What is a 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.
What is a 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.
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 transfer etc. for hundreds of years.
If the person leasing the property is not the owner of the land, find out if he has the authority to lease it.
Want to lease this house? Better find out who is the owner first!
If the person entering into the contract is not the owner but someone else, you should check whether he has the authority to lease the property. Usually, a power of attorney can suffice for the purpose.
If you fail to enter into a contract with the real owner but enter into an agreement with someone who is not the real owner without due authority to enter into contracts, then the real owner may at any point evict you from the premises and you’ll have the status of a trespasser in the eyes of law.
While it may be possible to recover your costs from the person who misrepresented himself as being capable of letting out the property to you, but it will require a difficult and sometimes prolonged legal battle which is best avoided. In such cases, you may even register an FIR alleging fraud.
Also, in the agreement itself, it is desirable to insert a warranty clause on behalf of the lessor stating that he is a bonafide owner of the premises and that he has the requisite unfettered rights to rent out, lease or give on license the premises in question. An indemnity clause can also be inserted in cases there is a breach of this warranty, making the owner liable to make good all the losses arising out of such breach of warranty.
Renting out mortgaged property
Sometimes, a property to be rented out will be mortgaged with a bank or some other financial institution, in which case they would retain the registered sale documents. In that case, the owner would require a no-objection certificate from the bank or the financial institution. Failing to do this would be in violation of the mortgage agreement – and in case the bank tries to recover money by selling the property it may jeopardize the rights of the occupant, which must be kept in mind and provided for in the agreement.
Term of the agreement
What is the duration of the lease? Or the license? This is very important to specify. Any mistake in this regard can be very costly for the landlord. For leave and license agreements, a term of no more than 11 months is desirable. Commercial leases are often of long duration, sometimes running into 5-6 years as well. In case of factories, cinema halls or such other properties leases can be multi-decades or even multi-century long.
In case of lease of restaurants, or any property with significant setup or installation costs should be of a longer duration – so that the lessee who would make a lot of investment in the installation and set up gets enough time to exploit his investments.
Termination clause and notice period
Most property related disputes between landlord and occupant usually take place over termination and eviction. It is, hence, very important to clearly specify in the agreement as to how and in what circumstances the agreement can be terminated. Usually provision is made for both fault based and no-fault termination. Fault based termination rights are triggered when one party breaches any terms and conditions of the agreement. No fault termination is when the parties can terminate the agreement without citing any reason.
Due to the difficulty and costs associated with finding a new premise as well as finding a new occupant, both landlords and tenants are usually not too happy to have easy no-fault termination clauses. Hence, leaving the premises is often made difficult by throwing in long notice periods and even lock in periods. This is very common in commercial property leasing.
In any case, it is a common practice to include a clause stating that either of the parties can terminate the contract, and the manner in which the termination notice shall be served and the duration of the notice period. The notice period is essentially the time other party gets to make alternative arrangements or brace for the termination before it is actually terminated. One month notice period means that the party willing to terminate the contract must notify the other party at least one month before he actually intends to terminate the contract. One month and three month notice period are most common in India although sometimes parties can insist on an even longer notice period.
Even if the owner wants to sell the property, he must respect this notice clause.
Lock in clause
Some agreements have a lock-in clause. The lock-in clause of a leave and license or lease agreement states that a tenant cannot leave the rented property or terminate the agreement for a specified period of time, during which the contract is ‘locked in’. This period is commonly referred to as a lock-in period. If the tenant leaves the rented property he/she would be required to continue to pay the rent until the lock-in period is over.
For instance, if the lock-in period is 1 year and the tenant wants to leave after 4 months, then unless he is able to negotiate something better with the landlord, he must either retain the place until the end of the year despite giving notice, or vacate the place but pay for the entire year’s rent anyway.
Lock in periods is more common in lease agreements as opposed to leave and license agreements.
The occupant should be wary of this clause, especially if he is unsure about how long he intends to occupy the property. If the landlord insists on adding this clause, the tenant can try and add a provision for it to not apply in exceptional circumstances (for example, the lock-in clause will not apply if the tenant is transferred to another city by his employer).
