We discuss what a leasing contract is and whether a lease contract is not necessarily a lease agreement.

While a lot of landlords also use the two terms-lease & rent-interchangeably, leasing a property is not equivalent to renting a house. Legally, a contract is just one way of owning an apartment. A rental agreement will be either a lease or a licence &, depending on the terms and conditions and the rental duration agreed to in the agreement, will be considered accordingly. This is large because the two systems are operated by different laws and therefore have different features.

What is an arrangement on a lease?

Leases were described by section 105 of The Transfer of Property Act, 1882. According to this Clause, a lease ‘is a grant of the right to enjoy the land, rendered for a defined period of time, stated or implied, or in perpetuity, in respect of the price charged or promised, or of money, the share of the crops, the service or some other valued object, to be transferred annually or on a specified occasion to the transferor by the transferor who agrees on the transfer on that basis.’

To count as a lease, or a rental arrangement, it must satisfy the following conditions:

– The owner must pass the right to use the property to the occupant.

– This contract must be permanent or for a short duration.

– In return for passing the right to enjoy his property to the occupant, the landlord has to collect a monthly fee. The two parties may enter into an arrangement apart from cash where the occupant could pay ‘a share of food, operation or some other worth item’.

When the landlord plans to rent out his premise for a long time, a tenancy arrangement must be signed-this may range from 3 years to forever. Also, it is important to stamp and file a lease deed. As a general rule, lease arrangements are not easy to cancel due to registration.

The main takeaway for you

In the commercial real estate sector, where the whole exercise is more formalised, leasing is more common.

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What is a lease for rent?

– Leasing agreements signed over an 11-month duration come under lease and licencing agreements and are not applicable under the laws regulating rent control.

– Rent management rules, which vary from state to state, have all leasing deals under their control that are carried out for a term of at least a year.

– It would be exceedingly difficult for homeowners, who rent their properties under the rent control rules, to revise rentals and evict tenants.

Key differences for Lease vs rent

The difference in contract and rent arrangement

Many lease arrangements are not covered by the lease type, but by the licence agreement.

What is a holiday & licence?

The Indian Easements Act, 1882, Section 52, specifies leave & licence agreements.

According to this clause,’ when one person grants to another, or to a certain number of other people, the right to do, or to continue to do, in or on the grantor’s immovable property, a right which, in the absence of such right, will be unlawful and that right does not constitute an allowance or interest in the property, the right shall be called a licence.’

“While providing more clarification to the clause, the Supreme Court stated: “When a document provides only the freedom to use the land in a certain manner or under certain circumstances when it remains in the custody and control of the owner of the property, it would be a licence. Legal ownership remains with the owner of the house, but the licensee is allowed to use the premises for a defined reason. Yet in order to gain approval, his occupation would be unconstitutional. It does not establish any estate or stake in the land in his favour.

In order to count as a leave & licence arrangement for a rental agreement, it must satisfy the following conditions:

– A arrangement for leave & licence is completely permissive in nature.

– It is not necessary to pass or assign a licence.

– The landlord gives the tenant the freedom to do anything which, if an agreement is not signed in this respect, would not be lawful.

– An easement or a stake in the land does not amount to this right.

In order to prevent legal problems, owners & renters usually enter into tenancy arrangements for a term of 11 months. Under the rent control rules, an 11-month rental arrangement worked out as a leave and licence agreement is not legal. These laws would be valid only if the time stated in the arrangement were to be one year or longer.

Leasing deals that come under leave and licence arrangements also grant both owners and tenants more independence. As the licence may be revoked at will, even though the agreement says so, no sort of lock-ins placed in the agreement will be legitimate.

Benefits in the rental agreement

For Home Owner

– A mortgage grants an exclusive interest in the land to the tenant, while a licence does not.

– It is not feasible to assign/pass a licence.

– It is easy to cancel a licencing deal.

– Compared to a leasing deal, it is better for the owner to alter the terms of a licence agreement.

For Tenants

– Relative to rentals, rent arrangements requiring permits are for brief periods.

– No provision of a licencing arrangement to include lengthy notices for vacating the premises.

Leasing vs rental contract: key takeaways

In the residential real estate market, rental arrangements operating under the leave and licence contract are more prevalent where the whole exercise is more casual.

Involved lawfulness

Notice also that all rental arrangements in India would have to be made & enforced in accordance with the provisions in the respective state-specific laws with states adopting the centre’s draught model tenancy legislation.

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