The boom in the real estate market in India has lured many individuals to invest in built-up property with the view of receiving regular income by way of rents which is a growing trend for both commercial and residential properties. However due to lack of proper and complete information and in their to the haste to obtain the gains, property owners tend to instead sacrifice the goose that lays the golden egg.
The law in India and more specifically Maharashtra provide for two methods of documenting the transactions of renting out properties; one is the old fashioned Lease Agreement and the other is the Leave and License Agreement.
The broad rudiments of the technicalities of a Leave and License Agreement that are essential are outlined below.
The advantage to the property owner to execute a LEAVE AND LICENSE AGREEMENTS is that no charge or right of the Licensee (i.e. the person taking the premises on rent) is created on the premises and in the event of termination of this agreement if the Licensee does not vacate the premises and if the premises is a residential premises the Licensor may approach the Competent Authority to redress the grievances and to seek the possession of the licensed premises. However in order to enable any property owner to agitate their claims before such Competent Authority, it is compulsory that such agreement for leave and license is duly stamped and registered, or else the same will be treated as a lease and the primary advantage of entering into a leave and license agreement over a lease will be lost.
Leave and License Agreement for the purpose of Stamp Duty are split into two parts i.e. for residential and non-residential premises.
The period of leave and license agreements is raised from 33 months to 60 months and every term thereof is raised from 11 months to 12 months
For Non Residential premises the amount of stamp duty chargeable is double that of the residential premises.
If relating to residential premises in Pune, Kirkee, Dehuroad where the amount of average annual rent plus the amount advanced or to be advanced does not exceed Rs. 2,50,000/- for a single term the stamp duty payable is Rs. 500/- for every terms of 12 months or part thereof. In case of Non-Residential Premises the stamp duty payable would be Rs. 1,000/- for every term of 12 months or part thereof.
Where the amount of average annual rent plus the amount of security deposit or money advanced or to be advanced exceeds Rs. 2,50,000/- but does not exceeds Rs. 5,00,000/- for single term the stamp duty payable is Rs. 1,000/- for every term of 12 months of part thereof. In case of Non-Residential Premises the stamp duty payable would be Rs. 2,000/- for every terms of 12 months or part thereof.
Where the amount of average annual rent plus the amount of security deposit or money advance or to be advanced exceeds Rs. 5,00,000/- for a single term of 12 months the stamp duty payable is Rs. 2,000/- for every terms of 12 months or part thereof. In case of Non-Residential Premises the stamp duty payable would be Rs. 4,000/- for every terms of 12 months or part thereof.
For a period of more than 60 months the stamp duty payable on a leave and license agreement is equivalent to the Stamp duty payable on Lease of the Property for the same time period.
Incidentally stamp duty on lease Deeds is now payable on stamp rates as applicable on the basic of a percentage of the market value of the leased property depending on the period of lease.
As stated above that the Leave and License Agreement should be compulsorily registered under the provisions of Section 55 of the Maharashtra Rent Control Act, 1999 which states:
“Notwithstanding anything contained in this Act or any other law for the time being in force, any agreement for leave and license or letting of any premises, entered into between the landlord and the tenant or the licensee, as the case may be, after the commencement of this Act, shall be in writing and shall be registered under the Registration Act, 1908 (XVI of 1908).”
This section overrides the provisions of the Registration Act, and also of any other Act and other provisions of this Act. The words “Notwithstanding anything contained in this Act or any other law for the time being in force ” appearing at the beginning of this section make this position clear. S.17 of the Registration Act states, which documents are required compulsorily. S. 18 states documents the registration of which is optional. A tenancy agreement may not come within the ambit of section 17 & 18 of the Registration Act, still it will have to be compulsorily registered under this S.55. The leave license agreement must be in writing.
The responsibility of getting such agreement registered is on the Licensor and in the absence of the written registered agreement, the contention of the Licensee about the terms and condition subject to which a premises have been given to him by the landlord on leave and license or have been let to him, shall prevail, unless proved otherwise.
Any property owner who contravenes the provisions of this section shall, on conviction, be punished with imprisonment, which may extend to 3 months or with fine not exceeding Rs. 5,000/- or with both.
This is the penal clause. On the contravention of this section property owner is liable to be punished with imprisonment which may extend to 3 months or with fine upto Rs. 5000/- or with both. Only the property owner is liable. Neither the tenant not the licensee is liable. This offence is cognizable under Section 53 and because of the nature of this offence, i.e. cognizable means, police can investigate into it without the order of Metropolitan Magistrate (in Mumbai) or a judicial Magistrate (F.C.) elsewhere. Since the offence is punishable with imprisonment for less than 3 months, as per the last entry in the schedule to the Code of Criminal Procedure, 1793, it is a bailable offence. The maximum sentence of imprisonment prescribed for this offence is 2 years and this offence is tried as a summons case.
The responsibility and onus of getting such agreement registered is on the Licensor and the Punishment provided for default in penal i.e. Jail, Fine or both. In addition to the criminal liability of the Licensor the property also becomes subject matter of undue litigation in case of dispute and this is, therefore, a very serious matter and you must be aware of the consequences of not having any registered document of leave and license.
The consequences if agreement is oral and/or not registered the account of the contents of the agreement as given by tenants or licensees shall prevail unless proved otherwise. The responsibility of getting such agreement registered is of the property owner or Licensor. On failure to do so the Licensor is liable to be punished as above.
BHARAT M. PARWANI
Advocate