A leave and license agreement is one through which the licensee is allowed by the licensor to use and occupy the licensor’s immovable property (or a portion of it), for a temporary period of time. The use of such property can be residential or commercial - the terms of which are stated in this agreement. The rent for such use is paid by the licensee to the licensor. Leave and license is usually granted for a period of 11 months. Such terms and conditions are mentioned in the clauses of a leave and license agreement between the parties.
A leave and license agreement is different from a rental / lease agreement. In leave and license - the owner leaves the property with various facilities and gives the licensee the right to use it, while this owner (licensor) is on a leave for a period of time. Once this leave is over, the owner would return. Leave and license agreements are legal documents that record the promises, terms and conditions between the parties. These terms bind the parties to carry out the obligations mentioned in the agreement . These obligations include that of the licensee to pay the security and the consideration for using the property. Since an agreement is a legal document, failure to carry out these contractual obligations can attract lengthy legal disputes and penalties.
The relevant personal details of the parties such as full name, residential addresses and ages of the parties to the agreement,
Details regarding the premises in question,
Details regarding payment of consideration/rent,
Duties and responsibilities of and between the parties,
Duration of license or the term of the agreement,
Details regarding security deposit,
Details regarding maintenance, electricity and water charges,
License termination and extension,
Penalty clause explaining the details of what the penalty would be if either party defaults in fulfilling its duties in accordance with the agreement,
Details of fixtures and schedule of property,
Right to sub-license,
General clauses such as termination of agreement, applicable laws, dispute settlement clause, confidentiality, etc.), and
Date of signing of the agreement.
Draft of Leave and License Agreement
This Agreement is made at ...... this ...... day of ……......., 20___, between Mr. A hereinafter referred to as 'the Licensor' of the One Part and Mr. B of …………… hereinafter referred to as the 'Licensee' of the Other Part, as follows;
Whereas the Licensor is the owner of a piece of land at ………………………………... bearing Survey No ... with a building consisting of …………. floor ...... having built up area of about ..... square feet.
And Whereas the Licensee has approached the licensor with a request to allow the Licensee to temporarily occupy and use a portion of the ...... floor of the said building, admeasuring about ...... square feet for carrying on his ...... business, on leave and license basis until the Licensee gets other more suitable accommodation.
And Whereas the Licensor has agreed to grant leave and license to the Licensee to occupy and use the said ground floor portion of the said building and which portion is shown on the plan hereto annexed by red boundary line on the following terms and conditions agreed to between the parties hereto;
Now it is agreed by and between the parties hereto as follows..
1. The Licensor hereby grants leave and license to the Licensee to occupy and use the said portion of the ground floor/....... floor of the said building of the Licensor (hereinafter referred to as the Licensed Premises) for a period of eleven months from ...... The Licensee agrees to vacate the said premises even earlier If the Licensee secures any other accommodation in the locality where the said premises are situated.
2. The Licensee shall pay to the Licensor a sum of Rs………..... per month (calculated at the rate of Rs………..... per square foot) as License fee or compensation to be paid in advance for each month on or before the ...... day of each month.
3. All the Municipal taxes and other taxes and levies in respect of the licensed premises will be paid by the Licensor alone.
4. The electric charges and water charges for electric and water consumption in the said licensed premises will be paid by the Licensee to the authorities concerned and the Licensor will not be responsible for the same. For the sake of convenience a separate electric and water meter if possible will be provided in the said premises.
5. The Licensee will be allowed to use the open space near the entrance to the Licensed premises and shown on the said plan by green wash for parking cars during working hours of the Licensee and not for any other time and no car or other vehicle will be parked on any other part of the said plot.
6. The licensed premises will be used only for carrying on business and for no other purpose.
7. The licensed premises have normal electricity fittings and fixtures. If the Licensee desires to have any additional fittings and fixtures, the Licensee may do so at his cost and in compliance with the rules. The Licensee shall remove such fittings and fixtures on the termination of the license failing which they shall be deemed to be the property of the Licensor.
8. The licensed premises are given to the Licensee on personal basis and the Licensee will not be entitled to transfer the benefit of this agreement to anybody else or will not be entitled to allow anybody else to occupy the premises or any part thereof. Nothing in this agreement shall be deemed to grant a lease and the licensee agrees and undertakes that no such contention shall be taken up by the Licensee at any time.
9. The Licensee shall not be deemed to be in the exclusive occupation of the licensed premises and the Licensor will have the right to enter upon the premises at any time during working hours to inspect the premises.
10. The Licensee shall maintain the licensed premises in good condition and will not cause any damage thereto. If any damage is caused to the premises or any part thereof by the Licensee or his employees, servants or agents the same will be made good by the Licensee at the cost of the Licensee either by rectifying the damage or by paying cash compensation as may be determined by the Licensor's Architect.
