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Can I get leave & license agreement done for residential purpose
12-Dec-2023 (In Landlord/Tenant Law)
I have heard of a practice of leave and license prevalent in Mumbai and other major cities. I own a residence in Jaipur and wanted to rent it out on leave and license basis. Please, can anyone confirm the applicability of Leave and license in Rajasthan? Secondly, What will be the stamp duty and registration charges for the same? Please help.
A leave and license agreement is an instrument/agreement wherein the licensor allows the licensee to temporarily occupy and use one portion of immovable property for carrying on his business for residential purposes.
A license is a personal right granted to a person to do something upon immovable property of the grantor and does not amount to the creation of interest in the property itself. It is purely a permissive right and is personal to the grantee. It creates no duties and obligations upon the persons making the grant and is, therefore, revocable except in certain circumstances expressly provided for in the Act itself. The license, when granted, has not other effect to confer liberty upon the licensee to go upon the land which would otherwise be lawful.
Section 52 of Indian Easement Act, 1882 defines License as under:
“Where one person grants to another, or to a definite number of other persons, a right to do or continue to do, in or upon immovable property of the grantor, something which would, in the absence of such rights, be unlawful, and such right does not amount to an easement or an interest in the property, the right is called a license.”
Decisions of the Supreme Court in Associated Hotels of India Ltd. vs. R.N. Kapoor [AIR 1959 SC 1262] summed the concept of License as under:
“… Under the aforesaid section, if a document gives only a right to use the property in particular way or under certain terms while it remains in the possession and control of the owner thereof, it will be a license. The legal possession, thereof, continues to be with the owner of the property, but the licensee is permitted to make use of the premises for a particular purpose. But for the permission, his occupation would be unlawful. It does not create in his favour any estate or interest in the property.”
It important to take note of essential features of license as under:
1. A license is not connected with the ownership of land / property but creates only a personal right or obligation;
2. A license cannot be transferred or assigned;
3. License is purely permissive right arising only by permission, express or implied, and not by adverse exercise or in any other way;
4. It only legalize a certain act which would otherwise be unlawful and does not confer any interest in the property itself in or upon or over which such act is allowed to be done;
DISTINCTION BETWEEEN LEASE AND LICENSE
The main test for deciding whether a person is a licensee of a property or a lessee is that of exclusive possession, though it may not be the only test. If the right granted conveys to the grantee an exclusive right of possession, though subject to certain reservations, if shall be a lease as opposed to license. But where the grantee can only use the property in a certain way and on certain terms while the property remains in the possession and control of the owner, the right granted shall be a license.
1. A lease gives an exclusive interest in the property whereas license does not;
2. A lease can be assigned to a third person, while a license being a personal right cannot be so assigned / transferred;
3. A lessee can bring an action for trespass in his own name but a licensee cannot do the same. He must do so in the name of the licensor after obtaining his permission.
4. A lease is not revocable whereas a license is revocable except in two case mentioned in Section 60 of Indian Easement Act, 1882 (We shall de discussing this aspect of license later in the post).
In the case of B.M. Lall vs. M/s Dunlop Rubber Co. [AIR 1968 SC 175] summed up the distinction between license and lease as under:
“… A lease is the transfer of right to enjoy the premises whereas as license is a privilege to do something on the premises which otherwise would be unlawful. If the agreement is in writing it is question of construction of the agreement having regard to its terms and where its language is ambiguous, having regard to its object, and other circumstances under which it was executed whether the rights of the occupier are those of a lessee or licensee. The transaction is a lease if it grants an interest in the land; it is a license if it gives personal privilege with no interest in the land. The question is not of words but of substance and the label which parties chose to put upon the transaction though relevant is not, decisive. The test of exclusive possession is not conclusive though, it is very important indication in favour of tenancy.”
IS LICENSE ALWAYS EXCLUSIVE?
