Owning rental property in India carries a specific risk: the tenant who refuses to vacate. Post-independence rent control laws, originally meant to shield tenants, inadvertently froze the rental market by making eviction nearly impossible under standard lease agreements. To bypass this legal gridlock, the market adopted the “Leave and License” agreement—a contract designed to monetize property without transferring ownership interest.
Unlike a lease governed by the Transfer of Property Act, a license operates under the Indian Easements Act, granting only temporary permission to occupy. This distinction allows property owners to retain legal possession while generating revenue. This analysis breaks down the anatomy of an 11-month agreement, examining how specific clauses regarding “exclusive possession,” “structural changes,” and “trespasser” status protect owners from the permanent loss of their assets.
The Legal Architecture of “Leave and License” in Indian Real Estate
Why Indian property owners fear leases, love licenses, and use 11-month contracts to navigate a complex regulatory environment.
Evaakil Legal Team
Ownership of immovable property in India comes with a peculiar anxiety. The fear is not of market crashes or natural disasters. The fear is of the tenant who never leaves.
This anxiety stems from post-WWII rent control legislation intended to protect tenants but which ultimately froze rental markets. The “Leave and License” agreement emerged as the market’s answer. It is a legal instrument designed to monetize assets without transferring interest. It is distinct from a lease. Understanding this distinction is vital for anyone engaging in Indian real estate.
The Core Distinction
Figure 1: The sliding scale of property rights. A lease transfers interest. A license grants mere permission.
The Jurisprudential Ecosystem
Indian law draws a sharp line between a lease and a license. A lease, defined under the Transfer of Property Act, 1882, transfers an interest in the land. This transfer grants the lessee statutory protections, making eviction difficult.
A license, governed by the Indian Easements Act, 1882, creates a personal privilege. It is a right to do something on the property that would otherwise be unlawful. It creates no interest in the land. The agreement analyzed here is engineered to fall strictly within the Easements Act. Every clause serves to prevent the “crystallization of tenancy.”
| Feature | Leave & License | Lease Agreement |
|---|---|---|
| Legal Basis | Indian Easements Act, 1882 | Transfer of Property Act, 1882 |
| Nature of Right | Personal permission (Jus in personam) | Interest in land (Jus in rem) |
| Possession | Constructive / Physical custody only | Exclusive legal possession |
| Revocability | Revocable at will (unless tied to grant) | Irrevocable during the term |
The Architecture of the Grant
The specimen agreement begins by establishing the Licensor as the absolute owner. This activates Section 116 of the Indian Evidence Act, preventing the Licensee from challenging the owner’s title later.
The recital uses specific language: “The Licensee has approached the licensor with a request.” This phrasing frames the transaction as an act of grace to fulfill a temporary need, rather than a commercial demise. It introduces the concept of precariousness. The tenure is conditional on the Licensee finding “other more suitable accommodation.”
Interactive Risk Analysis
Select a persona to see specific risks associated with standard license agreements.
Mechanics of Possession
The operative verb in the agreement is “occupy.” It avoids “demise” or “let.” Occupation implies physical presence without legal control. The term is set for 11 months.
This 11-month duration is a response to the Registration Act, 1908. Leases exceeding one year require compulsory registration, attracting stamp duty and creating a public record. The 11-month cycle allows for regular renegotiation and prevents long-term vesting of rights.
The Structural Integrity Pact
Clause 11 of the specimen is not merely about protecting the walls; it is about protecting the nature of the relationship. It strictly forbids “structural repairs or additions.”
Why this obsession with structure? In Indian tenancy law, the “Power to Alter” is often viewed by courts as evidence of a lease. A true licensee, like a hotel guest, takes the room as is. They do not knock down walls. By restricting alterations to “non-structural” types requiring “previous permission,” the agreement preserves the Licensor’s absolute dominion over the asset.
Permissible vs. Prohibited (Clause 11)
The “Business Use” Trap
The specimen agreement explicitly mentions the licensee will use the premises for “carrying on his business.” This seemingly minor detail triggers a cascade of tax implications often ignored in standard templates.
