner

It is crucial that a leave or license or lease agreement is signed only with the real owner of the house. Find out who is the owner, and even demand to see some papers establishing the name and identity of the owner. Usually in residential societies it is very easy to find out the name of an owner. You can request the owner to examine the title deeds of the property, which will mention how land was originally allotted (by a government authority, etc.) and how its ownership transferred. These documents should be requested before paying the security deposit or making any advance payment. Electricity bills or bills relating to municipal taxes can also be referred to (although they are not very reliable indicators of ownership).

It is more difficult to trace ownership of agricultural land, which may have been transferred through several private hands, through intestate succession, partitions, intra-family tra

52 COMMENTS

  1. What I wanted to know is:

    Suppose if the agreement executed date is 27.10.2016 and Security Deposit cheque is of 01.11.2016 can it be reduced likewise in the agreement or agreement to be executed only
    on 01.11.2016.

  2. HI Ramanuj Mukherjee,
    Im SOnali, and I wanted to make lease agreement for Resort development with landlord.
    Can I make it for next 25 years? Can I declare rent as a profit share of 30 %.
    Please Suggest

  3. Hi,
    I am planning to lease a house with homigo company. They have taken the 10 houses in the apartment and have an agreement for 3 years for renting purpose with owner by paying 11 lakhs as security depost and the company has to pay 2.5 lakhs per month to the owner. I am planning to take a single house for lease from the homigo company for rupees 14 lakhs, not from the direct owner. They are ready to provide the agreement for 11 months. I have asked for the security in case the company closes. They gave the option of providing post dated check with 14 lakh, same will be mentioned in the agreement.

    Could you please suggest how my amount will be secured in such a scenario. Company is ready to provide indemnity bond.

  4. Firstly I understand the term lease but I barely able to make approach towards rent agreement there is so much to read here. If you can just explain in brief that would be better. And secondly you have some good sense of grammar.

  5. Hai,

    Please suggest me how to vacate a tenant from my home which is leased for 3 years made with agreement but not registered & it is ending on 20/05/2016 if he is refused to do so and what the laws states for them if they refused to vacate & how much time it will take to vacate them.
    please provide procedures & laws which i should go through.

  6. I have taken a office on rent for clinic purpose at pune location . Its registered agreement for 3 years, with 3 month notice to terminate the agreement. After just 5 months owner want to sell the property. i have done lot of modification and investment for the clinic setup . i was not knowing the owner intention that he will sell the property so soon . What can i do in this case? I have consulted few lawyers, most of them have the opinion that your case is unfavorable and if the owner wants the possession he will send you the notice for 3 month and then you have to vacate the property. Its not possible to find the alternate space and modification for the clinic set up. It took me 3 months for the interior work completion. What about the losses i will suffer in case i have leaved the property so soon

    What are laws in favor of tenants in such cases?

  7. Hi,

    i would like to know that, i have a commercial property in another city, which i want to give for rent to my relative who stays in that city. Can my relative can give to rent to other people,? I am ok with that . Whats the procedure for that. Two rent agreement is required.?

    • Introducing a faster and simpler solution for landlords to manage there entire property lease lifecycle online.
      Track income, expenses, send system generated invoices and receipts, get detailed reports to ease out your tax filing.
      Singup here: https://busyowners.com and check out our demo

  8. Dear Ramanuj,

    I had been served a notice on 16th Sep by my Landlord. The agreement was for notice period of 1 month. So he mentioned that I should move out by 15th Oct. But I moved out before then. So, should I pay the rent for that entire notice period?

    Details: On 23rd Sep I informed my landlord of the intention to move out by 2nd Oct. On 7th Oct, his keys were handed over to him by my wife. Now, my Landlord is returning my rental advance and wants to charge rent for the period of 8th Oct to 15th Oct because, in his words, “that you moved out earlier was your prerogative, not mine”. My rental is ~28k per month which means ~1k per day. So this is a matter of ~8k. More than the amount of money, it is the principle which I want to clarify from a legal expert like yourself.

