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
act.
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
abandoned.
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.
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