Giving your property on rent means searching for tenant who will maintain your property as you have. However with the sudden surge in the number of Online property Portals and their efficient search filters it has now become much easier to find a good tenant.To protect your property from non-cooperative tenants and to avoid falling into legal hassles here are 5 things to consider before giving away your property on rent.
1. What is Rental Agreement?
A rental agreement is a contract between a landlord and tenant whereby a landlord gives tenant the right to occupy the residential premises.
2. Is Rental Agreement and Leave and License Agreement same?
No. Most of the times words Rental agreement and Leave and License agreement are used interchangeably, however there is a vast difference between the two of which mostly people are unaware of.
Rental Agreement
In Rental agreement (also called as Lease Agreement) there is transfer of interest in the property from the owner/lessor to the lessee/tenant. The transfer of interest in the property is for the specific period of the rent agreement. In case of rental/lease the tenant cannot evicted from the premises except according to provisions laid down by the law in the Rent Act.
Leave and License Agreement
In Leave and License agreement the owner of the property gives only license to the licensee (occupier) to occupy his premises as per the terms of the agreement. There is no transfer of interest in the property like in case of rental agreement. In case of Leave and License the owner of the property can anytime ask the licensee(occupier) to vacate the premises by giving a prior notice as agreed in the agreement or for breach of any conditions mentioned in the agreement. The document gives only a right to use the property in particular way or under certain terms while it remains in the possession and control of the owner thereof, it will be a license.
What is the Standard Practice?
Generally residential premises are given on Leave and License basis, because of its obvious advantage of lesser legal hassles and more flexibility for both the parties.
Whereas Commercial properties are generally given Lease because it offers greater protection to the tenants as against landlords and is more regulated and has lesser scope of flexibility. As mentioned earlier in case of a lease, a tenant can be evicted only on the grounds laid down by the law, therefore the commercial tenants have better protection to run their business in Lease arrangement than by way of Licensed premises.
3. Why are Leave and License Agreements usually for 11 months?
The sole reason that lease agreements are generally for 11 months is because as per The Registration Act 1908, clause (d) of sub-section (1), requires any property which is given on lease for one year or more, the agreement needs to be compulsorily registered. In order to avoid registration and payment of stamp duty the agreements are typically made for 11 months.
However, now most of the state law requires the Leave and License agreement to be registered irrespective of the period.
Thus leave and license agreement for any period is very much legal and valid. Either parties can terminate the agreement before its term ends by giving a prior notice of a period agreed between the parties.
4. Important Clauses to be included in the Leave and License Agreement
Exclusive Possession:
Most agreements fail on this count, It is important for the owner/licensor that agreement clearly and unequivocally states that licensor/owner is granting and licensee/occupier is entitled to exclusive license for the property. It must be noted that there is clear cut distinction between exclusive license and exclusive possession. There may be an exclusive license being granted to licensee, but the fact remains that the exclusive possession is always with the Licensor/owner.
Lock and Keys with the Licensor:
It very much advisable to mention in the leave and license agreement that the Lock and keys of the premises shall also be with the owner/licensor. This re affirms the fact that the premises given only by way of license and there is no transfer of interest.
Assignment to licensee’s group / associate companies:
Many a times licensee’s insist that the licensee be allowed to transfer the licensee to licensee’s group company/ associate / sister concern. Allowing such a transfer is wholly at the discretion of the owner/licensor however make sure to mention that such transfer does not create a fresh licensee.
5. Whom to keep as tenants?
This might be the last thing on the list but not the least. It is very important to know the persons to whom you are renting your property. If your property happens to be in Co-operative Society, take permission of your of your society before keeping the tenants in your flat.
