NRI Renting Property in India | Types of Rental Agreement in India

Find out about the property rental agreement laws and rent control laws in India..

Many NRI’s and PIO’s purchase properties in India as an investment and perhaps with the goal of probably returning to India at some point of time. Instead of keeping properties vacant, renting out is an option that some people consider.

Rents in the major cities have gone up in the last few years and it does make good economic sense to rent out vacant properties. However, many people shy away from renting as they have are worried about tenants may not vacate the premises.

While there are no full proof methods of protecting landlords in India from tenants who refuse to vacate their property after their rental agreements have expired, there are some steps landlords can take to protect themselves and their property.

Landlords, can protect themselves from undesirable tenants, to some extent by using a leave and license agreement when renting out their property.

There are normally two types of agreements that are used when renting property.

1. Rental Lease Agreement
2. Leave and license agreement

While both these types of agreements appear to be similar with the purpose of renting property,there is a considerable difference when legal aspects are taken into consideration.

In simple terms, in rental lease agreements, there is, considered to be a transfer of interest from alessor to a lessee. On the other hand a Leave and License agreement does not create any interest in the premises in favor of the licensee.

Leave and license agreements offer a higher form of protection for landlords against tenants. In general, rent control laws do not apply to leave and license agreements. Eviction, under leave and license is governed by the Easements Act.

NRI’s and PIO’s who wish to rent out their properties should consider using a Leave and License agreement.

Benefits of Leave & License agreements

Tips when giving property on Leave and License

1. Don’t let out your property to anyone unless you check the person who is renting the property. While it is not possible in India to get background check done easily, you could take some precautions, such as checking the person’s employment record, previous address etc.

2. Don’t hand over your property in trust and good faith to anyone regardless of how well theyimpress you, without checking proper documentation and finding out who exactly is going to occupy your property. When renting to a foreigner, local police should be informed. This is now required by law in many cities.

3. Use a professional to draft the agreement. A lawyer is preferable than a real estate brokers who have a pre written template for an agreement and just fill in the blanks.

4. Pay the required stamp duty for your agreement and register it legally. Unless the agreement is registered, you have no protection.

5. If property is located in a society, then take a No Objection Certificate (NOC) from the society so as to avoid problems in future.

6. It may be advisable to enter into an agreement of only eleven months, and renew if you find things are working out well for you.

7. In cases where a rental agent, such as a broker brings the client, you may consider adding in the agreement that no further brokerage will be paid, if and when the license agreement is renewed. Brokers in India normally charge one month rent as their fee.

Difference between Agreement and Leave and License

Leave & License Lease / Rental Agreement Possession is said to remain with the landlord, the licensee only gets permission to use the premises. Possession in such cases passes to tenant. Subletting is not possible under leave and license agreement. Subletting may be possible under either the lease agreement or by rental legislation laws. Rent control does not apply. Rent controls may apply as per rent laws if any. In a case where, the person who is the licensor of the property dies. The license is automatically terminated. Lease agreement would not terminate in case of death of the landlord. Advance rent can be charged. Would be subject to provisions of the applicable Rent Control Legislation. Easier eviction possible after expiry of license. Regulated by Rent Control laws and may take more time if tenant contests.

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