A lock-in clause brings certainty in the licensing business regarding the intention of the parties about the time-frame within which they want to keep the deal. If the licensee is renting the place for commercial purposes, he/she has to invest in the said place to use it as business space or office. There is no doubt that to find a suitable place for relocation of a business organization is a difficult and costly job. The general trend, therefore, is to keep the lock-in period between three to five years for a licensed premise intended to be established as a business set up. It is important to determine if lock-in clauses are enforceable as had been agreed upon by the parties, requiring the licensee to pay the 30-month (of the remaining lock-in period) in case the contract is terminated within a few months or a few days. For a breach of the lock-in commitment by a party, the aggrieved party is entitled only to sue the other party, claiming reasonable damages or to sue for specific performance of the contract. Whereas the actual loss suffered due to the breach is adequately compensable by monitory considerations, the aggrieved party will not be entitled to a specific performance of the contract. Even if there is a lock-in clause in the agreement, agreeing upon compensation by way of liquidated damages, a party complaining of breach of contract can recover only a reasonable compensation for the injury thus suffered. The compensation amount is determined based on the actual loss the party has suffered because of the breach of the lock-in commitment.

Compensation/damages are awarded to make good the losses suffered by the aggrieved party, so as to reinstate him/ her in the original position. The Indian law does not penalize a contracting party for contractual breach and neither does it allow the aggrieved party to take advantage of such a situation. The rule is remains that the parties are free to breach the contract provided they compensate the other party, if the other party incurs an actual loss due to such breach.

Therefore if the lock-in clause in a leaveand- license agreement determines that in case of breach of the said clause the licensee is liable to pay the rent for the remaining lock-in period i.e., rent of 33 months, it is not really enforceable in a court of law.

To invoke any monetary claim, the licensor/ licensee has to show the following things:

• That such amount claimed is a genuine estimate of damages;
• That the landlord had altered its position by making the premises available to the licensee keeping in view the licensee’s requirements and spending thereupon. That certain expenditure was incurred on infrastructure specifically provided to the licensee as per licensee’s requirements; certain other expenditure incurred on whitewashing, fixture and fittings and the landlord was forced to incur expenditure again before giving the premises to the new licensee and, therefore, lock-in period was treated as reasonable period to avoid duplication of such expenditure, etc.;
• That the licensor took all reasonable steps to mitigate the loss consequent on the breach.

Once the damages are ascertained by the court, it is likely that damages will be awarded to the aggrieved party. The compensation so awarded takes the nature of debt on the party against whom the compensation has been awarded. Thus the courts can order for winding up of the licensee/licensor company, to clear such debt if it does not pay the debt willingly