Whenever a real estate property is rented out, there are a handful of different agreements like lease agreements, rent agreements and license agreements. All these agreements chalk out the conditions of the landlord and tenant relationship. To put it simply, the Tenancy Agreement is an official document that defines the terms and conditions of a rent or lease partnership between two parties, i.e. landlord and tenant. Here, a tenant is someone who is allowed to occupy a real estate property as per the norms defined in the Tenancy Agreement.
When it comes to leasing or renting a property, there are different agreements, where the Rent Control Act controls the Rental Agreement, and the Indian Easement Act controls the Lease and License Agreement. However, it’s highly important for the landlord to know that if all these agreements are not registered and in case the tenant poses some threat to society at large, the landlord can be held accountable.
A closer look at different types of tenancy agreements will lay down the details and importance of each. Let’s have a look!
Also Read: Types Of Commercial Lease
Types of Rental or Tenancy Agreements in India
A tenancy agreement is an agreement that contains basic details like the name of the property owner, the term of the agreement, the name of the renter, and the amount of rent to be paid during the term stated in the agreement. In India, there are basically three types of tenancy agreements that involve the following.
1. Rent Agreement
A Rent Agreement is a legal tenancy contract between the owner of a property and the potential tenant who is willing to take temporary possession of specific real estate property. The Rent Agreement consists of details like the name of the property owner, the name of the tenant, description of the property, amount of rent to be paid, grace charges, late payment charges, amount of security deposit, facilities that the tenant is entitled to use, provision and right of parking, property insurance, repairs and maintenance. The laws governing the Rent Agreement are the Specific Relief Act, Transfer of Property Act, Evidence Act and Registration Act.
Coming to the duration of the Rent Agreement, the Rent Agreement is generally for a shorter period of time, i.e. 11 months in India. It is a concise concord that permits a hassle-free and flawless settlement between both parties involved. The registration of a Rent Agreement is discretionary. But if the agreement is for more than 11 months, then it must be mandatorily registered; else, it is not permissible as evidence in the court in case of a breach. However, the registration of this agreement must not be confused with notarization as this is not legally binding but only the attestation of the document.
When it comes to the importance of the Rent Agreement, this agreement is crucial in case of a breach. In case of a breach, both parties can rely on the terms and conditions of the agreement and can approach the court to get necessary relief.
Also Read: Power Of Attorney Act
2. Lease Agreement
Another type of tenancy agreement in India is the Lease Agreement. A lease is typically for a more extended period of time than the rent period. Whenever the owner of the property or landlord wants to prevent fluctuations in sustainable income, they prefer to put their premises on lease. The Lease Agreement is a contract between the tenant and the landlord, where the tenant is offered a right to use the real estate property for the set forth time frame, which is usually more than 12 months.
Unlike a Rent Agreement, the Lease Agreement binds the tenant and the landlord for the agreed-upon period of time. You will be surprised to know that some leases are for 99 years. Furthermore, a lease creates interest in the property, creates inheritable rights and is transferable. This mutually agreed Lease Agreement makes sure that the lessee does not expel the premises unless stated clearly in the agreement. It is vital to get the lease deed stamped and registered so that it can stand in a court of law in case of any dispute.
The Lease Agreement offers a handful of advantages to both parties. Still, one of the significant disadvantages of this agreement is that the lessor might lose incremental income in case the market value of the property increases during the agreed-upon lease time frame.
3. Leave and License Agreement
Last but not least, the final type of tenancy agreement on the list is the Leave and License Agreement. This type of tenancy agreement is governed by the Indian Easement Act 1882, and it is different from Lease and Rent Agreements. The Leave and License Agreement is an official document through which the license holder occupies the property of the Licensor. When a property is granted on the basis of the Leave and License Agreement and not on a tenancy basis, the property right would be illegal in the absence of such permission.
In comparison to the Lease Agreement, the Leave and License Agreement makes the eviction of the occupier easy. This agreement always grants permission to occupy the premises and is not a right. Besides this, it does not create the typical landlord-tenant relationship, and the owner of the property always holds the upper hand in the eviction of the occupier.
Talking about the difference between a Leave and License Agreement & Lease Agreement, the latter creates a right or interest in the property and is transferable. While a Lease Agreement creates exclusive rights of the property concerned, a Leave and License Agreement permits to the occupation of the property. On the other hand, a Leave and License Agreement is not transferable. Moreover, a Lease creates inheritable rights, whereas a License does not provide any such rights. Also, these agreements are revocable, unlike the Lease Agreement.
We hope this guide has offered you a complete understanding of the different types of tenancy agreements in India. All the agreements listed above must clearly define the expectations, preferences and responsibilities of both the landlord and tenant. This must be done in order to avoid legal issues at a later date. If you have questions relating to any agreement, feel free to ask by commenting below.