Introduction
Non-resident Indians (NRIs) frequently own property in India and renting them out can help in generating income. However, it is not easy to manage and maintain tenants while staying abroad. At the time of renting out the property in question the parties are required to execute the agreement which is called Leave & License Agreements or Rent Agreements. Although they may seem similar, they serve different purposes and offer different benefits especially for NRIs as these agreements confirm the contract between the owner and other party/parties.
Table of Contents
Leave and license agreement
A leave and license agreement are a form of contract through which written permission is granted by the owner of the property to another person to use and to occupy the property for specific reason and the possession and control over the property retains in the hand of the owner. The agreement contains all the terms and conditions mutually agreed between both the parties and for the usage of property.
This legal document helps in balancing and protecting the interests of the owner of the property and the occupant thereof.
There are two binding parties involved, i.e., the owner of the property, who is licensor, and the one to whom temporarily permission for use is given, i.e., licensee.
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Benefits of leave and license agreement:
- Possession and control with licensor: The right given under this agreement is merely for the purpose of use for a definite purpose, but the exclusive control and possession is retained with the licensor.
- Termination and eviction: The process of termination and eviction of the licensee from the property does not include any complex legal formalities as it can be terminated by merely giving notice to the opposite as per the terms and conditions set forth in the agreement executed.
- Protection of security deposit: The security clause in an agreement is the proof of record, that security amount being received by one party and is paid by the other party, which safeguards the interest of the licensor by providing the basis for claiming the security in case of any damage or breach occurred by the licensee.
- Flexible and clear terms and conditions: The agreement of leave and license clearly states all the rights and liabilities of both the parties, covering usage, rent, maintenance, security, duration, renewal, termination, and dispute resolution, and can be amended by mutual consent.
- Legal clarity: The agreement itself contains all the terms and conditions related to eviction, termination, maintenance, payments etc. thereby reducing the chances of any dispute and also providing legal recourse in case any dispute arises.
- No tenancy rights: Under leave and license agreement a landlord- tenant relationship is not created; thus, it helps in safeguarding the rights of the owner from any type of ownership claims to be made by the licensee thus protecting from any legal complications.
- Avoid rent control and tenancy protection laws: This type of agreement does not create any tenancy rights and is not covered by strict rent control laws, which provides an opportunity to NRIs to set the terms, rent, and conditions for ending the agreement more freely and according to their convenience.
Rent agreements
A rent agreement is legally enforced document wherein the owner of the property is transferring the possession to another person in lieu of payment i.e., the determined rent for a definite period of time as agreed mutually between parties. Under this agreement, the possession along with the right to enjoy the property peacefully and its usage is transferred for a fixed period of time.
There are two parties involved, namely the landlord, who is the owner of the property and the tenant, to whom the property has been let out.
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Benefits of rent agreements:
- Legal enforceability and validity: A registered agreement contains all the rights, obligations, terms and conditions mutually decided by both the parties. With this, both the parties are bound to act in a legal manner and should not act in violation of that which helps in preserving rights.
- Protection of property rights: Rent agreements provide complete right of possession to the tenant even though tenants are still obliged to use the property in a fair and proper manner, therefore with this the interest of the landlord in the property is safe.
- Legalized eviction process: The rent control laws of specified states provide the legalized way of eviction and reasons for legal eviction, thereby helping the landlord to follow the court process on such reasons and get easy eviction.
- Clear terms and conditions: An agreement clearly states all the terms and conditions that were mutually agreed upon by both the parties such as maintenance, rent, tenure and notice period time for termination on both parts. It also provides terms related to dispute resolution in case any arises.
- Dispute reduction: A formal recognition helps in avoiding disputes and clearly specifies rules about the usage of property, payments of rent, liabilities in case of damage by tenant, and notice of termination, thus helping in reducing any disagreements between landlord and tenant.
Difference between leave & license agreements and rent agreements: –
| Basis | Leave & licence agreement | Rent agreement |
| Nature | It is basically a permission to use and occupy the property without transferring the ownership and possession. | It is generally the transfer of possession and enjoyment of the property to another person in lieu of rent paid. |
| Parties |
|
|
| Rights | Only the right to use property is given.
Possession and full control remain with the owner. |
Possession and control given to tenant. |
| Duration | Generally, for short-term (up to 11 months) | It can be for a longer term also subject to extension by the parties. |
| Governing law | Indian Easement Act,1882 | Rent control laws |
| Transfer/sublet | Licensee cannot transfer or sublet his right of use in the property. | The tenant can sublet to another after getting written acknowledgement from the owner. |
| Eviction | Prompt and easy eviction as per terms and conditions of agreement | Eviction of a tenant can be done according to an agreement or otherwise by the process of law defined in rent control acts. |
Conclusion
Rent agreements and leave & license agreements are inescapable legal documents that support the hassle-free renting of premises by NRIs in India. A rent agreement provides legal security by clearly defining the terms and conditions, reducing the possibility of conflicts. Alternatively, a leave and license agreement provide more flexibility, enabling NRIs to lease out their premises remotely without having to go through complicated termination processes.
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Both agreements give legal guarantees, safeguarding everyone’s interests and preventing legal complications. They also ensure the property is well-managed and compliant with applicable laws. However, it is crucial for NRIs to have a thorough understanding of local legal requirements before proceeding, to ensure complete legal protect.