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Making money on Leave & License

Larissa Fernand

You have a vacant apartment. But, you will never rent it out. After all, what if your tenant decides not to vacate and makes your apartment his own. That's why tenancy has been put on the backburner and L&L is now the most popular option.

A Leave & License agreement does not give the occupants any ownership rights. The agreement only permits occupancy for a specific timeframe which could range from 11 months to 33 months. Should he refuse to vacate, the matter can be brought before the Competent Authority who will then take action.

A lease, on the other hand, generally refers to a plot of land and has a much longer timeframe which could extend to 99 years. Where a lease is concerned, the occupant can sub-lease it to a third party (if permitted in the lease deed), a right not given in the case of L&L.

A rental is shunned by landlords as the issue of permanent occupation often causes problems. With no definite timeframe, the tenants often refuse to relocate and claim tenancy rights. If the matter is taken to court, it is dragged on for years.

Is permission required?

If it is an apartment, permission of the society is needed. Some housing societies insist that the licensee (the person you have leased your apartment to) becomes a nominal member of the society. It is not as frightful as it sounds. Unlike an ordinary member, the nominal member has no voting rights, is not eligible to become a committee member and cannot be appointed as a society representative.

So what's the logic? In case he decides to play tough and refuses to vacate, apart from the apartment owner filing a suit, the society can also do so in the co-operative court. If it is a company, then suits can be filed under the Companies Act.

Getting your money's worth

The most lucrative deals can be got by letting out your apartment to a company looking for residential space for its employees. If you are lucky enough to own an apartment in a building used for commercial purposes or situated in a commercial area, then you can offer it for office space.
However, corporates are extremely finicky when hunting for space. The Money Channel has listed some of the criteria they consider necessary. While your premises may not fulfill all the criteria, at least satisfying most of them should suffice.

What companies consider when taking office space

• How well connected it is to the public transport system?
• Is it situated in the prime commercial district
• Extreme proximity to the airport makes it too noisy
• A good finish to the building and an impressive lobby
• Car parking
• Ample number of elevators
• Air-conditioning
• Power back-ups
• Cross ventilation and natural light (specially in areas of frequent power cuts)
• Column free space. Obstructing columns are unwelcome, especially if they are planning an open office
• Utilities (pantry, toilets) to one side of the office
• No leakages
• A minimum of 9 ft for the floor-ceiling height, which is the height below the beam. (If ducts have to be planted, the height is reduced by 1.5 ft.)

What companies consider when taking residential space

• Pleasant surroundings. Slums are a negative factor. A garden, lake or sea rank high
• Good unobstructed view
• Extreme proximity to the airport is a disadvantage
• A good finish to the building
• Car parking
• Service elevator
• Adequate cross-ventilation and natural light
• Efficient management of space with no wasted in long corridors
• Spacious area, a crammed feeling is a big negative
• Column free space
• No leakages
• Servant's quarters
• Laundry drying space
• Security
• Fire-fighting system
• AC ledges

Fixing a quote for L&L

There are two ways to make money on L&L: investing the refundable security deposit and earning a monthly income. Let's assume that according to the market value of the property, the cost to the tenant should be Rs 3,00,000 for 11 months. You, as a landlord, will make more money if you take a lower deposit and a higher rent. Here is the range within which you can negotiate with the licensee (person you are leasing out the premises to).

• Make sure the returns you are expecting are in tune with the market value.
• Fix quote on the basis of the market value. If you are open to negotiation, fix it higher than what you would like.
• You will earn more if you take a higher monthly rent versus a deposit (assuming you place the latter in a bank fixed deposit).
• If the monthly rent is surplus income, open a recurring deposit for the amount or at least part of the amount. It will increase your returns, however minimal.
• If you are repaying a loan, make sure that the monthly income earned on this is more than the equated monthly installment, or EMI, that you pay to the housing finance company.

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