It is common practice to specifically prohibit sub-letting. Otherwise, the landlord would lose control over what kind of people are allowed to stay in the property. If sub-letting is not prohibited, the occupant may sub-let the property to undesirable people on whose conduct there will be no control of the landlord.
In case of properties such as restaurant, factories or any other property with major investment in installation costs, it is important to have less strict sub-letting clause. Ideally there should be no restriction on sub letting given the nature of the restaurant business, where management often changes hand frequently. In any case, the agreement should at least include a clause where upon paying a specified fee to the owner, sub-letting will be allowed.
Apart from specific obligation to pay and the amount of rent/ license fee/ lease fee, the agreement should be very clear about when the payment obligation arises. There should be no doubt as to on what date what amounts become payable. It is also justifiable to specify what will be the mode of payment – such as cheque, cash or internet transfer, and to whom the payment is to be made. Sometimes, the security deposit is adjusted against the last few months rent – which should also be specified in the agreement. The consequences in case of delay in payment, usually penal interest in the range of 12 to 18%, in case there is more than 10 days of delay, can also be specified.
Increase in rent clause
Many a time a landlord may slip in a vague rent increase clause that gives him the power to increase it any time “if market price changes”. The perception of market price can widely differ from person to person – hence it is the duty of licensees or lessee to keep such clauses out of the agreement. Some lease agreements specify that every year the rent will increase by 10% – in which case it would be a good idea to clarify whether this is a simple increment or a compound increment. In case of leave and license agreements, since such agreements are anyway only for 11 months, rent increase clauses are unusual and should be negotiated hard by occupants. The agreement should specify that unless specifically provided in the agreement, there will be no rent increase during the term of the agreement.
The landlord may insist on a guarantor clause, though this is not a common practice. In case any default is made by the occupant, the guarantor can be called on to make the losses good. This is a rarely used clause but very effective in case of disputes between landlords and occupants.
Maintenance/association charges clause
In case of an apartment or house rented in a society, there may be a fixed monthly maintenance charges or association charges by the society. The usual practise is for the landlord to pay the maintenance/ association charges, although he can transfer the same on the occupant through the agreement. The agreement should have a clause stating who is going to bear this expense. The agreement should specify who would bear all electricity, water and other utility charges if any.
Wear and tear clause
Certain features of the property are bound to deteriorate with time, for example: the paint coating etc. and the occupant should not be held responsible for such normal wear and tear. The agreement should contain a wear and tear clause stating that the occupant will return the property in the condition in which he received it, subject to normal wear and tear, as long as the same was not caused by any direct act or negligence.
Clause for furniture and fixtures
If a piece of furniture is no longer working or becomes unfit to use as a result of everyday wear and tear, then the landlord is required to replace or repair the item. The landlord cannot charge the tenant or withhold the deposit for items which are unusable due to everyday wear and tear. A specific clause should be entered into the agreement for this purpose. However, if an occupant would damage a piece of furniture or equipment through improper use or carelessness then the landlord is allowed to charge the tenant for the damage or withhold all or part of the deposit up to the amount of loss.
These fixtures (such as furniture and electrical appliances) in the premises must be listed, counted and the details of the same should be added as an annexure to the agreement. The occupant should be required to ensure in the agreement that these remain in working condition and undamaged throughout his possession of the property. The wear and tear clause must apply to these items as well.
Clause on associated facilities and amenities
Many properties come along with facilities like parking space, use of swimming pool, club or gym etc which the owner is entitled to along with the property. However, these rights do not transfer to the licensee or the lessee unless a clause is inserted into the agreement specifying that such incidental amenities and associated facilities will be accessible by the occupant.
Security deposit clause
The essential purpose of the security deposit is for the convenience of rectifying arrears in rent, damage to property, unpaid electricity or phone bills and other miscellaneous costs that remain unpaid by the occupant. The amount is often in multiple of the monthly rent (for example the security deposit can be amount equivalent to 6 months’ rent). The security deposit is refundable, less the cost of any damage on repossession the landlord and is normally interest free.
A proper clause should be inserted in the agreement stating that the security deposit will be refunded to the tenant on repossession of the property by the landlord. The agreement should clearly state whether this deposit is interest free. There should also be a clause in the leave and license or lease agreement addressing the consequences of failure in part of the landlord to return the security deposit in timely manner. The agreement should provide that a certain interest will be charged on the security if it is held back beyond the date on which it is supposed to be returned to the occupant under the contract.
