Key Clauses in a Factory Leave & Licence Agreement in Gujarat
A Leave & Licence Agreement (LLA) is the most common instrument for granting temporary possession of industrial and commercial premises in Gujarat. Unlike a lease, it does not create any interest in the property in favour of the licensee, making it easier for the licensor to recover possession. However, a poorly drafted LLA can expose both parties to significant risk. This guide explains the clauses that every factory or industrial LLA in Gujarat must address.
1. Parties and Recitals
The agreement must correctly identify the licensor (owner or authorised person) and the licensee (company, firm, or individual). If the licensor is a company, the authorised signatory and board resolution should be referenced. The recitals should describe the property, confirm the licensor's title, and state the purpose for which the licence is granted.
2. Description of the Licensed Premises
The schedule to the agreement must precisely describe the premises — survey number, plot number, built-up area, and any specific portions (e.g., ground floor only, specific bays). Ambiguity in the description is a common source of disputes. Attach a floor plan or site plan as an annexure where possible.
3. Licence Fee and Payment Terms
State the monthly licence fee, the due date for payment, the mode of payment (NEFT/RTGS/cheque), and the account details. Include an escalation clause specifying the percentage increase at the end of each year or term. Failure to pay licence fee on time should be defined as a breach entitling the licensor to revoke the licence.
4. Security Deposit
Specify the amount of the refundable security deposit, the conditions for its forfeiture (damage beyond fair wear and tear, outstanding dues), and the timeline for its return after the licensee vacates. Under the Maharashtra Rent Control Act (which does not apply in Gujarat), security deposits are capped — Gujarat has no such cap, but courts have scrutinised excessive forfeitures.
5. Permitted Use
Define the permitted use of the premises precisely — e.g., 'manufacturing of plastic components only' or 'warehousing of non-hazardous goods'. Prohibit sub-licensing, sub-letting, or parting with possession without the licensor's prior written consent. Breach of the permitted use clause is a ground for immediate revocation.
6. Term and Renewal
State the commencement date, the duration of the licence (typically 11 months to avoid stamp duty implications of longer leases), and the renewal procedure. An LLA of 11 months or less in Gujarat attracts a lower stamp duty than a lease. If renewal is intended, include a clause requiring written notice at least 30 days before expiry.
7. Maintenance and Repairs
Allocate responsibility for structural repairs (typically the licensor) and day-to-day maintenance (typically the licensee). Specify who bears the cost of utilities — electricity, water, property tax, and municipal charges. Include an obligation on the licensee to maintain the premises in good condition and return them in the same state.
8. Alterations and Fixtures
Prohibit the licensee from making structural alterations without the licensor's written consent. Specify whether fixtures installed by the licensee may be removed at the end of the term or become the property of the licensor. Failure to address this clause leads to disputes over machinery, mezzanine floors, and electrical installations.
9. Termination and Revocation
Include a clause allowing the licensor to revoke the licence on notice (typically 30 days) or immediately on breach. Since an LLA does not create a tenancy, the licensor can recover possession through a summary suit under the Specific Relief Act or a civil suit for mandatory injunction — faster than eviction proceedings under rent control legislation.
10. Stamp Duty and Registration
In Gujarat, an LLA for a period exceeding 11 months must be registered. Even for shorter periods, registration is advisable to make the document admissible in evidence. Stamp duty is calculated on the total licence fee payable for the term plus the security deposit, at the rate prescribed under the Gujarat Stamp Act. Ensure the agreement is stamped before or at the time of execution.
This guide is for general informational purposes only and does not constitute legal advice. For advice specific to your agreement, consult a qualified advocate.
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