As discussed above, a license is a personal right granted to a person to do something upon immovable property of the grantor and does not amount to the creation of interest in the property itself. Now the very important question arises that by virtue of grant of license, is it implied that licensor intends to grant an exclusive license to licensee? An exclusive license is leave to do a thing coupled with a contract not give license to anybody else to do the same thing. But it is equally important to have it expressly stated in agreement that the license granted is an exclusive license. Such a right should be conferred by means of a clear and explicit language and in the absence of such a right it cannot be presumed or inferred from a mere leave to do a thing. So grant of liberty mines is not the grant of an exclusive right to work on them. The incidents of an exclusive license in no way differ from those of an ordinary license except that the violation of the contract not to give license to anybody else do the same thing would give the licensee a right of action against the licensor.
TRANSFERABILITY OF LICENSE
Section 54 of the Indian Easements Act, 1882 is the relevant section. Section 54 read thus:
“Unless a different intention is expressed or necessarily implied, a license to attend a place of public entertainment may be transferred by the licensee; but, save as aforesaid, a license cannot be transferred by the licensee or exercised by his servants or agents.
If Section 52 has to interpreted, it is amply clear that a license cannot be transferred by the licensee or exercised by his servants or agents. The only exception has been made in the case of a license to attend a place of a public entertainment. In this case a license may be transferred unless a different intention appears i.e. a contract may put a negative restriction as to transferability of license. In other words unless a different intention is expressed or implied, a license other than a license to attend a place of public entertainment cannot be transferred by the licensee or by his servants or agents.
IMPLICATIONS OF SALE OF LICENSE PROPERTY BY LICENSOR
Section 59 of Indian Easements Act, 1882 provides that when a grantor of a license transfers property affected thereby, the transferee is as such bound by the license. In other words, in the event licensor sells his property in which he has granted a license in favour of licensee, transferee shall not be bound by such license. However it has been held that if the license has become irrevocable in the time of the licensor, the mere fact that the licensor transfers his interest in the land would not extinguish the license.
LICENSE IS REVOCABLE AT WILL
As general rule, License is always revocable at will of licensor. However Section 60 of Indian Easements Act, 1882 places two restrictions on this general rule:
a. If the license is coupled with a transfer of property and such transfer is in force;
b. If the licensee acting upon the license, has executed a work of permanent character and incurred expenses in the execution.
The fact that the license was granted for a consideration or for an agreed term cannot affect the revocability of bare license. In such cases the licensee can claim compensation for breach of contract. Further a license granted by all the co-shares can be revoked by all of them and not by one of them alone unless a co-sharer is acting for himself and for all others.
Clause a: A bare license is something different from a license coupled with the transfer of property and when such license exists in a valid form, it operates as a contract, or a gift or a grant and becomes irrevocable. Where a person allows another person to come to his park to hunt there and to take away the game. If the owner of the park merely allowed another person to enter the park and to do something there, namely, to hunt in the park, it would be a case of bare license. However if he allowed him not only to hunt in the park but also to take away the game then it cannot be said to be a case of bare license. The license in such a case would be coupled with a transfer of property, viz., the game hunted.
Clause b: The prohibition against the revocation of a license as contained in Section 60 becomes applicable when a licensee “acting upon the license” makes constructions. This means where a license is granted for building purposes necessary for the enjoyment of the license, the license becomes irrevocable when constructions are made in pursuance thereof. But this does not mean that if a person is permitted to visit a place just to learn wrestling, he can put up a building and claim that license which was confined to his visiting the place for wrestling, entitled him to make constructions thereon and has become irrevocable. Now the term ‘work of permanent character’ shall denote some work which is not merely temporary nature. It is also not necessary to prove that a large sum of money was spent on the construction.
LICENSEE’s REMEDY AGAINST IMPROPER REVOCATION
A bare license may be revoked at the instance of licensor at any time he likes and it is true that there is no provision under the law for issue of any notice, as in the case of leases, before a license can be revoked. But the licensee, should in proper cases, have reasonable notice of such revocation and after revocation he must have reasonable time quit the land and remove his chattels which he has been licenses to put there. If he is thrust off without such notice or before such reasonable time though he is not entitled to an injunction restraining the licensor from adopting such improper course, yet he may get such damages as may have been caused to him thereby. Similarly where a license is granted valuable consideration and before the licensee has had full enjoyment of it, it is revoked in breach of an express or implied contract the licensee’s remedy lies only in an action for damages for breach of contract or implied covenant not to revoke.
