Typically, there are two primary objectives for investing in a piece of property. The first is purchasing the property for personal use, and the second is buying it now with the intention of selling it later for a profit when the need for funds arises. Additionally, until the property is sold, it can generate a steady monthly income through rent.
“There is a significant number of people who own multiple residential and commercial property, which they rent out to receive a substantial amount of money each month. Earning income through a piece of property is an effective and suitable method, but sometimes landlords encounter tenants who not only fail to pay rent on time but also intend to take over the property. To protect landlords from such threats, rental or lease agreements were established,” informs Pradeep Mishra, CMD, ORAM Developments.
However, even with these agreements, landlords’ interests were not fully protected. Therefore, property owners have now started opting for the ‘Leave and License’ agreement. Although similar to a rent or lease agreement, the Leave and License agreement includes a few different clauses. Let’s understand how a Leave and License agreement is formed and its benefits.
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In the Landlord’s Interest
Whether it’s a rent or lease agreement or a Leave and License agreement, both documents are created primarily to protect the landlord’s interests and eliminate any possibility of the tenant taking control of the property. These documents clearly state that the property owner is giving the tenant permission to use the property for a specific period for residential or commercial purposes. This period can range from 11 months to several years, such as five or ten years. It is also mentioned that if the property is being used for residential purposes, it cannot be used for commercial activities.
Additionally, “if the agreement or Lease and License is not renewed after the specified period, the tenant will be required to vacate the property. These documents also include details like the property’s address. The difference is that in a rent agreement, the landlord is referred to as the ‘Lessor’ and the tenant as the ‘Lessee,’ while in a Lease and License agreement, they are referred to as the ‘Licensor’ and ‘Licensee’,” says Mishra.
The Difference Between the Two
A rent agreement is typically created for residential property for a period of 11 months, whereas a lease agreement is used for a period of 12 months or more and is generally utilized for commercial properties. On the other hand, a Leave and License agreement can be created for a period ranging from 10-15 days to as long as ten years.
Importantly, all these documents can be created on stamp paper through a notary. Moreover, if the rental period is 12 months or longer, it must be registered with the court. Since real estate is a subject on the state list, the registration fee in different states ranges from one to two percent of the rental amount.
Which Agreement Is Better?
Compared to a rent or lease agreement, a Leave and License agreement is considered superior because it can be created for a minimum period of 10-15 days and for as long as ten years. Additionally, it explicitly states that the licensee (tenant) will not claim ownership of the property in any form. This ensures that the landlord retains ownership rights over the property, even if it is temporarily occupied by the tenant.
“Another advantage is that if one of the parties dies after signing a rent or lease agreement, the agreement can be continued by the successors with mutual consent. However, in the case of a Leave and License agreement, it becomes null and void automatically if one of the parties dies, making it legally insignificant. It must be created anew in such circumstances. Therefore, I would strongly recommend that when renting out your property, you should always create a lease or Lease and License document to ensure that your ownership rights over the property are not challenged by anyone else,” suggests Mishra.