- GST Liability: Unlike residential dwelling rentals (which are GST exempt), renting for commercial use attracts 18% GST if the Licensor’s aggregate turnover exceeds ₹20 Lakhs.
- TDS Deductions: If the annual license fee exceeds ₹2.4 Lakhs, a corporate Licensee must deduct 10% TDS under Section 194I of the Income Tax Act. Failure to account for this in the drafted “Net take-home” fee results in income loss for the owner.
The Liability Shield
Clause 12 introduces a “Nuisance and Hazardous Goods” prohibition. This is not just about being a good neighbor; it is a vital insurance safeguard.
Most property insurance policies in India contain exclusion clauses for “hazardous material storage.” If a licensee stores flammable chemicals (common in certain trading businesses) and a fire occurs, the owner’s insurance claim could be rejected. By explicitly prohibiting this in the agreement, the Licensor creates a legal avenue to recover the entire loss from the Licensee’s personal assets.
The Economics of Occupation
The agreement charges a “License fee,” not rent. Rent is subject to Rent Control Acts. A license fee is market-driven compensation.
Taxes remain the Licensor’s burden. This maintains a fiscal wall. If a Licensee pays property tax, they create evidence of ownership or permanent interest. By paying taxes, the Licensor preserves the official record of possession.
Financial Responsibility Split
The Unilateral Adjudicator
Clause 10 of the attached specimen introduces a powerful mechanism for dispute resolution: The Licensor’s Architect.
The clause states that damages will be determined by “the Licensor’s Architect.” This is not a neutral arbitrator; it is an agent of the property owner. In a court of law, this creates a binding valuation that the Licensee has already consented to by signing. It removes the ambiguity of “market value” for repairs and prevents the Licensee from delaying payments by disputing repair costs. It converts a subjective debate about a “broken tile” into a liquidated debt.
Termination and The “Trespasser” Doctrine
Clause 13 allows termination on 15 days’ notice for any breach. This is aggressive compared to standard commercial leases.
Clause 14 reclassifies the overstaying Licensee as a “trespasser.” This distinction is monetary. A tenant holding over pays rent. A trespasser pays “mesne profits,” which are damages calculated at current market rates plus penalties. This clause acts as a powerful deterrent against holding over.
Exit Protocols: The “Wear and Tear” Grey Zone
Clause 14 requires the premises to be returned in the “same condition… subject to normal wear and tear.” This is the most litigated phrase in property law. “Wear and tear” generally refers to deterioration caused by the natural aging of the property and ordinary use. It does not cover accidental damage or negligence.
Normal Wear & Tear (Owner Pays)
- • Fading paint due to sunlight
- • Minor scuff marks on flooring
- • Worn-out door hinges
- • Plaster hairline cracks
Damage (Licensee Pays)
- • Crayon marks or large stains on walls
- • Cracked window panes
- • Broken bathroom tiles
- • Unapproved drill holes
The Eviction Roadmap
Step 1: Notice of Termination
15-30 days notice issued. The “License” is formally revoked. The occupant is now a “Trespasser.”
Step 2: Suit for Eviction
Filed in Small Causes Court (in states like Maharashtra) or Civil Court. The primary prayer is “Recovery of Possession.”
Step 3: Mesne Profits Claim
Simultaneous claim for damages. Courts often award 2x to 3x the license fee for the period of illegal overstay.
Step 4: Decree & Execution
Court Bailiff physically removes the occupant. Police aid can be requested if resistance is expected.
Gap Analysis: What is Missing?
While the specimen provided is a robust foundation for a pro-licensor agreement, it lacks several modern commercial safeguards. A “Gap Analysis” against best-in-class institutional agreements reveals four critical omissions.
Specimen vs. Institutional Standard
Security Deposit
The specimen omits the Quantum of Deposit (interest-free refundable amount), leaving the owner vulnerable to unpaid bills.