IMPORTANT CLAUSES IN LEAVE AND LICENSE AGREEMENT AND THEIR VALIDITY
Most of the leave and license agreement that I have come across have following under mentioned clauses in the leave and license agreement. Now let us examine the validity, legality and enforceability of these clauses.
1. Possession: Most of the leave and license agreement suggest that possession during the entire term of this agreement shall remain with Licensor. This is perfect with the nature and spirit of the agreement since exclusive possession is key element to determine as whether the transaction is in the nature of license or a lease. However two points needs to be noted that agreement should also clearly specify that there is no intention to transfer any right or interest in the property per se. Further from the licensee perspective, it is important to mention that the license being granted to licensee is an exclusive license or else it may be construed as bare license.
2. Lock in period: Most of the leave and license agreement suggest that both licensor and licensee shall be locked in for a certain term of license agreement. As noted above, license is always terminable at will. Any form of lock being imposed in the agreement may not hold water in the court since it goes against the very logic of license. Further by granting a license, Licensor is merely granting a permissive right to licensee and is not intending to create an interest in the property. Even if such lock in clause is held to be valid, licensor can still revoke the license and be liable for damages. Further in such an event since the possession is always with Licensor, there cannot be any claims on part of licensee as to illegal eviction. In my opinion, such lock in clauses may not hold water in the court and can be held illegal and void ab initio. In such an event, there can be two possibilities:
– If such clause is held to be legal and perfectly valid within the realms of law, licensee shall be entitled to merely damages for illegal revocation / termination of license;
– If such clause is held to be illegal and invalid, doctrine of severability shall come into play and court shall read the entire document as if the lock in clause was incorporated in the agreement. In such an event, there can be no question of damages as well.
3. Improvement of permanent character: Let us exemplify this situation for the sale of clarity. If a mall owner gives a property to a retailer vide a leave and license agreement, wherein a retailer is permitted to carry out its fit out activities in the premises so as to enjoy the permission granted to a retailer. In course of such fit outs, retailer carries out improvements which are of permanent in nature (such as erection of false ceiling, installation of lifts / escalators etc.), what shall be the effect of such improvement on the overall nature of transaction i.e. leave and license agreement. Since Section 60 of the Act clearly states that where licensee acting upon the license, has executed a work of permanent character and incurred expenses in the execution, license become irrevocable. In my opinion, even in such cases the license is terminable at will and the only remedy available to Licensee for such improper revocation shall be claim for damages and compensation for the improvements so made.
4. Exclusive Possession: Most of the leave and license agreements fail on this count. It is imperative for the retailer that agreement clearly and unequivocally states that licensor is granting and licensee is entitled to exclusive license for the property. It must be noted that there is clear cut distinction between exclusive license and exclusive possession. There may be an exclusive license being granted to licensee, but the fact remain that the exclusive possession is always with the Licensor and for want of which it shall be very strong indicator of the instrument being lease with nomenclature being used as license.
5. Notice: As noted above, though there is not statutory requirement for a licensor to give notice to licensee while revoking the license, but the principles of natural justice demands that such notice should be given by the licensor. Further there is no bar in law wherein both licensee and licensor agrees to certain form notice to be given by licensor to licensee before any kind of revocation of license by the licensee. In the event such provision of notice is agreed, it shall be contractual obligation of Licensor to provide such notice to licensee.
6. Keys and Locks with the Licensor: It is often written in the leave and license agreement that keys and locks of the premises shall for all purposes will be with licensor. This just reinforces the fact that the possession at all times is with licensor and licensor has granted merely permissive rights to the licensee. But from the licensee perspective it is important to have sufficient protection in the agreement that in the event there is any theft or loss or damage of the chattels belonging to licensee during the access made by licensor in the absence of licensee, licensor shall be liable for the same and licensee shall duly indemnified in this regard.
7. Assignment to licensee’s group / associate companies: Often Licensee’s insist for a clause where they are entitled to assign the leave and license rights to their group / associate / sister companies. More often than not such a clause is merely copied in ditto from the lease formats and pasted in the leave and license agreement. However in view of express provisions under the law relating to non-transferability of license rights and license rights being personal in nature, such a clause shall not hold valid in court of law. In fact licensee is suggested to incorporate a suitable clause wherein licensor is under an obligation to execute a fresh license in favour of group / associate / sister companies if and when desired by the licensee. In such a way, it is not the licensee who is transferring and licensor shall be the one who shall be creating a fresh license.