    Any help would be deeply appreciated please.

    Location: Bangalore (just in case it helps)

  9. Dear Mr. Ramanuj,

    I just came to Bangalore for a new job and planning to take a house on lease rather than going for rent. I just want to know how this lease agreement works. For example, If I take a house on lease for two years for 2 lakhs. What is the return amount I will get at the end of the lease period. Will the owner deduct charges for painting and maintenence and return the balance. Or the 2 lakhs is for the rent I have to pay for two years and it belongs to the owner

  10. Excellent article, i came to know many facts regarding taking a house on Rents, lease etc, i appreciate and agree with your views. thanks for sharing.

  11. hi ,
    I have a query… In Maharashtra, legally what is the penalty clause if payment is delayed for 2 months ???
    If we have written in agreement 18% per day & it is agreed by both the parties then will 18% per day will be valid or it needs to be 18% per annum ???

  12. Hello i had one query!
    If a private company gives land to government for some purpose. Govt here has made a newly made corporation to which it wants to transfer all rights(lease) to use the property which is given by the private company?
    Can it be done ? If yes then how?

  13. Great post!! To know more information on lease agreements you can visit here agreements.org site

  14. Let me know the course of action if person does not vacate the property and nor does he clear his dues according to agreement

  15. manav, hi i am a committe member of society many member of our society has not made lease & license agreement saying they have given to their family friends or relatives is it allowed or can society can do anything against them. waiting for reply and thanks in advance.

  16. Hi, I have given my house at Delhi under CLA to one of very known company in India having their Head Office in Kolkutta. Please advise whether this Agreement also needs to be registered

  17. Hey Ramanuj,

    A little tangential to this post, but what is the legal position of rent-free lease agreements under the Transfer of Property Act, 1882? Will the presence of a rental consideration be necessary for a valid rent agreement under Section 105 of the Act?

    Many thanks!

  18. Dear Ramanuj,

    I am willing to rent out a commercial premise of 400 sq. ft in central business district and want it to be a simple leave and license agreement for 11 months renewable year and not a lease as it calls for risks in eviction and misdeeds, am aware that tenancy rights are not created in commercial premises but still want to keep it simple and negotiable in my terms under win-win situation as risks are higher for lessor than lessee. Could you share your view in this regards.

  19. Dear Ramanuj,

    I need your suggestion – I am a tenant of a residential flat for the last 5 years. The 5 years term will be over by end Jan 2015. Now the owner does not want to extent lease and we have to vacate the flat that is what we have been told. Since, I leave with my family and my son goes to school near to our rented house, can we not extend our lease by another one year? Please suggest what best way we can convince the land lord to allow us to continue for another one year by which time we will move out.

    Thanks – Prasanta

  20. Dear
    Ramanuj,

    I have taken a commercial property with leave and license
    agreement in sept-13 for a commercial use property for training center business
    with 75 k deposit & 16k rent per month. This was not registered by
    landlord. It is on 100 Rs. stamp paper. In agreement, it was mentioned that
    landlord will provide separate parking area, all major maintenance work, pay
    water bills. But there was no any facility provided by landlord. From Sept-14,
    POP interior of some part was broken & we cannot use the office. The
    landlord not responded from one year about above problems. We have stopped the
    rent payment from Nov-14. So we decided to vacate the office and asked him to
    return the deposit. In our agreement, it is mentioned that 3 months notice will
    be given by me. Can we move to consumer court? or what can be the solution for
    the same? Pl. guide.

  21. Hi Ramanuj

    Thank for the informative article. I wanted to know one specific query. Three of us have an 11 month rent agreement with our landlord. Now, one of us is moving out, and the owner wants to get the replacement of his choice, who would also be paying a higher rent than what was being paid previously.
    Is it allowed ? Can’t we have our own choice of roomate ?
    And also more importantly- We want to oppose the increment in rent (although increment is only for the new tenant and not for us). Can we challenge owner’s decision based on the rent agreement ?

