Leave and License agreement is a legal bond between a property owner ( the licensor), and a temporary occupant of the property, (the licensee), allowing the latter to use the premises for residential or commercial purposes for a specific period. There can be residential leave and license agreement, which are for residential purposes, and there commercial leave and license agreements that are tailored to cater to the various aspects involved in commercial activities.
A leave and license agreement include the terms and conditions regarding license fee, license duration, security deposit, maintenance responsibilities, and any restrictions or limitations imposed on the licensee’s business activities. This agreement provides a legal framework, ensuring the rights and obligations of both parties are clearly defined and protected. They grant the licensee, the right to utilize the premises for commercial or residential activities while allowing the licensor to retain ownership and control of the property.
As per section 52 of the Easement Act, of 1882, leave and license is an easement right granted from one person to another about the occupancy of an immovable property. In the absence of such a right, the occupancy of the immovable property shall be unlawful. An agreement of leave and license is entered between the Licensor (owner or legally authorized person to license the property) and the Licensee (person who temporarily ocupies the property). There can be a Residential or a Commercial Leave and License Agreement as well.
It is regulated under section 52 of the Easement Act, of 1882 (Not applicable in the state of Maharashtra)
• Leave and License is a personal right granted to a person and cannot be transferred to a successor.
• It is a maximum of 11 months.
• Leave and License does not create any tenancy rights.
• It cannot be sublicensed to any third party whatsoever.
People often believe that leave and license, lease and rent are interchangeable terms. They don’t understand the difference between the same. To understand Leave and License with clarity it is important to understand how it varies from lease and rent.
| Sr No | Points of differences | Leave and License | Lease |
| 1 | Regulation | Regulated by the Indian Easement Act, 1882. | Regulated by the Transfer of Property Act, 1882 |
| 2 | Period | It is created temporarily for a period of maximum 11 months. Service lodges, banquets, paying guests etc. also fall in the ambit of leave and license. | It is created for 1 year or more. |
| 3 | Rights | It does not create any tenancy rights, therefore excessive escalation in the license fee cannot be questioned and sudden eviction is not protected. | It creates tenancy rights, therefore escalation in the rent amount should be by the guidelines provided in the Rent Control Act of the concerned state. |
| 4 | Transferability | It grants only a personal right to the licensee therefore the right cannot be transferred to the successors of the licensee. The license automatically is terminated on the death of the licensee. | In the case of a lease agreement, the rights can be transferred to the successors. Death of the lessee does not terminate the least if specified in the agreement. |
| 5 | Sub-licensing | Sub-licensing is not allowed in case of a leave and Licensing agreement. | Sub-licensing is allowed in case of a lease, but only after a mutual agreement with the lessor. |
| 6 | Stamping and Registration | Only stamping is required in a leave and license agreement. | Stamping as well as registration is required in a lease agreement. |
| 7 | Common Area Maintenance charges ( CAM charges ) | No separate document or registration is required for CAM charges in the Leave and License Agreement. CAM charges can be incorporated as a clause in the Leave and License Agreement. | A separate document is made for CAM charges which requires mandatory registration. |
| 8 | Dispute Resolution | Negotiation being cost-effective is the mechanism commonly resorted to in case of a dispute arising between the Licensor and Licensee. | Arbitration is the dispute resolution mechanism resorted to in case of a dispute arising between the lessor and the lessee. |
| 9 | In case of a sale | In case of sale of the licensed property, the licensee has to vacate the premises | The interest of the lease is protected throughout the lease period even if the Licensed property is sold. |
| Sr. No | Points of Difference | Leave and License | Rent |
| 1 | Regulation | Regulated by the Indian Easement Act, 1882. | Regulated Rent Control Act of the concerned state. |
| 2 | Rights | No tenancy rights are created. | Tenancy rights are created. |
| 3 | Transferability | It grants personal rights and is not transferrable to the successor. | Rights can be transferred to the successor |
| 4 | Escalation | Escalation is not stipulated by law. | Escalation should be by the guidelines set in the Rent Control Act of the concerned state. |
| 5 | Jurisdiction | In cases of dispute, between the licensor and licensee, the aggrieved party can move to the Consumer or Civil Court. | In cases of dispute between the landlord and tenant, the aggrieved party can reach the Rent Control Board of the concerned state or can move to the small causes court. |
| 6 | Purpose | Leave and License can be for commercial as well as residential purposes. | The rent Agreement is only for residential purposes. |
| 7 | Favourable | License is more favourable to the Licensor | The rental Agreement is more favourable to the Lessee. |
In Maharashtra, the concept of Leave and License is very much similar to the concept of Lease. All the obligations to be performed and rights to be enjoyed are the same as in the case of a lease deed. Rules of leave and license are different from all the other states on the following grounds;
• Period– The leave and License agreement in Maharashtra can be up to 60 months.
• Mandatory Registration– Even if the agreement is less than 11 months, it requires a mandatory registration along with stamping as per section 55 of the Maharashtra Rent Control Act,1999. Section 55(2) of the Act makes the licensor, or the landlord responsible for getting the registration done. As per the Maharashtra Stamp Act, the stamp duty shall be a fixed 0.25% of the total amount of the license fee payable by the licensee during the entire term of the agreement.
• Tenancy Rights– Tenancy rights are created in the favour of the Licensee.
• Sublicensing– Sublicensing of the licensed property is allowed to the licensee only with the consent of the Licensor.
• Transferability– Rights can be transferred to the permittable assignees or successors.
When a leave and license agreement is entered to occupy commercial properties like shops, warehouses, restaurants, office buildings or industrial properties taken on a license to carry out business activities, then such an agreement is called a Commercial leave and license Agreement. In Maharashtra, the commercial leave and license agreement can be for a period of up to 60 months and in other states it can be for a maximum of 11 months.
Sample Clause
The Licensor represents that,
(a) he is the lawful and absolute owner of the Licensed Premises situated on the 3rd Floor, ‘B’ Wing, bearing Flat no 307 and having a carpet area of 600 Square feet in the ‘Mountain View Apartments’, Sunshine Colony, Mumbai 400010;
(b) he enjoys all rights, title, and interest therein;
(c) the said property is free of all charges and encumbrances;
(d) he has the legal authority to license the property;
(e) he has conducted all due diligence with regards to the Licensee, including a police verification of the licensee before licensing the said premises to him.
(a) if the Licensee is found guilty of conducting any illegal activity on the premises;
(b) if the Licensee is guilty of causing any nuisance to the neighbours;
(c) if the Licensee has made any material addition or alteration in the premises without the consent of the Licensor.
(d) if the Licensee fails to make the timely payment of the monthly Licensed fee or fails to pay the same consecutively for 3 months whether or not such fee was demanded.
(e) If the Licensee breaches any of the terms of the Agreement;
(f) If the Licensor urgently needs to retain his premises for self-use;
then Licensee shall be duty-bound to vacate the said premises and hand over the peaceful possession of the same.
Conclusion
Before entering into a commercial leave and license agreement, it is vital for both parties to thoroughly understand its terms and legal implications. Seeking legal advice and conducting due diligence on the property is crucial to ensure a transparent and secure transaction.
In conclusion, commercial leave and license agreements provide a structured approach to leasing properties for commercial purposes. They offer flexibility to business owners while safeguarding the interests of property owners, making them an essential tool in the realm of commercial real estate.
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