• Leave and license vs normal lease agreement for renting commercial property

What is leave and license agreement for renting commercial property. Which one is best normal lease agreement or leave - license agreement? In this pandemic a new form clause has been included in the agreement "Force majeure" what is the law in that respect.
Asked 3 years ago in Property Law
Religion: Sikh

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14 Answers

A registered lease agreement/ leave and license should be done. That safeguards the interests of the landlord and the tenant too. It is to be registered before the registrar office. It contains all the terms and conditions of the agreement and witnesses attest to it.

A lawyer should be engaged who will draft an agreement specific to you not just a general agreement.

Force majuere has always been there. It is now that the people have come to realise its importance. It means that forces beyond the control of either kf the party the agreement would not hold good/ cannot be enforced.

Rahul Mishra
Advocate, Lucknow
14107 Answers
65 Consultations

Better enter into registered leave and licence agreement 

 

2)Most property rental agreements contain such ‘force majeure' clauses which would suspend rent payment should any force majeure event occur

Ajay Sethi
Advocate, Mumbai
97524 Answers
7890 Consultations

Dear Sir/Madam

1. A leave and license agreement is a legal document that enables one party to allow another party to use their immovable assets, i.e., property, for a specific period without any change in the ownership of the asset. It simply means you have the power to allow the licensee to carry on business activity in the commercial premises.

2. Since we are currently facing a pandemic, making a strong lease commitment isn't worthwhile. It is better to opt for leave and license agreement. 

3. Force Majeure clause means that in case an extraordinary event takes place that is beyond human control (earthquake, flood, etc) the license is deemed to be revoked where the property is destroyed or by superior force so permanently, that the licensee can no longer exercise his right.

Thank you

Anik Miu
Advocate, Bangalore
10398 Answers
121 Consultations

A license is a personal right granted to a person to do something upon immovable property of the grantor and does not amount to the creation of interest in the property itself. It is purely a permissive right and is personal to the grantee. It creates no duties and obligations upon the persons making the grant and is, therefore, revocable except in certain circumstances expressly provided for in the Act itself.

The license, when granted, has not other effect to confer liberty upon the licensee to go upon the land which would otherwise be lawful.Under license agreements, the legal ownership and the possession of the property remain with the licensor. 

Under a lease agreement, the tenant generally has exclusive possession with respect to the property. In other words, a license does not create any interest in the premises in favor of the licensee. 

A lease of immovable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms. Primary distinctions between Lease and Licence:

1. A lease is a transfer of an interest in a specific immovable property, while licence is a bare permission, without any transfer of an interest. 

2. A lease creates an interest in favour of the leassee with respect of the property, but a licence does not create such an interest. 

3. A lease is both transferable and heritable, a sub tenancy can be created by the tenant and on the death of the tenant, the tenancy can be inherited by his/her legal heir, whereas, licence is neither transferable nor heritable. 

4. A licence comes to an end with the death of either the grantor or the garantee, since it is a personal contract, but a lease does not comes to an end on either the death of the grantor or grantee. 

5. A licence can be withdrawn at any time at the pleasure of the grantor but the lease can come to an end only in accordance with the terms and condition stipulated in the contract of tenancy agreement. 

6. A lease is unaffected by the transfer of the property by sale in favour of a third party. It continues and the purchaser has to wait till the time period for which the tenancy was created is over before he can get the possession, whereas, in case of a licence, if the property is sold to a third party, it comes to n end immediately. 

7. A lessee has a right to protect the possession in his own right. Whereas, a licencee cannot defend his possession in his own name as he does not have any proprietary right in the property. 

8. A lessee in possession of the property is entitled to any improvements or accessions made to the property, while a licencee is not. License does not allow any interest in the premises on the licensee's part. It merely gives the licensee the right to use and occupy the premises for a limited duration.A lease deed needs to be stamped and registered. The amount payable towards the lease deed's stamp duty is more than that payable towards the Leave and License's. For a period exceeding three years, the stamp duty is same for both agreements.

Ajay N S
Advocate, Ernakulam
4097 Answers
113 Consultations

-   For commercial property and current times, ts better to have registered leave and license agreement.
    Usually commercial property have long lock-in but in current times it have to be taken care of.

 

-   'Force majeure' was always there.
     People forgot abt this clause as it was taken for granted.
     Its use was in times of uncertainty in times of war, unforeseen circumstances.
     After pandemic, people opened their agreements to see if this clause was mentioned in agreement so they can take rebate of rent.

Ankur Goel
Advocate, Bangalore
454 Answers

Leave and Licence agreement is a document that bestows the Licensee with the permission to occupy the Licensor's property. Hence the occupancy is granted on Leave and Licence basis and not on tenancy basis. Such an agreement makes eviction easier and is general provides the landlord with greater power.

Differences between lease and leave and licence agreement

lease creates an interest in the property, unlike a leave and licence agreement. A lease grants a tenant with exclusive possession, while a leave and licence agreement only grants permission to occupy the propertyLicences are revocable; leases are not.

Force majeure means an  unforeseeable circumstances that prevent someone from fulfilling a contract.

The current pandemic do not attract the said clause. 

T Kalaiselvan
Advocate, Vellore
87726 Answers
2358 Consultations

1. Force majeure refers to unforeseeable circumstances that prevent someone from fulfilling a contract. Courts have for the past one year held that pandemic and lockdown are force majeure.

