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LEASE, LICENSE AND TENANCY

INTRODUCTION

Lease and license are the terms, which we usually come across while dealing with property matters. Though these two concepts prima facie look similar, there is a thin line difference that majorly separates these two from each other[1]. Due to the general practice related to the execution of the ‘Lease Agreement’ and ‘Leave and License Agreement’, which is often observed to differ from State to State, usually the questions as to the status and rights of the tenant arise.

Therefore, this blog tries to analyse the position of law in respect of lease and license, the difference between them and their connection with the status of the tenant, which is clarified by the Indian Courts through its various judgments.

Meaning of the ‘Lease’ and ‘License’

‘Lease’ is a term that is defined and governed by the Transfer of Property Act, 1882[2]. As per the provision of this Act[3], the lease is a transfer of an interest in the immovable property for a certain period in a consideration of rent or a premium; this transferred interest is a right of enjoyment in an immovable property. Thus it clearly separates the ownership rights from the right of possession over the property.

However, the ‘license’ is a term that is defined and governed by Indian Easements Act, 1882[4]. As per this provision[5], the license is a right, which is not an interest in the property, but a right to do or continue to do something, which in absence of a license would be unlawful. Thus license merely acts as permission to enter into the immovable property for a specific purpose in consideration of license fees[6]. Thus, it does not create any interest in the property in favour of the licensee. 

Difference between the ‘Lease’ and ‘License’

1st – Creation of interest in the property

From the definition and meaning of these two, the basic difference is that, the lease creates an interest in immovable property in favour of the lessee[7], and on the other hand, the license does not create any interest in the property but merely gives a right to use and occupy it[8].  Thus, a lease creates a proprietary interest, whereas a license gives a personal right in respect of the property[9].

2nd – Right to use the property while being in possession  

Furthermore, the lessee has a wide range of rights in respect of the use of leased property, while he holds possession of a property. However, the licensee holds lesser rights, as the licensor keeps control over the activities of the licensee while he uses the property[10].

3rd – Exclusive possession of the property

By way of a lease, exclusive possession is handed over to the lessee; however, the licensor has dominion over the property while the licensee is in the possession of the property[11]; for example a paying guest. It means the legal possession remains with the owner of the property and the licensee is provided with permission to use it for a specific purpose.[12] Besides, the lease is transferrable and inheritable also, but the license is not transferrable[13].

Analysis of differences

From the abovementioned points, there is an explicit distinction between these two concepts, which divides them from each other. This line of separation is clear though often it becomes very thin or even blurred[14].

Further, it is necessary to mention that, though exclusive possession separates the lease from a license, such exclusive possession cannot be a sole test to decide the true nature of a document and the intention of the parties[15].

CONNECTION OF TENANCY WITH LICENSE, AND LEASE

Governing laws and the concept of tenancy

The nature of tenancy, the way of creating a tenancy, and the rights and obligations of tenants and landlords are specifically governed and dealt with by respective state and local laws i.e. rent control acts. However, the general concept of tenancy derives from the concept of the lease.

A person is a tenant and gets the rights of tenancy, when he occupies and uses the premises as a lessee[16], and not as a licensee. But it is often seen that the premises are given on a rental basis by executing either a ‘Lease Agreement’ or even a ‘Leave and License Agreement’. When a person uses and occupies the premises through a ‘leave and license Agreement’, it obtains a different status than that of a tenant by a lease agreement.

So, exactly in what manner does the execution of different documents affect the rights of a person residing or using the premises on a rental basis? Before that, what is the basic difference between the rights of the lessee and the rights of the licensee?

Difference between rights of lessee and rights of a licensee

1st – In a leasehold interest, the transferor or lessor gives up his right of enjoyment in the leased property during the lessee holds such interest. This means that the lessee gets his leasehold interest to the exclusion of the lessor[17].

On the other hand, leave and license gives only a right to use the property in a certain way, while the possession and control remain with the licensor.

2nd – For evicting a lessee, due process has to be followed by the landlord along with valid grounds of eviction. An order of a competent Court thus becomes necessary for his eviction[18]. Also, the lessee has a right to challenge the termination of the lease and also has a right to continue even after the termination of the lease as a tenant at sufferance[19].

