LEAVE AND LICENSE

Leave and License Agreement

A leave and license agreement is synonymous with a rental arrangement. Simply put a leave and license is an understanding, where one party (the owner, called the ‘licensor’) gives a limited right to use his premises to the other party (called the ‘licensee’) for a rent. This arrangement is popular since it creates no lasting legal rights in favor of the licensee. Compared to a lease agreement a leave and license agreement has limited authority with regards to the property.

A property owner wishes to generate income from the asset by letting it out on rent. At the same time, the owner may also be concerned about implications under the tenancy laws. These laws, in certain cases, give legal rights in the premises to the licensee. Leave and license is a way in which the owner can put the premises to good use without the fear of losing it. However, for this, it is necessary that the leave and license agreement is drafted carefully and is registered with the government. If this is not done properly, legal rights in the property may be claimed by the licensee and the property may be locked up in litigation for a number of years.

What are the essential elements of a leave and license agreement?

These are the general provisions to be included in a leave and license agreement. These features are not exhaustive, and not all of these features may be present in an agreement. It depends on the terms agreed between the licensor and the licensee.

    • Definition of the licensor and the licensee-The agreement should clearly identify the licensor and licensee.
    • Title of the licensor– The authority of the licensor to enter into the agreement must be shown. The licensor may enter into the Agreement as an owner or as a person properly authorized by the owner.
    • Title of the licensee– Where the licensee has entered into the agreement on behalf of a firm or a company, the source of authority of the licensee (board resolution, etc.) to enter into the contract should be stated in the agreement.
    • Definition of the premises– The agreement should identify the premises being let out and should demarcate the actual portion of the premises that is being given on leave & license basis. This helps avoid confusion about the entitlement of the licensee.
    • Term of the license– The agreement must be clear about the duration of the license. After completion of the term of the license, the relationship between the licensor and the licensee comes to an end. Generally, a provision for renewal of the term on completion of the initial period by mutual consent of the parties is included for convenience.
    • Use of the premises– The licensor may wish to restrict the manner of use of the premises. Accordingly, the agreement can specify whether the premises are to be used for residential or commercial purposes exclusively.
    • Consideration for the license– The amount of rent payable, the date and mode of payment and interest in case of delayed payment should be clearly stated. Rent is generally agreed to be payable in advance on monthly or quarterly basis.
    • Security Deposit– In most cases, the licensee is required to maintain an interest-free security deposit with the licensor. This deposit protects the licensor’s interest in case of non-payment of rent by the licensee. In some cases, the licensee may also be required to deposit rent for a few months in advance. The amount and terms of use and refund of such deposit and advance should be clearly stated in the agreement.
    • Increase in rent– For license periods of over 1 year, the licensor may require that the rent will increase for each of the subsequent years. This increase is usually stated as a percentage of the rent paid in the previous year.
    • Other costs and charges– The agreement must specify who among the licensor and the licensee is to bear the cost of utilities such as electricity, water and maintenance. Generally, these costs are borne by the licensee.
    • Common facilities– If the premises have certain common facilities attached with it, such as use of common passage, roof, park, swimming pool, car parking, library, club, and gymnasium etc., the agreement should specify whether the licensee is entitled to these facilities and the additional charges payable, if any, by the licensee for such facilities.
    • Furniture and fixtures– Many times, premises are rented along with furniture and miscellaneous electrical appliances. It is advisable to record a complete list of all furniture and appliances that are agreed to be licensed along with the premises. The provisions for replacement or costs for damage to such accessories can be provided for in the agreement.
    • Right to sub-license– Unless the agreement specifies, the licensee does not have a right to sub-license the premises to a third-party.
    • Termination of the license– It is necessary to decide the events at which the license can be terminated. This provision acts as a guideline for the licensee and also ensures the security of the licensor.

What is the stamp duty payable on leave and license agreement?

In Maharashtra it is mandatory to register the agreement and it is the responsibility of the Licensor to pay the adequate Stamp Duty under the Bombay Stamp Act, 1958. However, the Stamp duty can be borne either by the licensor or the licensee, as may be agreed among them. Stamp duty can be paid by way of e-challan, franking, stamp paper, e-stamp, e-SBTR, etc. Further, in the State of Maharashtra, leave and license agreements are required to be compulsorily registered.

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