    Thanks

    • There is no law in this matter, this is left to be governed by agreement. If I was in your place I would have objected to not getting a room mate of my choice, if I had someone lined up. Otherwise landlord will ask you to pay for the rent even in absence of the third person. This is a matter of negotiation rather than law. there is no law that stops landlord from increasing rent, and none that stops you from refusing.

      It is best done in a sensitive, friendly way.

    • yes definitely – but that is an unusual practice because the person renting the place is in too much disadvantage

  22. Dear Ramanuj,
    I am working at Food Corporation of india, i have done lease agreement at Chandigarh(my work place city) but now i am transferred to Faridkot so i start living at Faridkot but my family is still living in Chandigarh in the same house for which i have done lease agreement.

    My question is that whether my lease agreement is automatically get cancelled or my company will still pay my landlord the lease amount as my family is still living in the same house.

    • This depends on your company’s internal policy and the contract you have with them. It is best to clarify from the HR. My first impression is that they are unlikely to pay for two places.

  23. Dear Ramanuj,

    have leased a residential property to the same occupant since the last ffour years with a new contract after a 11 month Leave and Licence, which we get it registerd too, however this year round after renewal in May I have noticed that the agent instead of mentioning 11 months like normal, has mentioned 12 months have informed him that it would need to be changed since even though we had overlooked the draft copy since we were dealing with him since 2010, I need to know how we can get about changing a registered Leave and License tenure officially.

    • You would just have to enter into a new agreement amending the earlier agreement and the other party has to agree to this. Then you can get this amendment agreement also registered.

  24. Dear ramanuj,
    Please let me who is the person authorised to sign on behalf of a pvt.Ltd.company(i.e.lessee in this case) and wants to go for a long lease at a place other than its registered office place(which is outstation).Since they say a person(who is staying here i.e.Mumbai) will be given the authority to sign the Leave & license agreement on behalf of the company(bangalore).Secondly,what sort of lease period is advisable i.e 11 months or a 1yr format lease agreement since it is a commercial property.Because they say we would like to sign a 2yr contract only. but for 1year clause and not 11 months.What sort of ownership right does it transfer if we sign a 1 to 2yrs contract in favour of lessee?

    • Hi, if this is a commercial lease then no problem in giving 2 years lease.

      To know who has authority to sign contracts, please ask for their Articles of Association of the company. The same can be downloaded for Rs. 50 from the website of MCA21. That document should mention something about who is authorised to sign the document.

      Also, please ask them to give you a copy of a board resolution authorising some person to enter into the agreement.

  25. Hello Ramanuj, Thanks for the good article published. Can you advice in following situation.
    1. The tenent wants to have the agreement entered in his wife’s name. is it ok to have the agreement with the wife? She is a housewife and has not definite source of income
    2. Under which law shall the arbitration of the L&L agreement be covered.
    Thanks so much

    • Yes, it should not be a major problem. In any case, you should have a short notice period within which they will have to vacate if you give such a notice. Also, I am sure you will take an advance rent for a few months. This would minimize any risk.

      Arbitration will be governed by Indian law.

  26. hi i m stsying as a tenant in commercial property woith the agreement of 10 years and renewable at 11 months now i m suffering huge losses in businees and dont want to continue but my landlord is telling me that i cannot vacate and refusing to pay deposit whuch was ver high what should i do and what options are left to me

    • Need to see the agreement to comment. In most cases lock in clauses are invalid. Need to see if you have an arbitration clause in your agreement. Get help from a good lawyer.

  27. Hi , we have a lease agreement with an individual owner for an NGO (as tenant). We have lock-i n period of one year but have to vacate the premise in threemonths as the NGO is surrendering its society registration and closing down. I’m one of the signatory as representative of the NGO. Do I as an individual have any bearing with this and can I be held responsible by as per the lease agreement

  28. Hi, A Supplier supplied some goods to a dealer who owes its value to my friend since almost 3 years now. The dealer expressed inability to repay this sum but offers his premises for the use by the supplier to carry out his business without claiming any rent for the premises. The supplier is willing to treat a portion of dealer commission as rent. Please advise what sort of contract is to be signed between the parties here. Thanks in advance for your response.
    Warm Regards,
    Arvind K

    • Enter into a lease agreement. The lease agreement will have a clause explaining that the lease amount has been received by the landlord in advance. Thats all.