2. Leave and license agreement is the most suitable agreement for a commercial property.

Ashish Davessar
Advocate, Jaipur
30813 Answers
974 Consultations

If licencee refuses to vacate premises on termination or expiry of agreement you can approach small causes court for necessary reliefs 

 

2) force majeure clause in a contract would typically include an exhaustive list of events such as acts of God, war, terrorism, earthquakes, hurricanes, acts of government, explosions, fire, plagues or epidemics or a non- exhaustive list wherein the parties simply narrate what generally constitute force majeure events and thereafter add “and such other acts or events that are beyond the control of parties”.

Ajay Sethi
Advocate, Mumbai
97524 Answers
7890 Consultations

-  Thatswhy its better to discuss complete requirement. so proper solution can be given.

 

1-   Your mother can give PoA to you to make lease agreement.

She can even Gift the property to you if she wants. It will be very less registration fees. 

As legal heir you can continue lease agreement. 

 

2-   Basically anything which is not in control of humans in normal conditions. Like God acts. 

Pandemic, govt imposed lockdown comes under force majeure, thats the reason everyone was searching it in their agreements. 

 

3-   Thatswhy suggest to make registered leave and license.

Registry gives it legal protection and accepted in courts. 

Negatives depends only on conditions and situations. example there is 5 year lock-in but you want to sell property then it can not be done. 

 

Hope this helps. 

Ankur Goel
Advocate, Bangalore
454 Answers

Death is always unpredictable and can happen to any of us. Any agreement between the parties can only subsist till the parties are alive. After the death of either one/both of them a new agreement has to be drawn up by the legal heirs.

Yes it is a valid document and rights can be decided on its basis.

Pandemics ar covered by the force majuere clause. You may not include the same.

Rahul Mishra
Advocate, Lucknow
14107 Answers
65 Consultations

Dear Sir,

1) Yes the liscenpec is valid as long as mother is alive, Your mother will have to gift the property to you through a registered gift deed to give you rights to property in case she passes away. In any adverse case you can always approach the court against the licencee.

2) The event must be unforeseeable such that the parties could not have protected against its occurrence in the license. Force majeure clause includes Acts of God or natural calamities. Pandemic or state imposed travel restrictions may be covered under the same.

Thank you

Anik Miu
Advocate, Bangalore
10398 Answers
121 Consultations

force majeure is a contractual provision allocating the risk of loss if performance becomes impossible or impracticable, especially as a result of an event that the parties could not have anticipated or controlled.

A force majeure clause typically spells out specific circumstances or events, which would qualify as force majeure events, conditions which would have be fulfilled for such force majeure clause to apply to the contract and the consequences of occurrence of such force majeure event.

If an event or circumstance comes within the ambit of a force majeure event and fulfils the conditions for applicability of the clause then the consequence would be that parties would be relieved from performing their respective obligations to be undertaken by them under the contract during the period that such force majeure events continue.

COVID-19 pandemic certainly has been outside the control of contract parties.

Ajay N S
Advocate, Ernakulam
4097 Answers
113 Consultations

1. What you have heard is absolutely right.

The essential criteria of the leave and license  agreement is that the occupancy is granted on Leave and License basis and not on tenancy basis. Such an agreement makes eviction easier and is general provides the landlord with greater power.

Hence you better think about it because the landlord can very well evict you from the rented premise upon the demise of the licensee.

2.  it is a  term that literally means "greater force." It is related to the concept of an act of God, an event for which no party can be held accountable.

Force majeure clauses will generally adopt one of the following approaches to defining the type of event which may, depending on its impact, relieve a party from contractual liability:

These may include events such as war, terrorism, earthquakes, hurricanes, acts of government, plagues or epidemics. Where the term epidemic, or pandemic, has been used, that will clearly cover Covid-19.

Where no relevant event is specifically mentioned, it is a question of interpretation of the clause whether the parties intended such an event to be covered. This involves considering whether the list of events included was intended to be exhaustive or non-exhaustive. Unless specific words are used to suggest that a list is non-exhaustive, it can be difficult to argue that parties who set out a list of specific events but did not include a particular event, such as an epidemic, nonetheless intended that event to be covered.

 

3. Agreement In L L can be settled by an arbitrator or courts as the parties to an agreement wish.

Arbitration Act. As a result, even if the License Agreement contains an Arbitration clause, the court held that such agreements should be carefully drafted invoking dispute resolution solution.

T Kalaiselvan
Advocate, Vellore
87726 Answers
2358 Consultations

- Leave and Licence is just like rental agreements whereby you can rent/sell/mortgage/lease a portion either in part or in full, 

- Further, It grants a right to occupy the premises for a limited period, without transferring any interest in the property.

- Further, as per the Registration Act, lease agreement registration is mandatory if the leasing period is 12 months or more.

- Further, this License granted is purely a permissive right and can arise only by permission, express or implied, and not by other adverse exercise or in any other way, and it can be revoked anytime. 

- Further, if the tenancy period is less than 12 months , then registration is not mandatory. 

-  Yes, a tenant cannot claim for force majeure , if the said agreement not having a clause for the same or even the same is mentioned in the agreement as well. 

Mohammed Shahzad
Advocate, Delhi
14773 Answers
224 Consultations

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