In this blog, we will talk about the different Property Rental models and types of Rental agreements. The idea is to educate the tenant and londlord about what options are available and what to be wary of.
Now, before we speak of legal agreement formats, lets see what are the rental models in India today:
Monthly Rental: In this model, wherein the tenants pay the homeowners a fixed amount every month. In the case of leave and license and rental agreements, homeowners have the freedom to change their rental rate. When it comes to leasing agreements, the rental rate is fixed for a particular period. However, in all these cases, the homeowners receive a monthly rental income.
One-pay lease: A single-payment lease is when tenants pay the entire leasing amount upfront, to get rid of monthly payments. At the end of the lease period, which is typically 5-10 years, the parties can choose to do the same once again, or break off their relationship. At the termination, the entire upfront lease amount is returned to the tenant, without interest. Landlords who are business owners usually use this option if they can use the funds in their business, without having to sell the property. Tenants use this option when they need stability.
Rental Agreement Formats
Now, there are 2 widely known standard rental agreement formats - Leave & License agreement and a Lease Agreement. While the One-time lease can be signed using the Lease agreement, there are 2 options for those use in the Monthly Rental Model:
In the lease, the landlord and the tenant mutually agree to fixed terms and conditions, such as the rent, rules regarding pets, and duration of the agreement. Neither party can change the agreement without written consents from others.
Likewise, the landlord can’t arbitrarily force the tenant to move or raise the rent since it would be violating their contract. Hence, he or she has to wait for the expiration of the lease agreement to negotiate. So the lease offers more long term security to both parties. Such contracts last for a fixed period of time, usually between six to twelve months, and it binds both parties to the lease. These contracts also clearly define the expectations of both parties, helping to protect the best interests of both.
As per Section 105 of the Transfer of Property Act, lease agreements serve as contracts between the lessee and the lessor regarding the right to possession of a property. They tend to be both transferable and heritable. Also, they are not affected by the sale of the property and lasts until the date of termination.
Leave and License Agreements
A Leave and licence agreement grants an individual a right to do something within a property for a set duration, activities which in the absence of a license might be considered unlawful. However, this does NOT give the party an interest in the property, as they only have the right to use or occupy the premises. Such licenses come under the Indian Easement Act. The main difference being exclusivity of possession. In case an agreement gives an individual exclusive right to possession, it is a lease. If it only gives the party a right to use the property for a certain purpose or in a certain manner, then it is a License.
A Leave and License helps solve both eviction and rent-pricing problems and take place between a licensor and licensee. Also, as they do not lead to any transfer of duties, responsibilities and obligations, changing these agreements is very easy. Unlike lease agreements, they do not give the tenant any inheritance or trader right. Also, these come to an end if a property is sold to someone else. Furthermore, it does not require the sending of any notice period, but most licensors end up doing so to make the process fairer.
At PropertyAngel, we use only the Leave & License agreement for all our tenants, as that is most hassle-free.