11. The Licensee shall not carry out any work of structural repairs or additions or alterations to the said premises. Only such alterations or additions as are not of structural type or of permanent nature may be allowed to be made by the Licensee inside the premises with the previous permission of the Licensor.
12. The Licensee shall not cause any nuisance or annoyance to the people-in the neighbourhood or store any hazardous goods on the premises.
13. If the Licensee commits a breach of any term of this agreement then notwithstanding anything herein contained the Licensor will be entitled to terminate this agreement by fifteen days' prior notice to the Licensee.
14. On the expiration of the said term or period of the License or earlier termination thereof, the Licensee shall hand over vacant and peaceful possession of the Licensed premises to the Licensor In the same condition In which the premises now exist subject to normal wear and tear. The Licensee's occupation of the premises after such termination will be deemed to be that of a trespasser.
IN WITNESS WHEREOF the parties hereto have put their hands the day and year first hereinabove written.
Signed by the withinnamed Licensor Shri ................
in the presence of ............
Signed by the within named Licensee Shri .......
in the presence of .........
There are no specific documents required for the drafting and execution of an agreement for leave and license. However, ID proofs of the parties in order to confirm the names and permanent addresses of the licensor and licensee should be scrutinised. Documents evidencing the licensor's clear title of the property in question should also be examined.
No set procedure is applicable in the making of a leave and license agreement. Once the agreement has been drafted by a lawyer, it should be specifically and carefully read by both the parties to the agreement. Any necessary changes required to be made shall be carried out and once the agreement is finalised, it shall be signed by both the parties along with the requisite witnesses. The agreement for leave and license must be printed on stamp paper/e-stamp paper of proper value and signed by both the parties. The stamp paper value depends on the particular State in which it is executed. Each party should thereafter keep a signed copy of the agreement. If the laws require you to register your leave and license agreement, then it should be mandatorily carried out.
A leave and license agreement is required to be printed on stamp paper of correct value, as per the laws in different States. If (in accordance with Section 17 of the Registration Act), you are required to register your leave and license agreement, you must do so. A properly stamped and registered leave and license agreement is a valid evidence in the Court of law. Leave and license agreements are governed by Indian Easements Act, 1882.
One of the first and the most important steps that you must undertake is to hire a good documentation lawyer as he/she is aware of the nitty gritty of the legal procedures and necessary requirements involved in drafting of rent/lease agreements. A lawyer would draft such an agreement, better than you can yourself, since he/she has the necessary legal knowledge and experience to handle and draft such documents. He/She will be able to guide you and draft for you according to your particular situation - the facts, circumstances and needs involved. A documentation lawyer is aware of good drafting technique and the clauses that must be included in your agreement.
Hiring a good lawyer in order to draft such important legal documents is a prerequisite and will help you in more ways than one. He/She can also help with proper stamping and registration as the case may be. Even if you have received a leave and license agreement from the other party, it is the best step to hire a lawyer to proofread / vet the agreement before signing, in order to ensure that the terms and conditions stated in agreement are not against your interests or that it is not a one-sided agreement.
I have signed one leave and license agreement for my office space .The licencee issued me a valid cheque as security deposit . Same cheque was dishonoured as the licensee instructed his bank to STOP PAYMENT. Licensee wanted some extra job (which was not mentioned in the agreement) and I refused. Presently nothing is happening .Can I cancel the deal without any problem from licensee side.(legal etc.) If yes then how to do it.
As per the terms and conditionss incorporated in your L & L, Licensee has defaulted by not paying the license fee, hence under that clause, Licensor has right to terminate the agreement by issuing him a notice. As this agreement is binding on both i.e. Licensee and Licensor and hence after issuing, licensee has to act as per agreement, if not again he is further amounting to breach of it and liable to evict from the said premises. ....Read More
Can I give my shop at Thane in Maharastra to a licensee for a period of 9 years or 5 years on leave and license agreement? At a stretch in an license agreement, what should be the maximum period one can grant his premises to licensee? Can I mention 9 year or 5 year instead of 9 terms of 12 or 5 terms of 12 months? Please advice on this.
This question has been answered by one of our lawyers. See answer below. ....Read More
Hello I'm going to engage in a business relationship with a landlord who is eager to lease his apartment for commercial purpose under: Leave and License agreement with a clause "THAT the licensee shall use the flat for residential purpose and shall not be used for commercial purpose exclusively" The landlord is ready to give NOC.My question is that Can I successfully run a business with such agreement.What are the problems that might come in the future with such agreement?
Your query is not very clear for a clear opinion you should have a full consultation with a legal professional although if you are taking LEASE for commercial purpose it should by way of a lease agreement because there is a great difference between lease and leave & license in leave and license you will only have the right to use that too for 11 months. Have assistance of a legal professional before setting up your business.
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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.
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