A license is a personal right granted to a person to do something upon immovable property of the grantor and does not amount to the creation of interest in the property itself. It is purely a permissive right and is personal to the grantee. It creates no duties and obligations upon the persons making the grant and is, therefore, revocable except in certain circumstances expressly provided for in the Act itself. The license, when granted, has not other effect to confer liberty upon the licensee to go upon the land which would otherwise be lawful.
Section 52 of Indian Easement Act, 1882 defines License as under:
“Where one person grants to another, or to a definite number of other persons, a right to do or continue to do, in or upon immovable property of the grantor, something which would, in the absence of such rights, be unlawful, and such right does not amount to an easement or an interest in the property, the right is called a license.”
Decisions of the Supreme Court in Associated Hotels of India Ltd. vs. R.N. Kapoor [AIR 1959 SC 1262] summed the concept of License as under:
“… Under the aforesaid section, if a document gives only a right to use the property in particular way or under certain terms while it remains in the possession and control of the owner thereof, it will be a license. The legal possession, thereof, continues to be with the owner of the property, but the licensee is permitted to make use of the premises for a particular purpose. But for the permission, his occupation would be unlawful. It does not create in his favour any estate or interest in the property.”
It important to take note of essential features of license as under:
1. A license is not connected with the ownership of land / property but creates only a personal right or obligation;
2. A license cannot be transferred or assigned;
3. License is purely permissive right arising only by permission, express or implied, and not by adverse exercise or in any other way;
4. It only legalize a certain act which would otherwise be unlawful and does not confer any interest in the property itself in or upon or over which such act is allowed to be done;
DISTINCTION BETWEEEN LEASE AND LICENSE
The main test for deciding whether a person is a licensee of a property or a lessee is that of exclusive possession, though it may not be the only test. If the right granted conveys to the grantee an exclusive right of possession, though subject to certain reservations, if shall be a lease as opposed to license. But where the grantee can only use the property in a certain way and on certain terms while the property remains in the possession and control of the owner, the right granted shall be a license.
1. A lease gives an exclusive interest in the property whereas license does not;
2. A lease can be assigned to a third person, while a license being a personal right cannot be so assigned / transferred;
3. A lessee can bring an action for trespass in his own name but a licensee cannot do the same. He must do so in the name of the licensor after obtaining his permission.
4. A lease is not revocable whereas a license is revocable except in two case mentioned in Section 60 of Indian Easement Act, 1882 (We shall de discussing this aspect of license later in the post).
In the case of B.M. Lall vs. M/s Dunlop Rubber Co. [AIR 1968 SC 175] summed up the distinction between license and lease as under:
“… A lease is the transfer of right to enjoy the premises whereas as license is a privilege to do something on the premises which otherwise would be unlawful. If the agreement is in writing it is question of construction of the agreement having regard to its terms and where its language is ambiguous, having regard to its object, and other circumstances under which it was executed whether the rights of the occupier are those of a lessee or licensee. The transaction is a lease if it grants an interest in the land; it is a license if it gives personal privilege with no interest in the land. The question is not of words but of substance and the label which parties chose to put upon the transaction though relevant is not, decisive. The test of exclusive possession is not conclusive though, it is very important indication in favour of tenancy.”
IS LICENSE ALWAYS EXCLUSIVE?
As discussed above, a license is a personal right granted to a person to do something upon immovable property of the grantor and does not amount to the creation of interest in the property itself. Now the very important question arises that by virtue of grant of license, is it implied that licensor intends to grant an exclusive license to licensee? An exclusive license is leave to do a thing coupled with a contract not give license to anybody else to do the same thing. But it is equally important to have it expressly stated in agreement that the license granted is an exclusive license. Such a right should be conferred by means of a clear and explicit language and in the absence of such a right it cannot be presumed or inferred from a mere leave to do a thing. So grant of liberty mines is not the grant of an exclusive right to work on them. The incidents of an exclusive license in no way differ from those of an ordinary license except that the violation of the contract not to give license to anybody else do the same thing would give the licensee a right of action against the licensor.