This clause can also state that a penal amount will be charged on the security deposit for every day of delay by the occupant to leave the premises after the term of the lease or the leave and license is over.
The security deposit clause should also specify as to what kind of penalty can be charged by the landlord in what circumstances against the security deposit maintained with him.
Repair works during occupancy
The agreement should specify who would be responsible for what kind of repairs. Small repair work without significant financial burden should be covered by the occupant, but the cost of significant repair works which are necessary to keep the premises in liveable or usable condition should be negotiated upon and allocated for in the agreement. If not specified, this often leads to disputes between parties. If nothing is specified, then occupant may be obliged to carry out even major repairs to keep a house in liveable condition. The agreement should specify if the occupant is under an obligation to report any damage to the property to the landlord and how much time may lapse before such reporting.
Clause for tax liability
Tax liabilities may arise out of renting out a property, especially in case of commercial properties. It is desirable that the parties should allocate responsibility for payment of service taxes, property and municipal tax and water tax in the agreement. Further, note that in certain cases tax is to be deducted at source (TDS) on rent payments. This reduces the actual amount of payment received by the lessor. In order to prevent confusion in future, it is safer to specify whether TDS can be deducted from the rent amount (thereby reducing the rent amount) or whether the amount specified as rent is the amount left after deduction of TDS (in which case, the rent payment must be grossed up, known as a tax gross up).
If nothing is specified, tax liability would usually fall on the landlord. Even without mentioning as such, occupant may be able to deduct TDS anyway.
Dispute resolution clause
This clause refers to the court which will have authority to resolve the dispute, in case there arises any dispute between the landlord and the tenant. Normally, it is the court which has jurisdiction over the city in which the property is located, or the court which has jurisdiction in the city where the landlord resides. A clause to submit the dispute to arbitration through this clause is possible, and in most cases will be very desirable, especially agreements involving significant money.
General nuisance clause
General nuisance clause is to prevent the occupant from carrying out, or permitting others to carry out, undesirable acts that might cause nuisance to the landlord or the neighbours. Landlords often prefer to make this a trigger for termination without notice – although this is almost certain to be disputed and not very practical in reality.
General points of concern regarding leasing or renting of any nature
Apart from the above mentioned clauses the tenants and landlords should be aware of other basic and peculiar details of their legal relationship imposed by law. For instance, a tenant should be aware of the fact that the landlord’s permission is required before initiating any major changes to the property.
The occupant should be wary of clauses allowing for automatic increase in rent, arbitrary amendments to the existing terms of the agreement by the landlord, and any provision that permits the landlord to enter the property at any time.
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[…] Must Read: What are lease, tenancy and House Rent Agreements? How to negotiate for them? […]
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
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 %.
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.
Thanks for the informative blog. Recently i had used rentmantra’s services which providing Rent Agreement
Thank you for the Very well written and well discussed points.
One angle of common usage is the case of residential flat or house given to a pvt ltd (startup) company for office work in suburbs just at city limit, and in this case can landlord insist on leave and license.
If the startup has insisted on 2 or 3 or 5 yr lease, does it create any risk of tenancy rights? Is it safer to have lease of 2 or 3 yrs and not 5?
If the commercial spaces are renting at Rs 40 to 60 per sft at 1 km from there towards the city, would it be reasonable to raise the rent from the current Rs 13 per sft to around 20 per sft?
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.
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.
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?
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.?
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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)
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
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.
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 ???
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?
Great post!! To know more information on lease agreements you can visit here agreements.org site
Thanks for providing such a useful knowledge on how to negotiate the lease house agreement.
Let me know the course of action if person does not vacate the property and nor does he clear his dues according to agreement
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.
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
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?
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.
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
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.
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 ?
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.
Sir, please guide us canwe go for leave and license agreement for commercial property
yes definitely – but that is an unusual practice because the person renting the place is in too much disadvantage
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.
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.
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.
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.
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.
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
Is the NGO a trust or society or a sectio 25 company? Need to know this first.
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.
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.
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?
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.
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.
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.
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.
great information provided. Thanks in deed.
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.
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.
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