A Commercial Rent/Leave and License Agreement is a contract between a property owner and a tenant for the use of the commercial property on a license basis, like a shop, office, godown, hotel, etc. The property owner is called a Licensor and the person who is taking a property on a license basis is called a Licensee. This agreement contains the terms and conditions which the licensee should follow to use the commercial property for a specific period of time and for a specified commercial purpose, for example conducting business like a retail shop, office, parlor, or hotel, etc. The agreement includes details such as the rental amount, security deposit, maintenance and repair responsibilities, restrictions on use, termination clauses, dispute resolution procedures, and much more. The agreement should be in writing, signed by both parties and comply with local laws and regulations in Pune.
Important Terms and Conditions
The terms and conditions in a Commercial Rent/Leave and License Agreement are important for defining the relationship between the Licensor and the Licensee and establishing clear expectations for both parties. Some of the most important terms and conditions include:
- License Fees: The license frees or the rental amount is the amount that the licensee must pay to the licensor for the use of the commercial property. This fee should be clearly mentioned in the agreement to avoid any confusion or disputes in the future. Also, it is advisable to mention the consequences in case of non-payment or non-regular payment of this amount.
- Security deposit: The security deposit is an amount of money paid by the licensee to the licensor as a form of security. This deposit is typically refundable at the end of the license period, provided the licensee has fulfilled their obligations under the agreement. Like, no damages happened to the commercial premises, no pending rental amount, no pending electricity bill or gas bills, etc.
- Maintenance and repair responsibilities: The leave and license agreement should clearly mention the responsibilities of each party when it comes to the maintenance and repair clause. This can include details such as who is responsible for fixing damages caused by normal wear and tear, and who must pay for any necessary repairs, modification charges, and restoration charges.
- Restrictions on use: The agreement should specify any restrictions on the use of the property, such as restrictions on hours of operation or limitations on the type of business that can be conducted on the property, e.g. retail shop, hotel, office, etc.
- Lock-in period clause: The lock-in period clause is a provision that can be included in commercial Rent/leave and license agreements which requires the licensee to continue to occupy the property for a minimum specified period of time, regardless of whether they would like to terminate the agreement or not. The purpose of this clause is to provide the landlord (licensor) with stability and security in the rental income, as well as to protect their investment in the property. The lock-in period can range from several months to several years and can be included as part of the agreement from the start or imposed as a penalty for early termination. During the lock-in period, the tenant may not terminate the agreement or vacate the property without incurring significant financial penalties, such as paying a significant portion of the remaining rent due. It is important to understand the implications of the lock-in period clause before entering into a commercial rent/leave and license agreement. If a lock-in period is included, it is important to consider the future plans and needs of the business, such as the likelihood of expanding or downsizing, to ensure that the lock-in period will not become a hindrance in the future.
- Termination clause: The agreement should include provisions for terminating the agreement early, such as in the case of a breach of contract by either party. This can include details such as the notice period required for termination and the consequences of early termination.
- Dispute resolution procedures: In the event of a dispute between the parties, the agreement should outline the steps that will be taken to resolve the dispute. This may include mediation, arbitration, or other forms of alternative dispute resolution.
It is also important to add terms and conditions for the impact of unforeseen events such as pandemic or natural disasters.
A pandemic or natural disaster clause can be included in a commercial leave and license agreement to address the impact of unforeseen events, such as a pandemic, earthquake, or flood. The purpose of this clause is to provide clarity and protection to both the licensor and the licensee in the event of a major disruption to the business or the property.
A pandemic or natural disaster clause may include provisions such as:
- Force majeure: A force majeure clause may be included, which allows for the suspension or termination of the leave and license agreement in the event of an unforeseeable event beyond the control of either party, such as a pandemic, natural disaster, or government action.
- License fees abatement: In the event that the property is unusable due to a pandemic or natural disaster, a license fees abatement clause may be included, which allows the licensee to temporarily suspend the payment of license fees until the property becomes usable again.
- Termination or renegotiation: In the event of a prolonged disruption to the business or property, a clause may be included that allows for the termination or renegotiation of the leave and license agreement, with provisions for notice periods and any financial penalties.
A pandemic or natural disaster clause can help provide a framework for addressing unforeseen events and protecting both parties interests. It is important to carefully consider the language and scope of the clause when negotiating a commercial leave and license agreement, as the specifics of the clause can have a significant impact on the parties’ obligations and rights in the event of a disruption.
These terms and conditions are essential for ensuring a smooth and successful relationship between the licensor and licensee and help to prevent misunderstandings and disputes from arising. By including these details in the agreement, both parties can be confident in their rights and responsibilities and can work together to achieve their goals.
Stamp Duty and Registration Fees
Stamp duty is a tax that is levied on certain legal documents, including commercial leave and license agreements, and is payable to the government. The amount of stamp duty payable can vary depending on the license fees, the duration of the agreement, and the location of the property.
In the case of a commercial leave and license agreement, the stamp duty payable can be calculated based on a percentage of the total license fees and a refundable deposit of the agreement. The exact percentage of stamp duty payable is 0.25% on the total duration of licensee fees and approximately 10% per year on the refundable deposit.
Parties can register their commercial leave and license agreement online without visiting the registration office. However, if they choose to do so, they will have to use the format provided by the government, which allows very little scope for customization or the inclusion of custom terms and conditions.
If parties want to include a lot of custom terms and conditions in their agreement and register it with the government, they will need to visit the registration office to do so. This may involve additional time and effort, but it can ensure that the agreement reflects the specific needs and requirements of the parties involved.