TRANSFERABILITY OF LICENSE
Section 54 of the Indian Easements Act, 1882 is the relevant section. Section 54 read thus:
“Unless a different intention is expressed or necessarily implied, a license to attend a place of public entertainment may be transferred by the licensee; but, save as aforesaid, a license cannot be transferred by the licensee or exercised by his servants or agents.
If Section 52 has to interpreted, it is amply clear that a license cannot be transferred by the licensee or exercised by his servants or agents. The only exception has been made in the case of a license to attend a place of a public entertainment. In this case a license may be transferred unless a different intention appears i.e. a contract may put a negative restriction as to transferability of license. In other words unless a different intention is expressed or implied, a license other than a license to attend a place of public entertainment cannot be transferred by the licensee or by his servants or agents.
IMPLICATIONS OF SALE OF LICENSE PROPERTY BY LICENSOR
Section 59 of Indian Easements Act, 1882 provides that when a grantor of a license transfers property affected thereby, the transferee is as such bound by the license. In other words, in the event licensor sells his property in which he has granted a license in favour of licensee, transferee shall not be bound by such license. However it has been held that if the license has become irrevocable in the time of the licensor, the mere fact that the licensor transfers his interest in the land would not extinguish the license.
LICENSE IS REVOCABLE AT WILL
As general rule, License is always revocable at will of licensor. However Section 60 of Indian Easements Act, 1882 places two restrictions on this general rule:
a. If the license is coupled with a transfer of property and such transfer is in force;
b. If the licensee acting upon the license, has executed a work of permanent character and incurred expenses in the execution.
The fact that the license was granted for a consideration or for an agreed term cannot affect the revocability of bare license. In such cases the licensee can claim compensation for breach of contract. Further a license granted by all the co-shares can be revoked by all of them and not by one of them alone unless a co-sharer is acting for himself and for all others.
Clause a: A bare license is something different from a license coupled with the transfer of property and when such license exists in a valid form, it operates as a contract, or a gift or a grant and becomes irrevocable. Where a person allows another person to come to his park to hunt there and to take away the game. If the owner of the park merely allowed another person to enter the park and to do something there, namely, to hunt in the park, it would be a case of bare license. However if he allowed him not only to hunt in the park but also to take away the game then it cannot be said to be a case of bare license. The license in such a case would be coupled with a transfer of property, viz., the game hunted.
Clause b: The prohibition against the revocation of a license as contained in Section 60 becomes applicable when a licensee “acting upon the license” makes constructions. This means where a license is granted for building purposes necessary for the enjoyment of the license, the license becomes irrevocable when constructions are made in pursuance thereof. But this does not mean that if a person is permitted to visit a place just to learn wrestling, he can put up a building and claim that license which was confined to his visiting the place for wrestling, entitled him to make constructions thereon and has become irrevocable. Now the term ‘work of permanent character’ shall denote some work which is not merely temporary nature. It is also not necessary to prove that a large sum of money was spent on the construction.
LICENSEE’s REMEDY AGAINST IMPROPER REVOCATION
A bare license may be revoked at the instance of licensor at any time he likes and it is true that there is no provision under the law for issue of any notice, as in the case of leases, before a license can be revoked. But the licensee, should in proper cases, have reasonable notice of such revocation and after revocation he must have reasonable time quit the land and remove his chattels which he has been licenses to put there. If he is thrust off without such notice or before such reasonable time though he is not entitled to an injunction restraining the licensor from adopting such improper course, yet he may get such damages as may have been caused to him thereby. Similarly where a license is granted valuable consideration and before the licensee has had full enjoyment of it, it is revoked in breach of an express or implied contract the licensee’s remedy lies only in an action for damages for breach of contract or implied covenant not to revoke.
IMPORTANT CLAUSES IN LEAVE AND LICENSE AGREEMENT AND THEIR VALIDITY
Most of the leave and license agreement that I have come across have following under mentioned clauses in the leave and license agreement. Now let us examine the validity, legality and enforceability of these clauses.