  29. 1. Apart from transfer of rights, could you elaborate more on the differences between lease, tenancy and leave & license?

    Like rental statutes, are lease agreements regulated by a law too?

    2. What are tenancy rights and how do they accrue?

    Thanks

    • Unlike rent control acts, there are no lease control acts. They are governed by property laws, and of course there are statutes that lay down these laws.

      These terms are only different in terms of property rights given to the lesee/tenant/licensee. Other differences could be in terms of taxation (stamp duty), operational efficiency (for some businesses it is necessary to take long term leases) and risk and responsibilities of the landlord. Usually, leave and license is suitable for residential properties. Tenancy puts landlord at too much risk and should be avoided. Lease is suitable for commercial properties.

      Tenancy rights have been created by statutes. There can be different rights in different cities depending on the laws. Tenants may have right against eviction (unless they fail to pay rent or damages property etc) and may even be protected increases in rent above a specified sum or percentage. This puts landlord at great disadvantage.

  30. I am planning to rent out my place which is an Industrial premise/gala for a period of 60 months is it proper to do so or should I get it done for every 11 months as such. Further is it necessary to get the residential address of the licensee in the agreement

    • It is fine to enter into long term leases for commercial use of property. In case of residential property, however, always go for 11 months leave and license.

  31. A great piece of information, Ramanuj. Thanks!

    I need a little more input from you. We are taking a 2000sqft industrial premises for commercial kitchen for restaurant that calls for substantial investment (around Rs.20 lakhs). The immovable component of this investment is about Rs.10 lakhs ( civil work / drainage / water-proofing etc). Hence my query to you is :

    1. Should be sign a commercial lease or a leave and license agreement ? The owner seems more comfortable for a leave and license agreement.

    2. We desire lock-in period of 5 years due to our substantial investment in owner’s property but the owner fears that such long lock-in-period can give us ‘tenancy rights’ in future which are not desired by him. What’s the way out ?

    Thanks a ton in advance for your inputs.

    Regards,
    Gaurav Agrawal.

    • You must ask for a commercial long term lease and nothing else. no compromise on this given your investment into the property. Tenancy rights are not created in case of commercial property at all, they can be created only in case of residential properties, so owner need not worry at all. Ask him to consult a lawyer so that he can be assured.

      Lock ins are not entirely enforceable so you remember to put in non-compete clause, calculation of damages (in case of terminating before 5 years) etc. You shd ask for right to sublease also.

  32. Very nice blog. very informative. Thanks. I have one query, One of my friend is going to start a Gym in Tamil Nadu and he want to avail rented property for five years. He will be making changes to interior. And his landlord has put the condition that, ‘ even in lock -in period, he can ask tenant to move from the property any time’. Other condition is if my friend is not able to pay rent for two consecutive months then contract will be terminated and he should vacate the property.
    Could you please guide what should be the conditions for such agreement?

    • for a gym, there should be no question of being removed from the property with less than 6 months notice. Your friend should push back and negotiate hard. Otherwise it can lead to huge losses.

  33. A very well written guide demystifying leave and license agreements! The best part about this they manner in which you have balanced the dos and donts for both the landlord and occupant!

    In your point about Lock in periods, you havent mentioned if the lockin is also binding on the landlord. Is lockin a one way clause where only the occupant is bound by? How does an occupant ensure that the owner will not ask to vacate within the lockin period?

    • Lockin may not be binding at all if you try to enforce it in a court of law – but it is put into the contract for psychological effect and practical reasons. It should bind both parties equally – but parties have freedom to do whatever they negotiate with respect to this. If you want that only one party should be locked in – you can do that.

Comments are closed.