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How to make a solid leave and licence rental agreement

A leave and licence rental agreement is a contract between a landlord and a tenant. The agreement specifies the terms and conditions based on which the property is let out.

Representative image

Representative image

When software engineer Kamlesh Trivedi, 31, shifted to Bengaluru, he took up a house on rent. All was well at first — it was a spacious 2 Bedroom-Hall-Kitchen (BHK) flat, his family had joined him, and the office was close by. However, after three months, cracks started to appear. Literally.

Trivedi noticed that the electrical wiring and plumbing had started coming apart. When he told the landlady about it, she refused to get any repairs done. Instead she pointed to the agreement; Trivedi realised upon a closer reading that maintenance was the tenant’s responsibility. That’s not uncommon, but he had erred in not reading the agreement carefully.

Typically, a leave-and-licence tenancy agreement is structured in a way that protects the interests of both the tenant and the owner. The landlady retains the right of the flat, as it is her own. But the tenant should not have to incur maintenance charges that the landlord should ideally take care of. But sometimes, agreements are drafted in a way that favours the landlord.

So, what does an ideal rent agreement look like? Let's begin with the basics.

What is a leave and licence rental agreement?

A leave and licence agreement is a contract between a landlord and a tenant. It specifies the terms on which the property is let out, such as a description of the property (address, type and size), monthly rent, security deposit, duration of the agreement, as well as the conditions for its termination.

“The terms and the conditions are negotiable and crafted in mutual consent, which, upon execution of the agreement, become legally enforceable and binding on both the parties (landlord and tenant),” says Javed Dhorajiwala, Senior Partner, MZM Legal LLP.

“Given the things this agreement covers, it’s also important that it is registered. It shouldn't be left to an oral understanding,” says Sagar Kadam, Partner, DSK Legal.

No rental agreement? That’s a disaster in the making

Just in case there isn’t an agreement, “your landlord can hike the rent suddenly, or you may not get the minimum 30 days’ notice to vacate the premises,” says Dhorajiwala. You also cannot apply for tax exemption via house rent allowance (HRA) if you don’t have a rent agreement. It can be shown as a piece of evidence in the court in case there is a dispute against the landlord.

The absence of a rent agreement also hurts the landlord. “If any damage is done to the rented property, the landlord cannot make the tenant pay for damages,” adds Dhorajiwala. A rental agreement can also specify penalties if the tenant delays paying rent. If there is no agreement in place, then the landlord cannot impose penalties.

The ideal rental agreement

Aside from basic details about property, a solid rental agreement should clearly spell out rent payment dates, frequency, penalty payment if the rent is late, a clause that specifies that the rent might go up, say after certain periods, and so on. It should also give freedom to the landlord to sell the property during the term of the rental agreement. And above all, it should specify who bears what charges, including society maintenance charges, utility bills such as electricity, water, gas connections and so on.

“It is advisable to rent a property only after all the required repairs and maintenance are carried out. This way, the tenant will safeguard himself from unnecessary expenses that may crop up in future on wiring, plumbing, painting, etc.,” advises Purvi Asher, Partner, Mansukhlal Hiralal & Co., Advocates & Solicitors.

“Before signing the rent agreement, check whether there is any-lock in period prescribed in the rental agreement and check if there are house bills, if any, that are pending. Then convey this to the landlord immediately,” says Dhorajiwala.

To make the agreement watertight, Dhorajiwala recommends registering it at the local sub-registrar’s office. A landlord typically keeps the original copy of the rental agreement, and tenants are given a photocopy.

What precautions should a landlord take?

A landlord’s biggest worry is that the property can be usurped or illegally occupied by an errant tenant. “Thus, the rent agreement has to be first of all stamped and fully registered,” says Asher. In the absence of registration, it can be misused.

Aditya Khadria, Co-founding Partner, LEx Aeterna Practices, warns that “where rental agreements aren’t registered, a tenant might just continue to live on and refuse to vacate. Grounds for termination is an essential part of a rental agreement.

Due to a rise in unlawful activities, experts recommend a background check on the tenant.  “Landlords should insist on police verification of tenants who are foreign nationals or migrating from another city,” says Asher. Proof of employment instills confidence about the tenant.

What if a tenant refuses to move out?

In this case, the landlord can take the tenant to court. “This is possible only if notice of 90 days has expired and the notice period starts 15 days after the landlord has given the intimation. This rule is mentioned under Section 106 of Transfer of Property Act 1882,” says Dhorajiwala.

Additionally, the landlord can also take back possession if the tenant has made changes to the property, surreptitiously and illegally.

Framing an agreement

In general, most lawyers who assist in framing the rental agreement, have a ready template. This doesn’t mean that you cannot change the provisions. “You can also tailor the agreement to suit your needs, with clauses that are mutually acceptable to the tenant/licensee and the landlord,” says Khadria. You can also use the online rental agreement template provided by states. For instance, Maharashtra has a desired rental agreement template on a website.

The landlord and licensee can fill in the details of both parties in the template provided on the website, says Khadria. There is a space provided for additional terms and conditions to be added. A landlord can mention the security amount, monthly rental/licence fee, penalty for late payment etc.

After filling this, an online licence agreement (for the rental arrangement) gets generated. The parties involved can even pay the stamp duty and registration fees online for this rental agreement and register the same without physically visiting the office of the sub-registrar.

Hiral Thanawala
Hiral Thanawala is a personal finance journalist with 9 years of reporting experience. Based in Mumbai, he covers financial planning, banking and fintech segments from personal finance team for Moneycontrol.