1. Possession: Most of the leave and license agreement suggest that possession during the entire term of this agreement shall remain with Licensor. This is perfect with the nature and spirit of the agreement since exclusive possession is key element to determine as whether the transaction is in the nature of license or a lease. However two points needs to be noted that agreement should also clearly specify that there is no intention to transfer any right or interest in the property per se. Further from the licensee perspective, it is important to mention that the license being granted to licensee is an exclusive license or else it may be construed as bare license.
2. Lock in period: Most of the leave and license agreement suggest that both licensor and licensee shall be locked in for a certain term of license agreement. As noted above, license is always terminable at will. Any form of lock being imposed in the agreement may not hold water in the court since it goes against the very logic of license. Further by granting a license, Licensor is merely granting a permissive right to licensee and is not intending to create an interest in the property. Even if such lock in clause is held to be valid, licensor can still revoke the license and be liable for damages. Further in such an event since the possession is always with Licensor, there cannot be any claims on part of licensee as to illegal eviction. In my opinion, such lock in clauses may not hold water in the court and can be held illegal and void ab initio. In such an event, there can be two possibilities:
– If such clause is held to be legal and perfectly valid within the realms of law, licensee shall be entitled to merely damages for illegal revocation / termination of license;
– If such clause is held to be illegal and invalid, doctrine of severability shall come into play and court shall read the entire document as if the lock in clause was incorporated in the agreement. In such an event, there can be no question of damages as well.
3. Improvement of permanent character: Let us exemplify this situation for the sale of clarity. If a mall owner gives a property to a retailer vide a leave and license agreement, wherein a retailer is permitted to carry out its fit out activities in the premises so as to enjoy the permission granted to a retailer. In course of such fit outs, retailer carries out improvements which are of permanent in nature (such as erection of false ceiling, installation of lifts / escalators etc.), what shall be the effect of such improvement on the overall nature of transaction i.e. leave and license agreement. Since Section 60 of the Act clearly states that where licensee acting upon the license, has executed a work of permanent character and incurred expenses in the execution, license become irrevocable. In my opinion, even in such cases the license is terminable at will and the only remedy available to Licensee for such improper revocation shall be claim for damages and compensation for the improvements so made.
4. Exclusive Possession: Most of the leave and license agreements fail on this count. It is imperative for the retailer that agreement clearly and unequivocally states that licensor is granting and licensee is entitled to exclusive license for the property. It must be noted that there is clear cut distinction between exclusive license and exclusive possession. There may be an exclusive license being granted to licensee, but the fact remain that the exclusive possession is always with the Licensor and for want of which it shall be very strong indicator of the instrument being lease with nomenclature being used as license.
5. Notice: As noted above, though there is not statutory requirement for a licensor to give notice to licensee while revoking the license, but the principles of natural justice demands that such notice should be given by the licensor. Further there is no bar in law wherein both licensee and licensor agrees to certain form notice to be given by licensor to licensee before any kind of revocation of license by the licensee. In the event such provision of notice is agreed, it shall be contractual obligation of Licensor to provide such notice to licensee.
6. Keys and Locks with the Licensor: It is often written in the leave and license agreement that keys and locks of the premises shall for all purposes will be with licensor. This just reinforces the fact that the possession at all times is with licensor and licensor has granted merely permissive rights to the licensee. But from the licensee perspective it is important to have sufficient protection in the agreement that in the event there is any theft or loss or damage of the chattels belonging to licensee during the access made by licensor in the absence of licensee, licensor shall be liable for the same and licensee shall duly indemnified in this regard.
7. Assignment to licensee’s group / associate companies: Often Licensee’s insist for a clause where they are entitled to assign the leave and license rights to their group / associate / sister companies. More often than not such a clause is merely copied in ditto from the lease formats and pasted in the leave and license agreement. However in view of express provisions under the law relating to non-transferability of license rights and license rights being personal in nature, such a clause shall not hold valid in court of law. In fact licensee is suggested to incorporate a suitable clause wherein licensor is under an obligation to execute a fresh license in favour of group / associate / sister companies if and when desired by the licensee. In such a way, it is not the licensee who is transferring and licensor shall be the one who shall be creating a fresh license.
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Adv. Siddhant Sharma
Delhi | 500+ Answers
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