With Pro-tenant statutes being predominant; the
landlords have to take all necessary precautions to protect their rights
through appropriately worded contractual documents called Leave and licenceagreements. Rental Agreements are popular, but leave and licence agreement is
more advanced and protects the interests of the owners. This is widely used in
Mumbai and other metros and is gradually being adopted in Bangalore
What is a licence?
Licence agreement is a document granting
permission to use a land without a right to exclusive possession and such
transactions are governed by section 52 of the Easement Act; however the
Transfer of Property Act does not refer to leave and licence as a mode of
Transfer of Property.
Section 52 of the Indian Easement Act, defines
licence as where the grantor grants to another person or number of other
persons, a right to do, or continue to do in the immovable property of the
grantor, something which would, in the absence of such permission, be unlawful
and such a right does not amount to an easement or an interest in the property,
the right is called a licence.
A licence is notionally created where a person
is granted the right to use the premises without being entitled to the
exclusive possession of the premises or the circumstances and conduct of the
parties show that all that was intended was that the grantee should be granted
a personal privilege with no interest in the property. Thus, if the agreement
is merely for the use of the property in a certain way and on certain terms,
while the property remains in the owner’s possession and control, the agreementwill operate as a licence agreement.
The person who grants the right to do something
on his immovable property is called grantor or licensor and the person who gets
the right is licensee. Licence is a personal right given to the licensee and
therefore cannot be transferred by the licensee or exercised by his servants
and agents Thus, the licence is the grant of permission to do something upon
the immovable property, however it does not create any right in the immovable
property in favour of the person, who does something. It is different from
lease, which is a mode of Transfer of Property, where the lessee gets certain
rights including the possession to do something that is occupying or residing.
Even the possession is not exclusive, in leave and licence but deemed to the
joint possession of both, the licensor or licensee. It is not an easement right
and is in fact akin to residing in a lodge on payment of charge. The charges
paid for occupation is called compensation.
Similarly, where the licensor transfers the
immovable property to another person by way of sale, gift, etc., the transferee
is not bound by the licence. This is not so in case of rented or leased
property, where the transferee is bound by the terms of agreement made between
the lessor and lessee.
Revocation of Licence
a. Where
the licensor ceases to have any interest in the property.
b. Where
the licensee voluntarily relinquishes the licence granted.
c. Where
the licence is granted for certain period or to do some specific act and on
expiry of that certain period or completion of the act or non-performance of
the act.
d. Where
the property in respect of which licence is granted is destroyed or permanently
altered by superior force.
e. Where
the licensee becomes the owner of the property.
Where the purpose for which licence is granted
becomes impracticable or abandoned.
g. Where
the office, the employment or the character for which licence was granted
ceases to exist.
h. The licensee ceases to use the property for an unbroken
period of 20 years.
Leave and Licence Agreements:
Though there are definite legal provisions,
which separate licence agreements from lease agreements or tenancy agreements,
often it is confusing leading to litigation. Outwardly both lease and licence
seem similar. In lease or renting, a property is given to some other person for
definite period on payment of some specified amount, which may be lump sum, or
periodical called lease amount or rent. Similarly in leave and licence also
property is given to some other person for use on payment of compensation. The
real determining factor is the creation of interest in the property. It has been
held in many cases that the intention of the parties and their conduct are
important to determine whether a particular case is licence or lease. A
provision to keep the property in good and tenantable repairs would be an
indication in favour of lease or tenancy than licence.
Principles for
Licence:
In another case, the court has laid down the
following principles for determining the agreement as licence:
a. The
agreement is signed by the licensee only.
b. The
licences for carrying the business stand in the name of licensor.
c. Both
the parties have control over the property,
d. Admission
made by the licensee in subsequent correspondence indicating that the agreement
is a mere licence
It has also been held that, if the licensee
under the terms of licence constructs any structure of permanent nature and the
construction made by the licensee with the knowledge and consent of the
licensor; the licence cannot be revoked, likewise the licence cannot be
revoked, when coupled with transfer of property and such transfer is in force.
So proper care should be taken while preparing
the leave and licence agreement to include the points mentioned by different
courts. The agreement should adhere to the following in general:
a. The period of licence should not be more than 11 months;
even if feasible no definite period should be mentioned.
b. There should not be provision to extend the agreement with
mutual consent.
c. The licence should be liable for cancellation without
assigning any reason.
d. The possession should not be exclusive.
e. There should not be any provision for termination of licence
or re-entry, if mentioned it would amount to exclusive possession and transfer.
f. There should not be any clause about keeping property in
good and tenantable repairs, which is an indication of tenancy.
g. Avoid mentioning clauses pertaining to the payment of taxes,
rates by the licensee.
h. Avoid mentioning clauses pertaining to letting or
subletting, since licence does not confer such rights on the licensee.
Contents of the
Agreement:
Just incorporating the words licence, licensor
and licensee in an agreement, does not make a document a leave and licence
agreement, but the contents, intention of parties and their conduct determine
the nature. Courts are inclined to treat the documents as that of lease, in
case of any doubt as to whether a document is a leave and licence agreement.
The licence dealt in this article is different
from nature of licence issued and granted to sell goods or to drive motor
vehicles or to work as agents. Licence to use immovable property, is a
contractual permission governed by Easement Act and is not a statutory licence.
Drafting a leave and licence agreement is more difficult than any other
document and only experienced and skilled advocates would be in a position to
ensure that the agreement retains only the characteristics of a leave and
licence agreement and leave no scope for any other interpretation of such
agreements. It is always preferable to go in for leave and licence agreement as
it protects the rights and interests of the owner without giving undue favour
to the occupants.
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