Why Is Licence Agreemnt Better Than Rent Agreement For NRIs

As an NRI who owns a property in India, renting it out can help you generate a steady stream of income. However, managing property and tenants from abroad is not easy, and that's when licenses or rental agreements come into play.

Being a property owner in India, it is crucial to understand the legalities of property leasing. In India, rent agreements are a standard method of renting out property, but leave-and-license agreements are an underexplored option that offers more benefits to NRI property owners than they may realize.

In this blog, we will understand why license agreements are a better choice than rental agreements for managing your property and tenants in India.

What Is The Leave And License Agreement For NRIs

A leave and license agreement is a contract via which the property owners grant permission to another person (licensee) to use and occupy the property for a specific reason. However, the property owner retains full possession and control of the property.

The agreement includes all terms and conditions agreed upon by the licensor and licensee. Under this contract, the NRI property owners living abroad can balance the interests of the property owners and the occupant.

In a leave-and-license agreement, two parties are involved. The one is the owner of the property, also known as the licensor. Another is the one who has been granted temporary occupancy rights to the property, also known as the licensee.

What Is The Rent Agreement For NRIs?

A rent agreement is a legal document in which the owner of the property transfers title and possession of the property to another person in lieu of payment. The payment is determined as rent. The possession of property is transferred for a definite period of time as agreed between both parties.

The two parties involved are the landlord, who owns the property, and the tenant to whom the property is let.

Understanding The License Vs Rent Agreement For NRIs

The following table clearly showcases the difference between a license and a rent agreement for NRIs.

Why License Agreements Are Better For NRIs

For NRIs living abroad, ensuring your entry into India is handled properly and smoothly. License agreements will help you achieve that. Here are the reasons why license agreements have NRIs on their side.

Easy And Fast Eviction Process.

Now, as NRIs are not physically available to deal with their tenants. Under the rent agreement, the tenant may have the right to remain in the property even when the owner wants the tenant to vacate.

Whereas with the license agreements, there are no such rights. If the licensee overstates or violates any terms of the agreement, the owner may revoke the license, and the licensee must vacate the property immediately.

This is why a license agreement for NRIs is ideal, as being an NRI, you cannot afford to waste your time being consumed in lengthy legal disputes from abroad.

No Transfer Of Interest In Property

While a rent agreement creates an interest in the property for the respective tenant, a license agreement does not.
This is why situations where tenants end up filing false claims of ownership, demanding extensions, or asserting adverse possession are left at bay.

In a nutshell, under a license agreement, the NRI property owner retains complete control.

Low Risk Of Tenant Misuse

Tenancy violation cases, such as failing to pay rent on time, refusing to vacate the premises, subletting the space, violating housing society rules, and misusing society premises, are common in India.

Under the rent agreement, addressing these issues requires a careful legal proceeding. In contrast, under the license agreement, the licensee will operate only with the licensor's permission, enabling the licensor to take quick action against a licensee that violates the terms.

Better for Uncertain or Short-term Occupancy

Many NRIs rent out their properties for short work assignments, family members temporarily staying, travel, or relocation periods, or for year-round or seasonal occupancy. 

A license agreement is more flexible and ideal for short-term arrangements, allowing the NRI property owner to reclaim possession quickly or whenever they need the property. 

Strong Control Over Property

With a license agreement, an NRI has firm control over the operation, as they can impose clearer restrictions on it.

• Who can stay in the property?
• What activities are allowed?
• Maintanice responsilblies.
• Visitor policies.
• Subletting the rules of the property.
• Society compliance and more.

Now that the property occupant is a licensee, they must strictly adhere to the permissions granted to them.

Preferred Structure In Metro Cities

In major cities such as Bengaluru, Mumbai, Pune, and Gurgaon, leave and license agreements are most widely used by NRIs because:

• These agreements have better legal clarity.
• Registration is straightforward.
• Courts support these agreements.
• They are better suited for urban and modern housing.

Hence, NRIs with priepsie sin big metro cities now that a license agreement aligns well with the standard practice and safeguards your orieoty while you are abroad.

What Are The Risks Of Rent Agreements For NRIs

Although rent agreements aren't always problematic, they do come with risks that NRIs must consider beforehand.

Eviction Difficulty

Evicting a tenant under a rent agreement for NRI can require a lengthy process of filing a case in the Rent Court. This case can take months or years to reach a final verdict, and there is a strong chance that tenants will receive statutory protection, making the process unpredictable and slow.

Tenancy Rights Being Misused

There are a few tenants that may claim additional rights or protection under the rental control law. Even if the tenant's claim is false, contesting it might need a lengthy legal process.

Chances Of Unauthorised Occupation

There are a few cases that disclose that long-term tenants, at times, stop paying rent and refuse to vacate the landlord's space. Now getting them out forcibly and legally is a time-consuming and costly process.

Difficulties In Enforcing Terms

In the rent agreement, the enforcement clauses pertain to maintenance, damages, visitor restrictions, misuse of society property, and violations of society's rules.

Under the rent agreement, you, as the owner, cannot simply ask the tenant to pack up their things and leave immediately. To take action, the owner must have substantial proof, send a legal notice beforehand, possibly go to court, and wait through the court proceedings, because in court, the tenant is protected and has the right of possession.

Whereas the license agreement is easier to enforce, the owner retains complete control of the property, and if the licensee violates the law, the owner can cancel the license.

Rental Laws Are Complex

Different states have different rent control Acts. These laws are largely outdated and heavily skewed in favour of tenants, especially those for residential properties.

This is to ensure that under these laws, NRIs are sitting at a clear disadvantage.

The Bottom Line

By now, we believe that NRIs managing a property in India must have a clear understanding of how a leave and license agreement offers greater flexibility, legal clarity, and better control over the property than a rental contract.

These agreements include non-exclusive possession rights, written in precise terminology, add possession clauses, and ensure that the contract terminates upon the sale of the property, making leave-and-license agreements work better for NRIs than rental agreements.

Hence, as an NRI, choosing a lease agreement is a more intelligent choice. If you are looking for professional assistance in framing and executing this agreement in India, Savetaxs is the name to trust. We have been helping NRIs from 90+ countries in managing their properties in India.