Indemnity Clause
No clause indemnifying the Licensor against third-party claims (e.g., a guest slipping on the premises).
Lock-in Period
No lock-in period defined. The Licensee could theoretically vacate in Month 2 without penalty.
Force Majeure
Silence on what happens if the building is destroyed by fire or earthquake. Does the fee stop?
Specimen Agreement Text
Below is the reconstructed text of the specimen agreement discussed in this analysis. You can copy this for drafting purposes.
Leave and License Agreement
THIS AGREEMENT is made at ____________ this ______ day of ____________, 20__, Between Mr. A hereinafter referred to as ‘the Licensor’ of the One Part and Mr. B of ____________ hereinafter referred to as the ‘Licensee’ of the Other Part, as follows;
WHEREAS the Licensor is the owner of a piece of land at ____________ bearing Survey No … with a building consisting of … floor … having built up area of about … square feet.
AND WHEREAS the Licensee has approached the licensor with a request to allow the Licensee to temporarily occupy and use a portion of the … floor of the said building, admeasuring about … square feet for carrying on his … business, on leave and license basis until the Licensee gets other more suitable accommodation.
AND WHEREAS the Licensor has agreed to grant leave and license to the Licensee to occupy and use the said ground floor portion of the said building and which portion is shown on the plan hereto annexed by red boundary line on the following terms and conditions agreed to between the parties hereto;
NOW IT IS AGREED BY AND BETWEEN THE PARTIES HERETO AS FOLLOWS:
1. The Licensor hereby grants leave and license to the Licensee to occupy and use the said portion of the ground floor/… floor of the said building of the Licensor (hereinafter referred to as the Licensed Premises) for a period of eleven months from … The Licensee agrees to vacate the said premises even earlier if the Licensee secures other accommodation.
[…Standard Clauses for Compensation & Deposit…]
10. Any damage done to the Licensed Premises or the building or the fixtures and fittings therein by the Licensee or his servants or agents shall be made good by the Licensee at the cost of the Licensee either by rectifying the damage or by paying cash compensation as may be determined by the Licensor’s Architect.
11. The Licensee shall not carry out any work of structural repairs or additions or alterations to the said premises. Only such alterations or additions as are not of structural type or of permanent nature may be allowed to be made by the Licensee inside the premises with the previous permission of the Licensor.
12. The Licensee shall not cause any nuisance or annoyance to the people in the neighbourhood or store any hazardous goods on the premises.
13. If the Licensee commits a breach of any term of this agreement then notwithstanding anything herein contained the Licensor will be entitled to terminate this agreement by fifteen days’ prior notice to the Licensee.
14. On the expiration of the said term or period of the License or earlier termination thereof, the Licensee shall hand over vacant and peaceful possession of the Licensed premises to the Licensor in the same condition in which the premises now exist subject to normal wear and tear. The Licensee’s occupation of the premises after such termination will be deemed to be that of a trespasser.
IN WITNESS WHEREOF the parties hereto have put their hands the day and year first hereinabove written.
Signed by the within named Licensor
Shri …………….
in the presence of …………
Signed by the within named Licensee
Shri …………….
in the presence of …………
Frequently Asked Questions
Historically, leases under one year did not require mandatory registration under the Registration Act, 1908. This saved stamp duty and hassle. While some states (like Maharashtra) now require registration for all leave and license agreements regardless of tenure, the 11-month custom persists to ensure the arrangement remains temporary and prevents the tenant from establishing long-term statutory rights.
Generally, no. Adverse possession claims require “hostile” possession. A Licensee occupies the property with the *permission* of the owner. This permission negates the hostility required for adverse possession. The agreement explicitly acknowledges the Licensor’s title, further preventing such claims.
Accepting “rent” can be dangerous. It may be interpreted as a waiver of the termination notice and the creation of a new month-to-month tenancy. Owners should accept payments only as “mesne profits” or “damages for use and occupation” and issue receipts stating “without prejudice” to their rights.
