The Types of Tenancy Agreements in India
By Anirudh Singh Chauhan
When a property is let out, a Tenancy Agreement bearing the terms and conditions as agreed upon by both the parties to chalk out the nuances of the landlord-tenant relationship is important. If not executed responsibly, the document can become a cause of dispute in case of disagreement.
A Tenancy Agreement is an official document defining the terms and conditions of a lease or rent partnership between two parties. A tenant is someone who is allowed to occupy a property in accordance with the norms defined in the rent agreement (Tenancy Agreement). While a rental agreement is controlled by the Rent Control Act, the Leave and License agreement is controlled by the Indian Easement Act..
Types of Tenancy Agreements in India
A rental agreement contains basic details, such as the name of the owner of the property, the renter, the terms of the Agreement, and the amount of the rent to be paid, during the term of occupation. The tenancy agreements in India are of the following three types.
- Rent agreement
- Lease agreement
- Leave and License agreement
A rent agreement is a legal contract between a property owner and the potential tenant who wants to take temporary possession of a specified property. The agreement contains details, such as the name of the property owner and the tenant, description of the property, amount of rent agreed upon, late payment charges, grace period, amount of security deposits, facilities which the tenant is entitled to use or not, provision and right of parking, repairs and maintenance and property insurance, among others.
The rent agreements are typically for a shorter duration, generally for 11 months in India. A rent agreement is a concise concord, permitting a hassle-free settlement between both parties. The registration of a rent agreement is optional.
A lease agreement is generally required in case of longer occupancy duration. When the landlords want to avoid the fluctuations in sustainable income, they prefer to put the premises on lease. The lease agreement is a contract between the landlord and the tenant, where the tenant is provided with a right to use the property concerned for the enumerated time frame (generally more than 12 months). Some leases are for 99 years. Moreover, a lease creates interest in the property, is transferable and creates inheritable rights.
The mutually agreed upon lease agreement ensures that the lessee does not evict the premises unless stated explicitly in the agreement. Alternatively, the lessee can be served a legal notice. A lease deed must be stamped and registered so as to stand in a court of law (in case of disputes).
One of the disadvantages of lease agreements is that the lessor might lose on incremental income if the market value of the property increases during the agreed upon lease period.
“Sometimes the landlord finds it difficult to execute the lease deed as his residence is situated in one part and the premises to be leased is in other part of the country. In such circumstance, they can execute a Power of Attorney (PoA) in favour of an acquaintance residing in the vicinity of the property who can receive the rent on his behalf. The landlord, under tenancy law, is the person receiving the rent. In case of dispute, the person assigned to receive the rent can do all acts as required under the law to get the Agreement either specifically performed or get the property evicted by filing appropriate legal proceedings before the court of law.
Leave and License Agreement
The Leave and License Agreement is governed by the Indian Easement Act 1882, and it is different from lease and rent agreements. Leave and License Agreement is a document through which the property of the Licensor is occupied by the license holder. However, the property is granted on the basis of the Leave and License agreement and not on the basis of tenancy, i.e. in the absence of such permission, the property right would be illegal.
This document is different from the lease agreement because the latter creates an interest (right) in the property and is transferable, whereas a Leave and License Agreement is non-transferable. A lease also creates inheritable right, whereas a License does not provide such rights. While a lease creates exclusive rights of the property concerned, a Leave and License Agreement grants permission to occupy the property. Moreover, these agreements are revocable, unlike lease agreements.
Conclusively, the agreements must define the preferences, expectations and responsibilities of both landlord and the tenant in a clear manner so as to avoid legal tussles at a later stage