Introduction
The laws related to the transfer of property or the rights for usage of the property are covered under the Transfer of Property Act, 1882 (Act). The Act covers various modes of transfer such as Sale, Mortgage, Exchange, Lease, Gift, etc. License is defined u/s 52 of Indian Easement Act 1882 as, one person grants permission/right to another, in or upon the immovable property of the grantor, something which would, in the absence of such right/permission, be unlawful.
Lease Deed
Section 105 of the Property Act defines ‘lease of immovable property as a transfer of a right to enjoy such property made for a certain time in consideration for a price paid or promised. U/s 108 of the Act, the lessee is entitled to be put in possession of the property. A lease is therefore a transfer of interest inland.
Ingredients of a lease deed
- The lease may be defined as a transfer of an interest in immovable property for a fixed period;
- Rent is to be paid periodically as agreed between the parties;
- A lease cannot be revoked at the will of the parties while it is in existence unless it is specifically provided in the Lease Deed;
- Creates interest in the property in favour of the Lessee.
In the case of Anwarali v. Jaminilal Roy[i]- The Court clarified that a lease deed creates a rightful separation of ownership and possession i.e. before the grant of the lease, the Lessor can enjoy the possession of the premises however, during the concurrence of the lease, he excludes himself from that right.
In Jaswantsinh Mathurasinh & Anr. v. Ahmedabad Municipal Corporation & Ors.[ii]- The court clarified that the use of the word ‘demise’ in a Lease Deed triggers the Lessor’s liability for the warranty of enjoyment of the property and the Lessee is entitled to remain in possession until the lease is terminated.
Registration of lease deed
According to Section 107 of the Transfer of Property Act, 1882 and Section 19(1)(d) of the Registration Act, 1908 it is compulsory to register the lease of immovable property for exceeding one year. The deed can be registered with a Sub-Registrar Office with authority over the property that is to be leased. In most cases, two copies of the deed are executed, with one of the original copies being retained by each of the parties.
In Usha Ranjan Ray Burman v. Sova Das[iii]- The court held that a lease deed that needs to be mandatorily registered and it is void if not registered.
A lease agreement shall be printed on a non-judicial stamp paper or the stamp duty value due on the lease agreement shall be determined by the state where you live and the amount of rent you owe under the said agreement.
Points to consider before signing a lease agreement[iv]
Lease Agreement: Drafting a lease agreement is important as it is written proof containing the terms and conditions. It carries the specifications about the period for which the property has been leased, the rent that is to be paid, etc. It is an important document in case of solving any further dispute.
Points to remember before drafting a Lease Agreement:
- The owner should get the prospective tenant registered for the safety of the property;
- The exact area of the premises should be calculated;
- The postal and legal address of the concerned property must be verified.
While drafting a rent agreement, certain things should be taken care of to avoid any conflicts[v]:
- All the important details should be mentioned in the document such as the name of the property owner and the tenant, the duration of the lease, the rent that is to be paid, and the address of the concerned property.
- Mention the purpose of renting the property in case of a commercial lease of the property.
- Mention the number of people allowed occupying the premises in case of residential property.
- The terms and conditions should be mentioned concerning the maintenance of the property, its repair in case of damage, etc.
- The security deposit amount should be specifically mentioned and specify the non-refundable amount.
- Highlight all the responsibilities towards the premises such as electricity, water supply, etc.
License
A licensor is a person who gives the License and a Licensee is a person who pays for the License and holds the rights. The agreement gives the Licensee permission to hold the property of the Licensor. Occupancy is issued based on leave and license agreement and not based on ownership. Such an arrangement encourages eviction and gives greater control to the landlord in general.
A “License” is a right that is given by one person to another or a group of persons. Personal rights are given under the agreement and such rights are not transferable. Licenses should not be intermixed with lease agreements as both are different.
Leave and License Agreement
The owners worried that the tenants may turn into a menace, then the Leave and License agreement is the best way for them. As mentioned above it declares that the lawful possession of the premises will remain with the owner. It provides that the tenant shall use the premises temporarily and the term the owner shall continue to have possession of the property. It provides that there is no transfer of an interest of property between the owner and the tenant.
Important features of a license agreement
- License creates a personal, permissive, non-transferable, and non-assignable contractual right for using an immovable property for a fixed period, for a pre-agreed purpose
- The right over the premises cannot be transferred, assigned, or inherited
- No interest is created in the property itself.
Ensuring legal validity of leave and license agreement
Once you have prepared the content of the leave and license agreement, print it on stamp paper of the required value. The licensor and the licensee must then place their signatures in the designated places along with the signatures of 2 witnesses[vi].
In Maharashtra, a License Agreement has to be registered u/s 55 of Maharashtra Rent Control Act, 1999 and the consequences of non-registration would be that the contentions of the Licensee as to the terms and conditions shall prevail.
Difference between a lease and license agreements
Let’s discuss the difference:
- Lease generates interest in a property whereas in license it is not the same.
- Leases are easy to transfer however it is different from the License Agreement.
- A Lease Agreement gives a tenant independent possession of the immovable property whereas the License agreement only allows occupying a certain property.
- Licenses are reversible by the Licensor whereas leases cannot be reversed by the lessor.
Leave & License to the Landlord’s Rescue
As mentioned above the license agreements do not transfer the right to enjoy the property to the employer. The licensee can use the property for a fixed time under certain terms and conditions. It is noteworthy that throughout license the right to own property rests with the owner. No other rights vests are other than the right to enjoy the property temporarily while the landlord retains full interest.
The License agreement may be terminated by providing the licensee an advance notice as per the terms of the agreement. The Licensor may incorporate a clause mentioning that the premises are should be maintained properly, annual rent should be increased, rent is to be paid promptly, tenure of agreement, etc.
A detailed case study: Associated hotels of India Ltd. v. R.N. Kapoor[vii]
In the instant matter, the court stated that although the document used the term license. However, it is the substance of the agreement that matters and not the form. As discussed above, there are differences between a lease and a license.
The court highlighted the following points while considering an agreement:
- For ascertaining whether a document is a license or lease, the substance of the document must be referred to the form;
- To determine the nature of the agreement is to determine the intention of the parties i.e. whether the parties are intended to create a lease or a license;
- A document creating an interest in the property shall be considered as a lease; however, if only the right to use the property is mentioned and the legal possession continues with the owner, then it is a license
- If under an agreement the party gets exclusive possession of the property then he shall be considered as the tenant; however, if the agreement doesn’t provide an exclusive possession then it shall not be considered as a lease.
The court held that in the instant matter the rooms were let out were situated in a building wherein a hotel is run cannot make any difference in the character of the holding. The court stated that there was the transfer of a right to enjoy the two rooms, and, therefore, it created a tenancy in favour of the respondent.
The real estate market is complex and tricky; parties invest their hard-earned money. Several complicated deeds being thrown around, the layman has always been fearful about venturing into the legal side of it. The major real estate dealing where most of the population in metro cities enters is a lease or license agreement. An agreement must be in place and hence, always be careful while drafting or signing it.
[i] AIR 1940 Cal. 89
[ii] 1992 Supp. (1) SCC 5
[iii] AIR 1990 Cal I
[iv] https://timesofindia.indiatimes.com/business/faqs/documents/rent-agreement-norms-critical-points-to-consider-before-signing-a-rent-agreement/articleshow/72360045.cms
[v] https://www.realestateindia.com/blog/points-to-remember-while-drafting-a-rental-agreement.htm
[vi] https://legaldesk.com/documents/leave-and-licence
[vii] AIR 1959 SC 1262
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