However, the licensee can be evicted easily. This does not mean that the licensee can be evicted without following the due process of law. But the licensor holds comparatively more discretion while revoking the license[20]. If the termination appears to be premature, then in such cases licensee only has a right to recover the compensation[21], but not the possession of the property.

Effect of documents on the status of a person in possession

Because of differences in rights as discussed above, the execution of different agreements affects the person in possession on a rental basis, thereby affecting his rights in respect of property and its use. However, when the nature of such documents is in question before the Court, the mere title of the Agreement cannot be considered for its determination.

Deciding the question of status

Whenever the nature of the document, status and rights of a person in possession is in question before the Courts, the Hon’ble Supreme Court has reiterated to focus on the intention of the parties reflected in the terms of the Agreement by reading the document in its entirety rather than focusing merely on the title of the Agreement[22].

This intention has to be ascertained by considering all the relevant provisions in the agreement[23].

List of factors determining these issues

The Hon’ble Supreme Court in 1959[24], well established the following factors for deciding these questions:

  1. For finding the nature of a document, whether lease or license, the content and substance of the document are to be preferred over the form of the document.
  2. The second thing to consider is the real intention of the parties, i.e. whether they wanted to create a lease or a license.
  3. The next factor is, whether the documents have created any interest in the property or merely allowed another party to use it by keeping the legal possession with the owner.
  4. Another factor to examine is that, whether another party has received exclusive possession of the property.

Wholesome analysis of a status considering these factors

Exclusive possession prima facie establishes another party as a tenant. However, other circumstances can be established to negate the intention of creating a lease[25]. If such exclusive possession given under the document is there along with the creation of an interest in the property, it would be a tenant by lease and not a mere licensee[26].

CONCLUSION

Leases and licenses thus become very important to be distinguished clearly, so as to understand the rights and status of a person in possession. As per the well-settled principle[27], the mere title of the document cannot be considered for deciding the nature of the rights of another party and the nature of a document, but the terms reflecting the mind and intention of parties has to be considered. Therefore, clear and unambiguous drafting of the terms of the document becomes necessary to explicate the intention of the parties. Rent control acts have contributed enormously to curbing the unstructured and fraudulent ways of rental transactions. Such as in Maharashtra, though the premises are usually let out by executing leave and license agreements, Maharashtra Rent Control Act, 1999[28] makes it compulsory to register a document, though the tenure of the document is for 11 months. Thus, the statutes, interpretation of Courts, and the terms of documents in entirety have to be looked into for deciding the nature of the rights of a person in possession and his status as a tenant. Such statutes, Court interpretation, and watertight drafting of documents thus safeguard the rights of both parties irrespective of any kind of general area practice of execution of the documents.

Author(s) Name: Anagha Huse (SNDT Women’s University, Mumbai)

References:

[1] Associated Hotels of India Ltd. v. R.N. Kapoor [1969] AIR 1959 SC 1262

[2] Transfer of Property Act 1882, s 105 – s 117

[3] Transfer of Property Act 1882, s 105

[4] Indian Easements Act 1882, s 52 – s 64

[5] Indian Easements Act 1882, s 52

[6] Associated Hotels of India Ltd. (n 1)

[7] Transfer of Property Act 1882, s 105

[8] Associated Hotels of India Ltd. (n 1)

[9] P. Dilli Babu Reddy v. Government of A.P. [2013] AIR 2013 NOC 55 AP

[10]  Onkar Nath Tiwary & Ors. V. The State of Bihar & Ors. [2013] LPA No. 313/2013

[11] Associated Hotels of India Ltd. (n 1)

[12] Ibid 1

[13] Indian Easements Act 1882, s 56

[14] Associated Hotels of India Ltd. (n 1)

[15] Ibid 1

[16] Ibid 1

[17] Ibid 1 [27]

[18] Onkar Nath Tiwary (n 10)

[19] Ibid 10

[20] Ibid 10

[21] Indian Easement Act 1882, s 64

[22] P.S. Rana Krishna Reddy v. N.K. Bhaggalaximi [2007] (2007) 10 SCC 231 [13]

[23] M. N. Clubwala v. Fida Hussain Saheb [1964] 1965 AIR 610

[24] Associated Hotels of India Ltd. (n 1)

[25] Ibid 1

[26] Ibid 1

[27] Ibid 1

[28] Maharashtra Rent Control Act 1999, s 55