The landlords have to take all necessary precautions to protect their rights through appropriately worded contractual documents called Leave and licence agreements. 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 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 agreement will 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
Where the licensor ceases to have any interest in the property.
Where the licensee voluntarily relinquishes the licence granted.
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
Where the property in respect of which licence is granted is destroyed or
permanently altered by superior force.
Where the licensee becomes the owner of the property.
Where the purpose for which licence is granted becomes impracticable or
Where the office, the employment or the character for which licence was granted
ceases to exist.
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:
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 license 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.